The speaker, Steve Filton, welcomes participants to the Q2 2024 Universal Health Services Earnings Conference Call and introduces Marc Miller. He reminds listeners that the call is being recorded and mentions the use of forward-looking statements. Filton then highlights the company's financial results for the second quarter, including net income and adjusted net income. He also mentions a moderation in demand for services and well-controlled expenses.

In the second quarter of 2024, the company saw a decline in premium pay and an increase in EBITDA at their acute care hospitals. Same facility revenues and EBITDA also increased for their behavioral health hospitals. Cash generated from operating activities increased and the company spent money on capital expenditures and share repurchases. They also have a significant amount of available borrowing capacity and are continuing to develop additional inpatient and ambulatory care capacity. Construction is also ongoing for new hospitals in Las Vegas and Washington, D.C.

The company is pleased with their second quarter results, with both business segments showing operational improvements. They have opened new medical centers and are developing more, including a joint venture with Trinity Health Michigan. The CEO is optimistic about sustained margin recovery and has increased the company's EPS guidance. The Board of Directors has also authorized a $1 billion increase to the stock repurchase program.

The speaker is asking about supplemental payments and new programs in the acute care and behavioral sectors. The company is waiting for formal submissions and approvals from CMS for these programs in Tennessee and Washington D.C. They expect both programs to be retroactive and are aware of other potential programs in other states. The potential benefit for Tennessee has been provided, but the speaker also asks for the potential benefit for Washington D.C.

The company has disclosed in their 10-Q that they expect a potential benefit of $42-56 million annually in Tennessee and $80-90 million in Washington D.C. In regards to behavioral volume performance, the company expects it to improve in the second quarter, but the dynamics remain the same. They have made progress in filling labor vacancies, but certain positions can still limit capacity or ability to admit patients.

In the last few quarters, Medicaid disenrollments in Southern states have had a negative impact on the business, as it takes time for patients to reenroll or find alternative coverage with high costs. Some behavioral facilities have also struggled to improve at the expected pace. The company still believes a 3% patient day growth target is achievable by the end of 2024, but not for the full year. Acute demand has moderated, with surgeries flattening out and trending towards pre-COVID levels. The second quarter of last year had much higher growth rates, making comparisons difficult. The company expects relatively flat growth of 3.4% in adjusted admissions and 5-6% in surgical growth.

The company's surgical growth met expectations, but was still lower than pre-pandemic levels. The cost management during the quarter was in preparation for a return to pre-pandemic revenue and volume growth. The company did not raise full year guidance after outperforming in the first quarter, but has now adjusted for the first half beat and any expected supplemental payments in the second half. No adjustments were made for potential supplemental payments in Tennessee and Washington D.C.

The company has made cost management improvements that they believe are sustainable, but they have retained their original guidance for the second half of the year. They have not seen any significant impact from the two-midnight rule change and have only seen a slight increase in commercial exchange patients due to Medicaid redeterminations.

The speaker discusses the impact of Medicaid redeterminations on the behavioral business, which has seen weakness in the adolescent population in the past few quarters. He also mentions that the shift to commercial exchanges on the acute side has been a slight net positive. In regards to guidance, the speaker mentions that there will be a significant step up from the previously reported $860 million, with a more precise picture to be included in the upcoming 10-K filing. He estimates that it will go into the low to mid-900s.

During a Q&A session, an analyst asks about the company's guidance raise of $215 million and whether half of that is coming from supplemental payments. The CFO confirms this is a fair estimate. Another analyst asks about the improvement in hospital margins and when the company expects to reach pre-COVID levels. The COO says they have plans in place but cannot give a specific number or timeline. The next question is about the 3.5% increase in acute pricing and mix, which is attributed to the return of lower acuity volume.

The company experienced a difficult comparison in the quarter due to postponed and deferred procedures during the pandemic, but they expect to see a same-store revenue growth of 5-6% split evenly between price and volume. They have made progress on cost management and expect continued EBITDA growth and margin expansion. They have increased their share repurchase program by $1 billion and plan to spend the bulk of their free cash flow on share repurchase.

The main purpose of including an announcement in the quarterly release was to reinforce the idea that the company is still on track for its goals and needed reauthorization to accomplish them. The volume assumptions for the second half of the year are not significantly different from the original guidance, with adjusted admission growth expected to be in the 3-4% range. On the behavioral side, the company believes it will be a challenge to reach 3% patient day growth for the full year, but they are confident they can sustain that level of growth in the future. The company expects hiring practices to improve in areas that have been problematic.

The speaker believes that the impact of Medicaid disenrollment will improve as more people are reenrolled in Medicaid or commercial exchange products. The progress of residential facilities that have been a drag is expected to continue, allowing the company to reach their original plan of 3% growth. The speaker also addresses the Medicaid supplemental payment programs and states that while there have been increases, Medicaid reimbursement remains below commercial and Medicare rates and in most cases, below cost.

The speaker discusses the impact of Medicaid increases on reimbursement and business strategy, particularly in the behavioral health sector. They note that the increases are intended to make up for inadequate reimbursement in recent years and address cost pressures during the pandemic. They also mention that in some states and facilities, the Medicaid reimbursement is approaching Medicare levels, which changes their approach and encourages them to focus on referral sources that produce Medicaid patients. On the acute side, they note that the majority of their Medicaid business comes from the emergency room and there is not much proactive action taken to seek out this business. However, in the behavioral health sector, they are actively seeking out and leaning into this business. The speaker also briefly mentions that turnover and hiring in the acute labor sector, as well as the use of contract labor, may be impacted by these changes in reimbursement.

Steve Filton explains that the company's turnover rate for acute care is currently in the low to mid-20s, which is still high but comparable to pre-pandemic levels. The company is working to further reduce turnover and has been successful in hiring permanent staff, as seen by the decrease in premium pay and wage inflation. Lowering length of stay also helps the company's EBITDA growth, as it reduces the cost per discharge and indicates improved efficiency in treating patients. The company has already seen a significant decrease in length of stay since the height of the pandemic.

The company has successfully managed costs and reduced expenses, which has helped mitigate any negative impact from recent negative press. The Senate Finance Committee's report has not had a significant impact on referrals or regulatory oversight. Behavioral volumes are slowly rebounding, but pricing remains strong. The decline in volumes is due to a combination of Medicaid redeterminations and labor-related constraints, and it is expected to improve in the second half of the year with easier comps and a decrease in redetermination impact.

The speaker discusses the source of behavioral pricing strength, which was 7.2% in supplemental payments. They mention that there was a shortfall in patient day growth in the quarter, but it was not a significant difference. The speaker believes that redeterminations will improve in the second half of the year, along with other issues such as staffing and residential facilities. They also mention that demand may not be impacted, but capacity and redeterminations are the main issues. In order to consistently grow at a rate of 3%, the company will need to add staff at that pace, but they are not currently doing so.

Steve Filton, the CFO of UHS, explains that they are confident that behavioral volumes will increase to more normal levels due to strong underlying demand for treatment. They have been hiring new staff for the past 18-24 months, but turnover in the behavioral department is twice that of the acute care department, leading to inefficiencies. UHS is focused on reducing turnover through mentorship and career development programs to encourage employees to stay with the organization. Filton believes that this is a practical goal that can be achieved.

The speaker discusses how the company plans to meet the high demand for behavioral services by hiring more staff and potentially adding more beds. They also mention that labor is currently the main constraint, but as they are able to fill vacancies, they may resume adding beds. Despite challenges in filling positions, there has been a decrease in SWB per patient day, which may be due to a mix of RTC and acute services.

During the pandemic, many people left sub-acute industries, including behavioral care, to work in higher-paying acute care settings. This widened the gap between acute and sub-acute compensation rates, but it has since narrowed. The company's focus is on making behavioral care a rewarding and valued career option, rather than solely relying on higher compensation. However, in some markets, they may pursue higher compensation if it is deemed necessary.

Steve Filton, CEO of UHS, suggests that throwing money at problems does not always solve them, but they will invest where it makes sense. He also mentions the performance of the health plan business, which operates at a breakeven level but provides a narrower network and funnel of patients. Only 5% of patients come with exchange-based insurance, but the percentage of revenue from those patients is not mentioned. Filton believes this is lower than peers due to their network strategy and contracting.

Steve Filton discusses the geographic basis of commercial exchange reimbursement and the percentage of revenue it accounts for, estimating it to be around 5% of admissions. He also mentions that margins are likely similar to those of Medicare and commercial. In terms of new facilities coming online, Filton expects them to reach breakeven in 6-12 months and reach divisional averages in 18-24 months, with markets like Las Vegas having a shorter time frame. The impact of the Las Vegas and Washington D.C. facilities on earnings will be discussed in the 2025 guidance.

The speaker concludes the conference call by thanking everyone for their time and looks forward to speaking again next quarter. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.