The paragraph is an introduction to the fourth quarter 2024 earnings conference call for Universal Health Services, hosted by Steve Filton, Executive Vice President and CFO. It announces the listen-only mode for participants during the presentation, with an opportunity for a Q&A session afterward. Filton highlights the nature of forward-looking statements that will be used during the call and advises reviewing the risk factors in the company's form 10-K. He notes that Universal Health Services reported a net income of $4.96 per diluted share for the fourth quarter of 2024, with an adjusted net income of $4.92 per diluted share after adjustments mentioned in a supplemental schedule from a recent press release.

In the fourth quarter of 2024, adjusted admissions to acute care hospitals rose by 2.2% from the previous year, while same facility net revenues increased by 8.7%, mainly due to a 5.3% rise in net revenue per admission. Despite a decrease in premium pay expenses to $60 million from a $153 million peak in early 2022, effective expense management helped achieve a 13% annual EBITDA increase in 2024, excluding Medicaid supplemental payments growth. Behavioral health hospitals saw an 11.1% increase in same facility revenues, driven by an 8.7% revenue hike per adjusted patient day. Without considering Medicaid payment increases, same facility revenue rose by 7.4%. The quarter included $50 million in net incremental reimbursements from Medicaid programs, with $31 million from Nevada's directed payment program. This exceeded projections in the 2024 earnings guidance. Additionally, due to adverse trends, the company increased its reserves by $35 million for self-insured liability claims.

The company's 2024 operating results saw a $79 million increase in self-insured reserves and generated $2.067 billion in cash from operations, up from $1.268 billion in 2023. They spent $944 million on capital expenditures and opened a new hospital, with plans to open another soon. In 2024, $599 million was spent on share repurchases, totaling over 29.2 million shares since 2019. As of the end of 2024, they had $1.17 billion available from a $1.3 billion credit facility. Looking to 2025, they expect EBITDA growth in the mid-single digits, stable costs, and no supplemental Medicaid revenues from certain areas.

The paragraph discusses the company's 2025 forecast, highlighting a slight decrease in Medicaid supplemental payments compared to 2024, while maintaining strong demand for behavioral services. The forecast anticipates a 2.5% to 3% growth in same facility adjusted patient days in the US. The company has invested in technology for behavioral hospitals to enhance patient care and improve metrics such as patient experience scores. Despite uncertainties in Medicaid reimbursement due to the political environment, projections are based on current assumptions. In their acute business segment, the majority of hospitals have high ratings. During the Q&A session, Andrew Mok from Barclays inquires about the 2025 EBITDA guidance projection, which is higher than normal despite the decline in state supplemental payments. Steve Filton begins to respond, indicating that several factors contribute to this growth.

The paragraph discusses the company's financial outlook, highlighting core EBITDA growth driven by a return to historical norms, solid volume growth, robust pricing, and effective expense control. The company is experiencing less pressure on operating expenses compared to the COVID years and is optimistic about a stable operating environment, aside from potential reimbursement changes. There is an expectation that significant expenses from 2024 will not recur in 2025, providing potential earnings upside. Additionally, there is a potential EPS boost from reduced interest expenses and a continued reduction in share count. Andrew Mok questions why the guidance range is wider than usual despite better operations and visibility, and Steve Filton acknowledges this, referring to Marc's comments in the prepared remarks.

The paragraph discusses the challenges in predicting government reimbursements and potential changes impacting these, which have led to a cautious and conservative approach in providing financial guidance. Steve Filton mentions that a projected decline in DPP (Delivery Payment Program) is primarily due to payments recognized in 2024 that pertained to previous periods. He also addresses concerns about malpractice reserves, explaining that they rely on evaluations from a third-party actuary based on claims history and industry trends, aiming to set reserves at the midpoint of the suggested range.

In the paragraph, Steve Filton discusses the behavioral same store patient days and the unexpected decline in outpatient day volumes in December. He mentions that the company initially expected to exit 2024 with a growth rate of about 2% but later adjusted the guidance to 2.5% to 3% due to favorable trends in October and November. However, volumes dropped significantly in late December, particularly impacting the child and adolescent population, due to the Christmas and New Year's holidays falling midweek. Despite this, volumes rebounded in early January.

The paragraph discusses the impact of challenging winter weather on school closures across several states that typically do not experience such disruptions, like Virginia, Tennessee, Kentucky, and Mississippi. Despite these temporary challenges, the speaker is optimistic about achieving a 2.5% to 3% growth in patient days for the year. Ann Hynes then inquires about Medicare and Medicaid rates for the behavioral sector in 2024 and 2025. Steve Filton responds, stating that the 2025 guidance anticipates 6% to 8% growth in same-store behavioral revenue, with volume growth at 2.5% to 3% and price growth at 3% to 4%. He notes this price growth excludes changes in supplemental payments and that their core pricing has generally exceeded these figures in recent years. Filton adds that they aim to improve pricing further, indicating a conservative forecast on the pricing side. Ann Hynes acknowledges the response, and the operator then introduces the next question from Justin Lake of Wolfe Research, who wishes to discuss policy matters.

The paragraph discusses the current political discourse surrounding Medicaid, specifically around provider taxes and direct payment programs. Steve Filton mentions the lack of any definitive public statements from the administration about provider taxes and highlights the broad, bipartisan support across various states for these programs. Marc Miller adds that significant pushback exists against changes to Medicaid, with governors from both Democratic and Republican states expressing support for maintaining current programs. They suggest that the political climate might be more favorable towards Medicaid than media portrayals might indicate.

In the paragraph, Steve Filton discusses their 2025 forecast regarding new programs in Tennessee and Washington DC related to DPP (presumably a financial program). He states that historically, they include programs in their forecasts only after full approval. While Tennessee has partial approval pending a CMS waiver, and DC has no approvals yet, neither is included in their 2025 guidance. Despite these delays, both state and district hospital associations expect eventual approval, attributing the slow process to administrative transitions.

In the conversation, Pito Chickering from Deutsche Bank asks about the company's targeted leverage ratios and their plans for share repurchases. Steve Filton responds that historically, the company has operated at a leverage level in the high twos, approaching three, and is comfortable with that. The company's guidance for the year assumes that they will use most of their free cash flow for share repurchases, which they could potentially increase by using more leverage if needed. Although they haven't made a specific decision yet, their conservative guidance suggests maintaining share repurchase levels similar to past years, ranging from $600 million to $800 million. Filton acknowledges that it's reasonable to consider using leverage to maintain or increase leverage levels beyond the current low levels.

In the paragraph, Steve Filton discusses the company's ongoing strategy of rationalizing its portfolio of behavioral health facilities, which has evolved over the past decade. This includes selling, consolidating, and repurposing facilities to adapt to changing demands and reimbursement dynamics. He emphasizes that although overall demand for behavioral services has been strong, specific services or locations may see shifts in demand, prompting strategic adjustments. These changes are part of their operational strategy and are typically not disclosed in detail because individual facilities are not materially significant to the larger portfolio.

The paragraph is a part of a conversation during a Q&A session involving Steve Filton, Joanna Gajuk, and Pito Chickering. Filton discusses strategies for improving efficiency at facilities with suboptimal performance, including potential closure, sale, consolidation, or retooling. He outlines projected growth assumptions for the company's behavioral and acute sectors for 2025, expecting mid-single-digit revenue growth with a roughly equal contribution from price and volume for the acute division. Filton also notes that moderated expenses, wage inflation, and reduced premium pay usage should help to grow EBITDA and expand margins. Joanna Gajuk asks about wage growth concerns in nursing, but there is some confusion about her question on national data regarding wage growth acceleration in late 2024.

The paragraph discusses the state of wage growth and inflation, highlighting that wages have seen slight acceleration towards the end of 2024, but overall the wage environment is stable with moderated inflation following the pandemic. Steve Filton notes there's no significant pressure on wages currently. The speaker mentions reduced reliance on temporary labor leading to overall wage decreases. Joanna Gajuk inquires about the effect of prior period records in 2024 on projections for 2025 and questions the anticipated decline in certain programs, seeking clarification if these are dependent on enrollment.

The paragraph involves a discussion among financial analysts and company representatives regarding the company's financial forecasts. Steve Filton addresses a question about the impact of enrollment-linked VPP (Value-Based Purchasing) dollars, indicating that past quarters had nonrecurring items which amounted to approximately $60 million to $80 million in 2024. He suggests that any slight decline in DDP (presumably Discounted Drug Pricing or a similar program) for the upcoming year is due to these nonrecurring items rather than structural program declines. Joanna Gajuk thanks him for the clarification, and then Stephen Baxter from Wells Fargo asks about the size of medical malpractice expenses above initial plans and their impact on EBITDA growth, as well as a query on CTP (possibly a financial term or program not specified) discussion, particularly regarding pending approvals in Tennessee and Washington DC for 2025.

In the paragraph, Steve Filton addresses questions about malpractice reserves and DPP program contributions. He states that they added $79 million in additional malpractice reserves beyond their initial guidance, which they don't expect to recur, contributing to 2025 growth while being conservative in their approach. Regarding DPP programs, he mentions that about half of the DPP funds are already approved for next year, with approvals for the remainder still pending. This was extracted from their recent ten-k filing. A subsequent question from Sarah James inquires about the company's strategy for expanding its behavioral portfolio, asking if they're considering areas like CTC or methadone clinics, more outpatient services, or maintaining a focus on inpatient care.

The paragraph discusses the organization's efforts to expand its continuum of care in the behavioral health sector. Traditionally focused on connecting outpatient care with inpatient programs, they are now developing freestanding outpatient facilities to cater to those uncomfortable with hospital-based settings. They emphasize their specialization in care for active and retired military personnel and are establishing a presence in the opioid disorder space, prioritizing a comprehensive approach over merely providing medication. Their goal is to offer a competitive, clinical advantage through this extensive continuum of care.

The paragraph provides insights into a discussion between Sarah James and Steve Filton regarding the company's expansion and materiality timeline in the opioid use disorder (OUD) treatment space. Filton mentions their significant outpatient presence linked to their hospitals and estimates that they might add about ten or twelve new freestanding facilities annually. However, he highlights that expanding in the OUD space requires a more complex development pipeline, making projections difficult and slower to materialize. Additionally, A.J. Rice from UBS references a prior statement by Filton about a potential $50 million impact if the exchange-enhanced subsidy goes away in 2026. Filton acknowledges these previous comments made in the fall and indicates that evaluating such impacts involves several assumptions and some uncertainty.

The paragraph discusses concerns about the potential impact of losing subsidies on hospital admissions and coverage. The speaker suggests that people are overestimating the effect, as only about 5% of their acute admissions currently come from patients with exchange-covered insurance. They estimate that half of these patients might lose coverage if subsidies disappear, but some might find alternative options like Medicaid. Despite potentially losing revenue from elective services, they believe emergency visits would still occur without reimbursement. The focus is on acute care dynamics, with behavioral health being less affected due to high co-pays and deductibles. A.J. Rice then asks about anticipated insurance revenue increases in 2025.

The paragraph discusses the impact of opening two new hospitals on revenue and operating income. The company anticipates a $200 million increase in revenue from its insurance subsidiary, which, however, will not significantly impact operating income as the subsidiary operates near breakeven. As for the new hospitals in Las Vegas and Philadelphia/DC, they are expected to be EBITDA positive but might distort next year's same-store metrics due to potential cannibalization of existing facilities in those markets, leading to possibly lower same-store admission numbers.

The paragraph features a conversation between analysts and company representatives discussing the financial performance and expectations related to hospital operations and Medicaid reimbursements. Initially, they note that West Henderson's fast start is comparable to past successful hospital openings. They also address expectations for Cedar Hill's start and suggest it should not significantly impact earnings negatively in 2024-2025. Michael Ha from Baird asks about the payment upside for DPP in Tennessee and DC, to which Steve Filton confirms a ballpark figure and explains that reimbursements fill a gap caused by inadequate Medicaid reimbursements in the past. They discuss the positive impact on earnings while addressing a strong flu season, noting its historical strength but not emphasizing its impact on Q1. Lastly, there's mention of a quicker-than-expected return to historical margins in the behavioral sector.

The paragraph discusses the trajectory of margin improvement and its potential return to pre-COVID levels within one to two years. Operational changes needed for this include adjusting to normative patient mix levels and other ongoing initiatives. The flu season's timing in 2023 and 2024 is highlighted, noting its impact on respiratory cases during the fourth quarter. While acknowledging a busy flu season's impact on patient volumes—especially in Q1—it is not seen as a significant factor affecting earnings, as flu and respiratory cases are not highly profitable. Structural hurdles exist that challenge acute hospitals in returning to pre-COVID margins.

The paragraph discusses financial and operational changes in the healthcare sector post-COVID. It highlights a significant increase in position expenses by 150 basis points in 2023 and the shift of profitable medical procedures from inpatient to outpatient settings. While margins have generally improved, there is uncertainty about returning to pre-COVID levels, although growth in the behavioral side could help reach consolidated pre-COVID margins in the next few years. During a Q&A, Benjamin Raskin from JPMorgan asks about premium pay, which remains flat at $60 million quarterly instead of reducing to $50 million as intended. Steve Filton explains that the increased use of temporary and traveling nurses, a trend that began during COVID, impacts premium pay costs. Despite some nurses returning to full-time positions, attracting more remains challenging due to the preference of many for the flexibility of temporary roles.

In the paragraph, Steve Filton discusses the challenge of predicting the impact of tariffs due to uncertainties around what countries and rates will be affected, as they have changed with the new administration. Despite this, he notes that many of their supply contracts are multiyear and have pricing protections, meaning the risk of increased costs due to tariffs falls on manufacturers. As a result, they have not accounted for significant tariff impacts on their 2025 supply expenses. However, this assessment could change based on future developments in tariff dynamics and potential retaliatory tariffs.

In the paragraph, Scott Fidel from Stephens questions Steve Filton about the distribution of net supplemental payments between acute and behavioral health segments for 2024, totaling $1.016 billion. Filton acknowledges he doesn't have precise figures but believes the division is relatively even and unlikely to change significantly in 2025, as most programs are expected to maintain their current levels. Fidel further inquires about the drivers behind the $200 million increase in insurance revenue, noting the healthy growth in their Medicare Advantage (MA) plans, although he doesn't believe it's solely responsible for reaching $200 million. Filton explains that their subscriber base is evenly split between MA and commercial patients, with most growth anticipated in the MA population, while noting that it's a relatively small plan.

The paragraph features a discussion about financial and legal updates during a call. Steve Filton mentions the status of two large malpractice cases from 2024 that are currently under appeal, noting that no specific reserves have been established for those cases. He explains that their third-party actuary considers all decided, pending, and appeal cases in their actuarial calculations. This includes cases that haven't reached certain levels or been filed yet. The paragraph also includes a transition to a new question from Ryan Langston about strong performance in behavioral SWB (Salaries, Wages, and Benefits), asking for updates on labor trends in Behavioral Health across facilities, geographies, or job classes.

The paragraph discusses improvements in the behavioral health sector, noting that labor supply and demand dynamics have improved since the pandemic. Productivity has increased due to better staffing, reduced reliance on premium pay and temporary labor, and moderated wage inflation. This has contributed to strong performance in productivity and efficiency. There is also mention of share repurchases, with a focus on a consistent programmatic approach rather than trying to time the market, considering the business prospects rather than short-term market changes.

The paragraph discusses the company's confidence in its business and its strategy of actively repurchasing its own shares, citing attractive multiples. Steve Filton, involved in the conversation, notes that while they are committed to this strategy, no specific trajectory for the year is promised. Jamie Perse from Goldman Sachs asks about commercial payer activities and the behavioral business's growth. Steve Filton responds that behavioral pricing has been strong due to the limited supply of beds and care, leading to successful negotiation of higher rates with payers who struggle to find treatment options for their subscribers. This dynamic and the strong pricing environment in the behavioral space is expected to continue.

The paragraph discusses the challenges faced by the speaker's organization in dealing with payer behavior, particularly regarding claim submissions and appeals processes. The speaker notes that payer behavior remains a daily struggle, with significant resources devoted to ensuring efficient and clean processes. Despite these efforts, they do not anticipate significant changes in payer behavior, especially in areas like utilization review and denial management, in the near future. The paragraph concludes with acknowledgments and the conclusion of the presentation.

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