Universal Health Services raised its full-year earnings forecast and told analysts it wants to beef up its outpatient behavioral health business to meet payers’ efforts to reduce spending, executives said during Tuesday morning's earnings call.
The acute and behavioral health hospital operator beat the market’s expectations during its second quarter, reporting late Monday $353.2 million of attributable net income ($5.43 per diluted share) and a 9.6% year-over-year increase of net revenues, to $4.28 billion.
Between analyst questions on policy headwinds, executives said the 7% midpoint earnings per share guidance bump improvement was “primarily” based on funds recently approved through states’ Medicaid directed payment programs. Within the second quarter, the executives acknowledged about $25 million in startup losses due to a new hospital’s slower-than-expected Medicare certification.
Though largely offset by higher pricing and per-admission revenues, they also noted volume hiccups affecting both main areas of the business.
On the acute side, all on a same-facility basis, UHS reported an adjusted admissions increase of 2%, an adjusted patient days increase of 1.1%, a net revenue per adjusted admission increase of 3.8%, a net revenue per adjusted patient day increase of 4.7% and an overall net revenue jump of 7.9% compared to the prior year’s second quarter. Surgical volumes were also “down slightly,” executives said.
Within those volume metrics, they explained, there was a “cannibalization impact” on acute same-store volume numbers due to the opening of a new hospital near other locations that is expected to mitigate with time. There was also a dip in Medicaid volumes similar to those described this past week by other major for-profit systems—though Chief Financial Officer Steve Filton pointed out that UHS had been “a little less bullish” than its peers on recent acute care growth and that such moderation is still “very much in line with our expectations.”
Behavioral care was a somewhat similar story with outperforming pricing but volume growth lagging UHS and analysts’ hopes—a continuation of the first quarter’s trends.
During the second quarter and on a same-store basis, adjusted admissions rose 0.4%, adjusted patient days increased 1.2%, net revenue per adjusted admission increased by 8.6% and net revenue per adjusted patient day rose 7.8% compared to the same period a year prior. Same-store net revenues generated via behavioral health services rose 8.9% year over year.
Executives chalked up the slowed volumes to a combination of factors, including lingering staffing challenges and payers becoming more tactical in the face of high utilization rates. On the latter, Filton underscored faster growth among outpatient behavioral health volumes than inpatient (as revealed by adjusted patient days and unadjusted patient days differences).
“A number of the insurance companies, as they've been talking about their increase in medical loss ratios, have pointed to the increase in spending on behavioral care,” Filton said. “And while they don't provide this level of detail, we believe that a significant chunk of that increase is in outpatient. … We are determined to get a larger share of that.”
The opportunity for UHS, which executives said has traditionally been more of an inpatient-focused company, is to do a better job at attracting behavioral health patients who don’t first go to a hospital campus. As such, Filton said the company is planning to open 10 to 15 new off-campus outpatient facilities to increase its presence and capture more patients first entering the behavioral health system via the outpatient setting.
UHS execs expect Medicaid cut mitigation ahead of 2028
UHS joined its peers in describing the potential impact of the "big, beautiful bill's" Medicaid cuts on its business, though Filton and CEO Marc Miller stressed that their estimates should be viewed as a worst-case baseline.
Currently, UHS is seeing a $1.2 billion full-year net benefit from approved state Medicaid supplemental programs, which are expected to drop off as the legislation imposes gradual limits on direct payment programs and provider taxes starting in 2028.
From there, UHS believes its aggregate net benefit would be reduced on an annually increasing and relatively pro rata basis by roughly $360 million to $400 million by 2032, Filton told investors. About three-fifths of the reduction would affect UHS’ behavioral business and the remainder its acute business.
Filton noted that the legislation could be overwritten ahead of implementation or that states could take other efforts to mitigate its impact. Miller added his view that lawmakers have already recognized changes need to be made and that—compared to the sudden shift from COVID—there’s plenty of time before 2028 to make adjustments to the business.
“If the cuts remain in place and are enacted as the bill lays out, we certainly feel like there are things that we can do both from shifting … sources of revenue, particularly in the behavioral division, cost-cutting initiatives, etc.” he said. “I think we have great confidence in our ability to shift and be flexible, especially with several years of notice and preparation that we’ll have this time around.”
Executives also told investors that they are keeping an eye on tariff negotiations but haven’t yet heard from their group purchasing organization or major vendors that major expense increases are on the way. They also said they’ll need more time and details before being able to weigh in on other issues like Medicaid coverage reductions or the proposed elimination of the inpatient-only list.
UHS’ stock is trading about 5% over open as of Tuesday afternoon.