Universal Health Services - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong EPS and margin expansion: diluted EPS $4.80 (+25.7% YoY) and adjusted EPS $4.84; EBITDA net of NCI margin rose to 14.7% from 13.7% YoY. EPS beat consensus by ~$0.48; EBITDA beat as well, while revenue was modestly below consensus (see Estimates Context). Management reiterated full‑year 2025 guidance.
• Consolidated net revenues were $4.100B (+6.7% YoY), driven by acute same‑facility revenues +6.5% and behavioral same‑facility revenues +5.5%; behavioral volumes were muted by leap day and winter weather but pricing remained strong.
• Operating discipline and labor normalization persisted: other operating expenses on a same‑facility basis were well‑managed; premium pay ran ~$63M, broadly consistent with recent quarters.
• Cash from operations declined to $360M (vs $396M YoY) due to timing of Medicaid supplemental cash receipts; Nevada’s program was reapproved and ~$82M cash related to Q1 revenues was received in April.
• Capital deployment remains assertive: $239M capex and ~1.0M share repurchases ($180.6M) in Q1; $1.02B revolver capacity available; share repurchase guidance (~$600M for 2025) remains intact and potentially trending higher.

What Went Well and What Went Wrong

What Went Well

• Acute segment delivered robust same‑facility performance: adjusted admissions +2.4%, net revenue per adjusted patient day +4.7%, driving same‑facility revenue +6.5% and segment income expansion. “For the first quarter of 2025, our solid acute care revenues, combined with effective expense controls, resulted in a 21% increase in EBITDA (ex Medicaid supplement).”
• Behavioral pricing remained strong: net revenue per adjusted day +5.8% with same‑facility revenues +5.5%, offsetting volume headwinds; management expects full‑year behavioral patient day growth of 2.5%–3%.
• New facilities ramping: West Henderson Hospital posted a modestly positive EBITDA in its first full quarter; Cedar Hill Regional Medical Center opened with strong demand in emergency services.

What Went Wrong

• Behavioral volumes were pressured by leap‑year comp and atypical winter weather (school closures and outpatient program impacts), requiring an implied step‑up to meet full‑year volume targets.
• Cash flow timing headwinds: CFFO fell to $360M (vs $396M YoY) due to delayed Medicaid supplemental cash receipts despite revenue recognition; Nevada cash arrived in April.
• Flu season mix muted procedural volumes in acute care, partially crowding out higher‑acuity surgical cases; management sized incremental profit from excess flu at ~$7–$8M, noting limited overall earnings impact.

Transcript

Operator (participant)

Good day, thank you for standing by. Welcome to the UHS 2025 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

To ask a question during the session, you will need to press star one-one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one-one again. Please be advised that today's conference is being recorded. I would like to now hand the conference over to today's speaker, Steve Filton, Executive Vice President and Chief Financial Officer. Please go ahead.

Steve Filton (EVP and CFO)

Good morning, thank you. Marc Miller is also joining us this morning. We both welcome you to this review of Universal Health Services' results for the Q1 ended 31 March 2025. During the conference call, we'll be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections, and forward-looking statements.

For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended 31 December 2024. We'd like to highlight just a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $4.80 for the Q1 of 2025.

After adjusting for the impact of the items reflected on the supplemental schedule as included with the press release, our adjusted net income attributable to UHS per diluted share was $4.84 for the quarter ended 31 March 2025. During the Q1 of 2025, on a same facility basis, adjusted admissions to our acute care hospitals increased 2.4% over the Q1 of the prior year. Same facility net revenues in our acute care hospital segment increased by 5.0% during the Q1 of 2025 as compared to last year's Q1 after excluding the impact of our insurance subsidiary.

Meanwhile, operating expenses continued to be well managed. Other operating expenses on a same facility basis increased by 2.6% over last year's Q1 after excluding the impact of our insurance subsidiary. For the Q1 of 2025, our solid acute care revenues combined with effective expense controls resulted in a 21% increase in EBITDA after excluding the impact of Medicaid supplemental payments.

During the Q1 of 2025, same facility net revenues at our behavioral health hospitals increased by 5.5%, driven by a 5.8% increase in revenue per adjusted day. Adjusted patient days were relatively flat compared to the prior year quarter. The year-over-year patient day growth comparison was negatively impacted by the extra leap day in 2024 and challenging winter weather conditions experienced this year early in the Q1 in certain markets. We did experience a re-acceleration of patient day growth in March.

Our cash generated from operating activities decreased from $396 million during the Q1 of 2024 to $360 million this year, due in part to delays in receipt of funds in connection with certain Medicaid supplemental payments in various states. We did receive $82 million of payments related to the Nevada supplemental program in April that were related to revenues recorded in the Q1.

In the Q1 of 2025, we spent $239 million on capital expenditures and acquired $1 million of our own shares at a cost of approximately $181 million. Since January 2019, we have repurchased approximately 30.3 million shares, representing 33% of our shares outstanding as of that date. As of 31 March 2025, we had $1.02 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. I will now turn the call over to Marc Miller, President and CEO, for closing comments.

Marc Miller (President and CEO)

Thank you, Steve. We are pleased with our Q1 operating results, which on a consolidated basis exceeded our internal expectations. We were particularly encouraged by the control of our operating expenses in both business segments.

Our Q1 operating results exclude any supplemental Medicaid revenues in Tennessee and the District of Columbia pending CMS approval of these new programs. For programs that were originally approved in previous years, we have continued to record those revenues under the assumption that programs will be reapproved.

As these programs have been a recent focal point, I believe it is worth reminding people that these are federally authorized and state-approved programs in place for many years, and they are designed to allow providers who have been historically underpaid by Medicaid to provide quality care to over 70 million Medicaid recipients nationally.

Even where these programs exist, our net Medicaid reimbursement generally remains below both average commercial and Medicare reimbursement. West Henderson Hospital in Las Vegas opened in late 2024 and posted a modestly positive EBITDA in the Q1. Cedar Hill Regional Medical Center in Washington, DC, opened recently and has experienced strong demand for its emergency room services from the outset.

While we acknowledge a great deal of uncertainty in our external operating environment, we feel confident in our underlying businesses and, based on current reimbursement and operating cost levels, reiterate our full-year earnings guidance. We're pleased to answer questions at this time.

Operator (participant)

All right, thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you just need to press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. Please stand by while we compile the Q&A roster. All right. Our first question comes from the line of Justin Lake of Wolfe Research. Please go ahead. Your line is now open.

Justin Lake (Analyst)

Thanks. Good morning. Appreciate all the details. Wanted to focus on the behavioral side, Steve. You know, I know you talked about leap year. You talked about weather, especially earlier in the year. Maybe you could give us an idea of what you saw in March, given, you know, weather would have been past due, the leap year impact would have been past due. How did March volume, maybe even, you know, early April volume look? Any update on the full-year guidance in terms of your thoughts around behavioral volume we should be assuming for the year?

Steve Filton (EVP and CFO)

Yep. Our full-year guidance that we presented in late February presumed behavioral patient day revenue growth in 2.5% to 3%. We believe that is still a reasonable target, and that remains our embedded target for our guidance.

We accelerated from our sort of more muted, you know, flattish levels, maybe even negative levels in January and February. Did not quite get to the 2.5% to 3% target in March, but feel like, you know, it was indicative of the fact that, you know, weather had, you know, kind of muted our volumes in for five or six weeks in January and February. April is a little bit hard to say because I obviously, you know, we had Easter and spring break in April. It feels like, you know, recent volumes again give us confidence that 2.5% to 3% should be achievable for the full year.

Justin Lake (Analyst)

Got it. Maybe, Marc, you could just, on the DPP side, it was good to hear that, you know, things kind of started up again in Nevada. Any other states that you're kind of focused on in terms of where you're expecting to hear soon and any kind of updates beyond Nevada?

Marc Miller (President and CEO)

Yeah, I just think it's Washington, DC, and then Tennessee. In both cases, you know, the state of Tennessee and the District of Columbia advise, not just us, but their hospital community, that they continue to expect approval. That's the message they get from the folks they deal with at CMS.

Obviously, timing is still somewhat up in the air, but, again, you know, kind of as your question alludes to, Justin, we're encouraged that after what seemed like a full pause in any new approvals or reapprovals by the Trump administration after they took office, a number of programs have been reapproved, and there even have been a couple of new programs, not none that affect us, but some new programs have been approved.

It feels to us like that process has sort of been resurrected or restarted, and we view that as a hopeful sign. Again, most importantly for us, the Nevada program was reapproved, and as I noted in my remarks, we were actually paid for the Q1 revenues in April.

Justin Lake (Analyst)

Appreciate it. Thanks, guys.

Operator (participant)

Thank you. Our next question, Tom, is from the line of Sarah James of Cantor Fitzgerald. Your line is now open.

Sarah James (Managing Director and Equity Analyst)

Thank you. I just wanted to follow up on Justin's question a little bit. If you're still at 2.5% to 3% on behavioral volumes for the year, I think that implies a step up for the rest of the year that is above the guide range or above the high end of the guide range. Is that the right way to think about it?

Steve Filton (EVP and CFO)

Yeah, mathematically, I think that's correct, Sarah.

Sarah James (Managing Director and Equity Analyst)

Okay, got it. The Nevada DPP that came in from the quarter, how many months was that related to? 'Cause I think it was approved in April. Should we think about that as four months? If so, are you running a little bit ahead on your DPP guide for the year?

Steve Filton (EVP and CFO)

Yeah. No, that was just the Q1 payment. That $82 million, I will remind people, is the gross payment that we get from the state. It's not net of our provider taxes. We've continued to pay the taxes on a regular basis. We paid our taxes in Nevada in the Q1. That gross amount that we received, the $82 million, in April relates to the Q1. I think, you know, your confusion is you're thinking, you know, if you annualize that $82 million, it's a lot more than the net benefit that we describe, and it's because it doesn't include the provider tax element.

Sarah James (Managing Director and Equity Analyst)

Got it. That's helpful. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Andrew Mok of Barclays. Your line is now open.

Andrew Mok (Director)

Hi, good morning. Question on tariffs. Can you help us understand what actions you're taking now to prepare for potential tariffs and what your GPO has communicated to you thus far? Thanks.

Steve Filton (EVP and CFO)

Yeah. First of all, you know, I'll reiterate, I think, what all, you know, at least one of our peer companies talked about from a tariff perspective, just sort of framing the issue. I think they said that, you know, they estimate about 60% of their supply chain purchases are sourced in the US and Canada and Mexico, so at the moment, they're not subject to tariffs. Another 15% are pharmaceuticals, which are also at the moment not subject to tariffs. At the moment, and I would say our numbers, we guesstimate, are roughly the same. About three-quarters of our supply chain purchases are insulated from tariffs.

The way we're, I think, protecting ourselves or, or, you know, actively sort of dealing with the issue is we do find some vendors who have fixed contractual prices with us have started to include things like fees or, stipends or, you know, I'm not even sure how to describe them, you know, on their invoices. We've been sort of ignoring those, etc., you know, because I think we believe they're not, you know, part of the contract.

You know, we continue to monitor any vendors who would tell us that they're considering cancellation of contracts or they're finding availability of products problematic. We're not really getting any of that feedback yet, but certainly preparing if we do, for alternatives, you know, other, you know, other sourcing alternatives, other pricing alternatives, etc. At the moment, it feels like there's not a great deal of pressure, again, in large part because I think a good chunk of our supplies are insulated from tariff impacts at the moment.

Andrew Mok (Director)

Got it. Maybe just to follow up on the behavioral side, maybe weather aside, are you seeing any changes in your behavioral referral patterns or willingness of JV partners to work with UHS? Thanks.

Steve Filton (EVP and CFO)

No, I don't, I don't think so. You know, I, I know you said weather aside, but I would just make the comment about weather, and we talked about this, I think, on the year-end earnings call. You know, the weather that we're talking about, winter weather, was in places that I think don't normally experience winter weather, more in the central part of the country, Virginia, Kentucky, Tennessee, Arkansas.

The challenge, I think, is twofold for us from a winter weather perspective in those places. Number one, schools are closed, and they, you know, I think, you know, I remember that I believe in February in a number of our Virginia facilities, schools were supposed to be open, I think, for 19 days that month, and they were only open for 11.

That has a big impact on our child and adolescent population and admissions in our child and adolescent population. The other thing that the weather impacts is our outpatient programs. Obviously, from an inpatient perspective, we may lose admissions over a two or three or four-day period if the weather is bad, but we obviously continue to treat the patients that we have.

Our outpatient programs pretty much close down during those days where it is difficult for people to travel and they cannot clear the roads, etc. We really see an outsized impact on our outpatient and our child and adolescent business when we experience those winter conditions. Other than that, no.

You know, question about are we seeing, you know, really sort of any sort of structural changes in our referral patterns or willingness of referral sources to, to send us patients, the answer to that is no, which is really why I think ultimately, you know, we remain confident that we should be able to reach that 2.5% to 3% target that we set originally.

Andrew Mok (Director)

Great. Thanks for the call.

Operator (participant)

Thank you. Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open.

Ben Hendrix (VP)

Great. Thank you very much. Just following up on that last question, moving to the rate side, the strong 7.2% rate growth there. Just wanted to imagine there's some payer mix dynamics there with redetermination, and then just wanted to also get any other observations you have on payer mix changes and/or any case mix developments in the behavioral side there driving that rate growth, and also when you expect that to, I guess, normalize out to a more long-term steady state growth rate. Thanks.

Steve Filton (EVP and CFO)

Yeah. Our revenue per adjusted day on a same-store basis, I think as we disclosed in our opening comments, was 5.8%. I think, again, our guidance for the year was in the 4% to 5% range. We continue to, and that 45% to 5% certainly would be a moderation of the rates that we've been getting over the last several years.

I think most of that is not necessarily kind of payer mix or redetermination impacts, etc., the things that you mentioned, but just generally, you know, better contractual pricing that we've been getting, particularly from our managed Medicaid payers. That number has been moderating some over the last several years, I think partly because as we get those prices and we start to anniversary the impact, it's, you know, it's not as significant.

I also think that as capacity increases in the behavioral industry in general, it diminishes a little bit of our leverage over the payers who I think right now have to deal with a scarcity of capacity, particularly inpatient capacity, where they can send their patients.

You know, I think the pattern that we're seeing in terms of strong behavioral pricing is one that we've been seeing for some time. It is moderated a little bit. It is moderating more slowly than maybe we originally anticipated and that our guidance presumed. You know, I think we would presume that that would continue to be the case. As volumes recover as the year goes on, hopefully we can, if we're short of the 2.5% to 3% target for any period of time, hopefully, our pricing will offset that.

Ben Hendrix (VP)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Stephen Baxter of Wells Fargo. Your line is now open.

Stephen Baxter (Director and Senior Equity Research Analyst)

Hi. Thanks. Just wanted to ask more of the, a philosophical question on the Medicaid supplemental payment programs. Obviously, we don't know what the ultimate outcome is going to be from a legislative or regulatory point of view here, but it does seem like, you know, we could be living in a world where, you know, there's like significant restriction at a minimum on your ability to grow this economic, you know, earnings stream going forward. I know that this has only served to, you know, kind of improve your Medicaid reimbursement to, you know, maybe more sustainable levels versus actually make money.

As we think about your P&L leverage to supplemental programs, I mean, how should we think about, you know, a world where maybe that is a more fixed stream going forward, your ability as a company to still kind of deliver the type of same-store revenue and adjusted EBITDA growth rates that you've targeted historically? Thank you.

Steve Filton (EVP and CFO)

Yeah. I mean, look, I think honestly we're already in that world. I mean, I think as you know, our 10-K, we present a very detailed disclosure on Medicaid supplemental payments, and our projected Medicaid supplemental payments for 2025 were already generally flattish with what they were in 2024. You know, we certainly are not counting on growth in those programs, and it's certainly possible that we will see some deceleration in those supplemental payments or in other Medicaid reimbursement.

You know, and I think what that really means ultimately is the way we're going to grow the behavioral business in the intermediate and long term is with more volume growth. That's why it is, you know, we acknowledge it's important that we get to that 2.5% to 3% patient day target, because ultimately, we think, you know, going forward, our Medicaid rates in particular are likely to be impacted by legislative action. Travis, I think we can go to the next question.

Operator (participant)

All right. Thank you. Our next question comes from the line of Benjamin Rossi of JPMorgan. Your line is now open.

Benjamin Rossi (Equity Research Associate)

Hey, good morning. Thanks for taking my question. How would you describe, I guess, patient utilization activity during one Q across acute? When parsing those volumes out by payer, how would you frame growth between maybe your traditional managed care book versus your ACA exchange-related volumes? Just curious if you've seen any variation at the regional level for states where enrollment's been faster, like Texas or Florida versus a state like Nevada where it might be less pronounced. Thanks.

Steve Filton (EVP and CFO)

Yeah. I don't, so I think specifically at, you know, your question about exchange utilization, again, I, you know, I think, one of our peers talked about the fact that their exchange volumes were up, 20% or so in the Q1 over last year's Q1. I think we saw a similar increase. Again, these are relatively small numbers on an absolute basis. I think about, for us at least, exchange or patients with exchange coverage represent about 6% of our adjusted admissions in our acute care space.

That's a little bit of an increase over what we were running. And if that utilization's coming from anywhere, I think it's probably, you know, our Medicaid utilization's probably not growing as fast, and that's probably what's generating most of that exchange increase. Overall, I don't think that, that patient mix is, is affecting our, our pricing or our profitability in any significant way.

Benjamin Rossi (Equity Research Associate)

Got it. Thanks. Just as a clarification on the Medicaid taxes, you received the payments in April. Did your Q1 other operating expenses contain those related Nevada Medicaid taxes, or is that a Q2 item?

Steve Filton (EVP and CFO)

No. I, the point that I was trying to make to Sarah before was we continued to pay the provider taxes on a regular basis. So our, you know, Q1 provider taxes were in our numbers even though, again, the revenue was in there as well. It's just that the cash was not.

Benjamin Rossi (Equity Research Associate)

Got it. Thanks for the clarification.

Operator (participant)

All right. Thank you. Our next question comes from the line of Joshua Raskin of Nephron Research. Your line is now open.

Joshua Raskin (Research Analyst)

Yeah. Thanks. Good morning. Just, back on the behavioral. I'm curious on demand trends, outside of weather and some of these other temporal effects. Are you seeing any differences in demand, you know, on a, by acuity, you know, sort of demand for specific services? And then just a quick follow-up on West Henderson. I know it's very early there, but I'm just curious how you're seeing competitive dynamics, impacted in the market and, and maybe just a comment on your other facilities there as well.

Steve Filton (EVP and CFO)

Yeah. I'll answer the West Henderson question first and come back to behavioral. Yeah. I mean, you know, we're, you know, very encouraged by our West Henderson results. For a hospital basically in its first full quarter of being open to have positive EBITDA really is extraordinary. There's a little bit of cannibalization from our existing hospitals, and we talked about this in our year-end call.

You know, I would suggest that a little bit of our same-store adjusted admission metrics, a little bit of our same-store profitability, is sort of muted by the fact that there's been a bit of cannibalization, although I don't think it's terribly significant.

You know, just generally pleased, you know, and that's, you know, honestly, while I think it's better than we even expected, the whole reason we built West Henderson and invested in this project is we think that it is a growing part of the Las Vegas market. The demand would be there. It has been. You know, I think we think West Henderson will continue to grow at a brisk pace. We're very encouraged by the early results. As far as your behavioral questions and really sort of if demand has changed, no.

You know, and again, I think we've said the same thing really for the last several years, which is, measured both by sort of macro kind of data, that, you know, industry-wide data that tracks behavioral demand across, you know, a variety of diagnoses and services. I think generally that has been strong. And our own sort of microdata, which is our inbound activity of calls and internet inquiries, etc., you know, continues to be quite strong.

The challenge is, you know, do we have the physical capacity to meet those demands? Do we have the labor force to meet those demands? I think those situations have improved in the last several years but can still be challenging in some markets. We also acknowledge there is more competition in some markets. I will sort of, you know, go back to what I said before. I think because the demand, you know, remains strong, because the labor market has stabilized, etc., you know, I do think we have the view that that 2.5% to 3% patient day growth target is still not still a very achievable target.

Joshua Raskin (Research Analyst)

Perfect. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Craig Hettenbach from Morgan Stanley. Your line is now open.

Craig Hettenbach (Executive Director)

Great. Thank you. On the acute business, can you talk about any trends that stood out just from an acuity perspective? Then outside of volume growth, any levers there that you're looking to potentially pull to continue to improve margins in that segment?

Steve Filton (EVP and CFO)

Yeah. From an acuity perspective, you know, I would say acuity was muted a little bit in Q1 by the busier flu season. You know, we had on a, on a sort of per relative percentage basis, you know, more medical patients than surgical or procedural patients in Q1 because of the busy flu season. You know, I think that will normalize as the year goes on.

Our acuity, as measured by our CMI, actually was still relatively strong in Q1, which I think suggests that the procedural business that we did have was, was still pretty solid, and, you know, relatively high acuity business. Obviously, I think after the Q1, you know, even in March, we saw, you know, flu volumes decline dramatically, as you would expect. I think as the year goes on, you know, I think it's fair to expect acuity will grow a little bit.

Craig Hettenbach (Executive Director)

Got it. Just as a follow-up on just capital deployment, updated thoughts on just kind of CapEx plans for this year versus buybacks and how you're approaching that?

Steve Filton (EVP and CFO)

Yeah. I mean, our original guidance was for, you know, I think, you know, $800 million to 1 billion of CapEx. We had $240 million in Q1, a little bit high in, in Q1 because, you know, we still had some costs, you know, flowing over from West Henderson.

We still have some other, whole hospital projects ongoing. So yeah, I mean, I think we're on track to be in that range as we suggested. I think our share repurchase guidance for the year was in the $600 million range. We had $180 million in the Q1, so we're tracking a little bit above that. You know, we'll see. I think, you know, as long as there continues to be some level of uncertainty and softness in the market and our share price, I suspect we'll continue to be an active acquirer of our shares.

Craig Hettenbach (Executive Director)

Thank you.

Operator (participant)

All right. Thank you very much. Our next question comes from the line of Matthew Gillmor of KeyBanc Capital Markets. Your line is now open.

Matthew Gillmor (Director)

Hey, thanks for the question. I wanted to ask about the expense management topic. Any areas of particular outperformance to call out and sort of how you're feeling about the sustainability of that? I was particularly interested in the premium labor costs. I think they've been running $60 million per quarter. Just kind of curious where that's running through the early part of 2025.

Steve Filton (EVP and CFO)

Yeah. As to premium pay, premium pay in the quarter was, I think, $63 million, which I think you just suggest, Matthew, is we've been running in the low 60s, so pretty consistent. Yeah, I think the operating expense controls, which really have been present now for several quarters, are really a reflection of a few different things.

I think as the labor markets have settled out, obviously premium pay, use of temporary labor has declined and, you know, reached kind of a steadier level. I think wage inflation has certainly decelerated from the heights that it had reached during the pandemic. That's certainly helpful. You know, it limits the amount of sign-on bonuses and recruitment bonuses and things that, you know, we have to pay in order to attract talent.

I also think, and we've talked about this on previous calls, you know, we've been more actively, you know, managing productivity and appropriate staffing levels, etc., post-pandemic, you know, because there isn't nearly as much competition for labor. It's still a pretty tight labor market, but not nearly as tight as it was at the height of the pandemic. It's allowed us to go back to, you know, some of the blocking and tackling mechanisms that, you know, I think we paused during the pandemic, because there was such a lack of staff.

I think, you know, again, our operating expenses in both business segments really look positive, and I think they, you know, they should remain so. You know, obviously we've talked about some of the exogenous pressures, mainly, you know, tariffs, and obviously that's difficult for us to predict. I think, you know, in terms of the things we can control, we think that these expense levels and expense controls are certainly sustainable.

Matthew Gillmor (Director)

Steve, a quick follow-up on the Medicaid supplementals. We, you know, we all appreciate the level of disclosure you provide. In terms of the expectation for 2025, are you still expecting $997 million from the last disclosure, or has that number changed at all?

Steve Filton (EVP and CFO)

Yeah. We're, you know, we're still compiling that for our Q1 10-Q. I would suggest that that number, you know, has not changed in any material way.

Matthew Gillmor (Director)

Got it. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Michael Ha of Baird. Your line is now open.

Michael Ha (Senior Research Analyst)

Thank you. Just want to follow up on Sarah's question on behavioral health volume cadence for the rest of the year. It is a pretty big implied step up. I was wondering if you could elaborate more on cadence, quarterly cadence.

Are we talking an immediate large step up in 2Q or something more modest and then larger step ups in 3Q, 4Q? Maybe specifically as it relates to the three big headwinds that impacted volumes last year, how much of that is still redeterminations, labor constraints, those handful of sites? What's the latest update on those? I presume maybe labor is still ongoing, but have we now fully stepped over the other two headwinds? Trying to get a better sense on just volume recovery over the balance of the year. Thanks.

Steve Filton (EVP and CFO)

Yeah. Michael, honestly, I think you kind of asked and answered your own question. I mean, I think of the three that we have talked about historically, the only one that is persistent, I think, is labor. The labor scarcity has certainly improved from, again, you know, when it was really, really extreme during the height of the pandemic.

It is still a tight labor market, and we still compete in various markets, or find the competition for a variety of, of, kind of staff levels, whether that is nurses or therapists or mental health technicians, to be problematic in certain markets. In certain markets, I do think it creates, you know, kind of a cap on our volumes. I do not think that is getting worse. I think, you know, we continue to make progress there.

You know, I'll make the point that, you know, I think a big muting factor in Q1 is simply the leap day comparison. That probably has about, about 100, a little over 100 basis point impact. Obviously, that's something that we know over the year will, you know, the impact will diminish. I think we always assume that the 2.5% to 3% for the year took into account the one leap day for the year.

That comparison will not be as difficult as the year goes on. Yeah, I'm not going to make, you know, comment about exactly where we're likely to wind up in Q2. Again, just repeat what I've said now a number of times, which is the original guides of 2.5% to 3% for the year is something we think we can achieve. We acknowledge that it requires a step up from, you know, where we were in Q1.

Matthew Gillmor (Director)

Thank you. Just one more question about California and Florida's proposal. I think they're ready to submit it, file the CMS to raise the DPP payments to average commercial rates. Any updates there? I know historically, I think about six months for approval, but there might have been a bit of a moratorium just given the new administration. I also know, Steve, you mentioned a lot of DPP programs that were paused are now being resurrected. Curious on those two.

Also just maybe more broadly, given this administration's focus on, you know, budget, Medicaid, provider taxes, whether you think future proposals to raise DPP to average commercial rates might have maybe less likelihood of being passed over the next few years. Thank you.

Steve Filton (EVP and CFO)

Yeah. It feels, Michael, like, you know, this is really kind of a two-track process at the moment in that there are new programs being submitted. There are new programs that have been submitted, in our case, Tennessee or, you know, in places, Tennessee and DC that are being considered by CMS.

The impression that we have, again, as your question alluded to, is that there was sort of a pause as the administration changed and the policymakers and CMS changed. It feels like the administrative process of reviewing and approving these programs has sort of been restarted. Again, you know, forget about what we're saying. I think what the states who have submitted these programs are saying is that they expect that they're going to go through the normal process, be approved in the normal course, etc.

That's separate and apart from any legislative action that, you know, the House and Senate may take to, you know, limit these programs in the future, etc. Again, you know, I think, I think we're viewing this separately. We think that the Tennessee and DC programs, based on the feedback we get from those respective governments, are likely to be approved at some point. I think it's difficult to predict.

California and Florida have just been submitted. I think it's even more difficult to predict what the timing of that would be. That, I think, is separate and apart then from whatever legislative action may impact, may impact those supplemental programs going forward.

Operator (participant)

Thank you. Our next question comes from the line of Pito Chickering of Deutsche Bank. Your line is now open.

Pito Chickering (Analyst)

Hey, good morning, guys. Thanks for taking my questions. I guess the first one here is, can you guys sort of talk about the settlement of the Pavilion case and remind us how much commercial insurance you have for the lawsuits and what is the timing of the Cumberland case?

Steve Filton (EVP and CFO)

Yeah. As we disclosed in the press release, we have a tentative settlement in the Pavilion case. It is limited by, you know, the disclosure is limited by confidentiality. It also requires approval of the court, which we think probably is not coming until next month. You know, when we get that approval, and, you know, in our next filing, you know, we'll disclose how much insurance is still, you know, remaining. I will say at this point, there is still substantial, if this settlement is approved, there will still be substantial commercial insurance for the 2020 year remaining.

That is important because the Cumberland cases that you also referenced are 2020 cases. We'll give those details once the settlement is approved by the court. As far as the timing of the Cumberland cases, they've moved very, you know, the three cases that have been adjudicated are moving slowly. We have not gotten rulings on even on the post-trial motions, let alone any appeals, etc. None of the other cases have been tried. It is moving, you know, quite slowly, and, you know, from the perspective of those cases.

Pito Chickering (Analyst)

All right. I agree. And then follow-up here, the acute hospital segment saw 110 basis point improvement in supply costs. You know, how much of that leverage is due to just the flu and lower surgical volumes? How much is just, just actually due to better supply management? And how should we be thinking about supply leverage in 2025, as surgical volumes come back? Thanks.

Steve Filton (EVP and CFO)

Yeah. I mean, I think, you know, our original guidance for the year presumed, you know, a relatively modest inflation rate for supply expense increases, you know, in the sort of 2.5% to 3% to 3.5% range. We did obviously better than that in Q1.

I think some of that, as your question suggests, is that mix of patients, you know, more medical, more respiratory, less procedural, you know, so that by its nature, you know, medical cases tend to have, you know, less of a supply component than procedural cases. You know, I would think for the year, again, you know, something in that sort of, you know, modest inflationary expense is the way that I would think about supply expense.

Credit, although to be fair to both our operators and our supply chain professionals, I think we're doing a good job from a contractual pricing standpoint and, you know, product replacements to cheaper products, etc. You know, some of that positive supply results are from active management on our part.

Pito Chickering (Analyst)

Great. Thanks so much.

Operator (participant)

Thank you. Our next question comes from the line of Ryan Langston of TD Cowen. Your line is now open.

Ryan Langston (Director and Senior Analyst)

Thanks. Good morning.

Can you tell us how physician fee expense growth ended up in the Q1, both from a year-over-year perspective and versus your internal expectations?

Steve Filton (EVP and CFO)

You know, we said, you know, in our original guidance that professional fees broadly and the physician expenses that you're talking about would, you know, simply increase by, you know, again, a, you know, an expected inflation rate, 5%, something like that.

That is certainly the way that we're tracking. You know, we see some amount of pressure, meaning, you know, requests from physicians for, you know, either accelerated or increased or new fees. I think, you know, we're dealing with that. Our general expectation is that we should be able to control those professional fees and physician expense to or limit it to, you know, just some overall, you know, inflationary increase.

Ryan Langston (Director and Senior Analyst)

Got it. Lastly, I'm sorry if I missed it, but can you parse out the impact from the higher flu and respiratory season we saw in the Q1? Thanks.

Steve Filton (EVP and CFO)

Yeah. I mean, the easy part is I think we would suggest that there was probably, you know, something less than $10 million, maybe $7 or $8 million of incremental profits from what we would describe as sort of excess flu cases, you know, the number of flu cases this year, in excess of last year. What's harder to do is kind of calculate any sort of kind of crowd-out effect. You know, procedural cases, I think, were somewhat softer, as I think a number of our peers have suggested as well. Whether that was due directly to the flu season or not, hard to say.

I think, you know, we have always had a position that the flu tends to have a relatively, you know, immaterial impact on results, both positive and negative, meaning, you know, during a busy flu season, which this was, or not busy flu season. You know, I do not think this quarter was any different. The one other, you know, item I would add just to clarify is while the flu was, I think if you, you know, there are these maps that show flu activity around the country.

While generally flu activity was much higher just about everywhere, Nevada was one of the few states that had a very light flu season. In our biggest acute care market, I do not think we had much of an impact from the flu season.

Ryan Langston (Director and Senior Analyst)

Okay. Thank you.

Operator (participant)

Thank you very much. Our next question comes from the line of Joan Gajuk of Bank of America Securities. Your line is now open.

Joan Gajuk (Equity Research Analyst)

Hey, good morning. Thanks so much for taking the question. Maybe just switching gears a little bit to pricing. First, can you talk about the commercial rate updates you're seeing, I guess, this year for future, you know, have you noticed any change in managed care contracting terms and maybe any change, you know, from plans in terms of just, you know, how aggressive they are or how willing they, you know, they are to respond to your requests, given, you know, they see higher costs? Thank you.

Steve Filton (EVP and CFO)

Yeah. First of all, again, I'll just remind everybody that, you know, our overall guidance for our acute care segment this year was 5% to 6% same store revenue growth, split pretty evenly between price and volume. So, 2.5% to 3% price, 2.5% to 3% volume. That 2.5% to 3% price assumption includes, you know, a commercial price assumption, probably the 4% to 5% range. Again, I think we're tracking those numbers.

You know, I would describe, you know, the relationship with the managed care companies as always, you know, difficult and a slog, whether that's contractual pricing negotiations or the day-to-day processing of claims and then denials and denials, appeals, etc. We're very focused on that. I think we've improved the number of our own internal revenue cycle functions to deal with some of the more aggressive behavior on the part of payers. Again, I think, you know, our Q1 results would suggest that we're not seeing any meaningful impact from any more aggressive behavior on the part of the payers.

Joan Gajuk (Equity Research Analyst)

Thank you. If I may, in your psych segment, can we talk about pricing there too? You alluded to the idea that you do think there could be, you know, some changes to Medicaid funding coming from Congress. With that uncertainty, are states behaving differently when it comes to, you know, their budgeting process, when it comes to rates for psych?

Steve Filton (EVP and CFO)

Yeah. I don't think so. I think, you know, the reality is providers, payers, government entities are all in this sort of uncertain environment. I think, you know, the way most of us are behaving is, you know, as we, whether it's negotiating contracts or the states that are dictating rates, etc., are doing so based on the best information they have available.

If that changes, their behavior may change. I think it's very difficult for any player in the space to anticipate exactly what the changes are going to be and sort of react to them currently. I think we all, for the most part, are, you know, dealing with the information at hand and, you know, when and if it changes, we'll, you know, adopt or adapt our behavior to that.

Joan Gajuk (Equity Research Analyst)

If I may squeeze that very last one, so if I missed it, just to confirm, in your guidance, you still do not assume Tennessee and DC DPP approvals, correct?

Steve Filton (EVP and CFO)

Right. Our guidance did not assume anything for Tennessee or DC, and our results do not include anything for DC or Tennessee.

Joan Gajuk (Equity Research Analyst)

Great. Thanks.

Operator (participant)

All right. Thank you. Our next question comes from the line of A.J. Rice of UBS. Your line is now open.

A.J. Rice (Managing Director)

Hi, everybody. Maybe just to go back to, I know we've gotten asked a lot about supplemental payments, but one thing that one of your peers raised the other day that was sort of interesting is they were saying that they saw some states maybe tweaking down payment rates under the traditional Medicaid formula because they had supplemental payment programs that were offsetting as an aggregate. The industry was doing okay, they felt.

Are you seeing any of the states that you're in tweak the base payment rate, which probably would lend some support to the discussion the industry's making about, you got to look at the total picture. I was wondering if you're seeing any of that.

Steve Filton (EVP and CFO)

Yeah. A.J., I don't know that we've seen that in any sort of material way. It certainly could be on the horizon, but we have not seen that in any really impactful way.

A.J. Rice (Managing Director)

Okay. I know you guys helped out a lot by making some comments about what it might look like if you lost the enhanced subsidies on the exchange. I think your number was $40 to 50 million for that. I don't know. I assume there's no update on that because there's really not any new information, I don't think. I wondered because there's a lot of discussion, obviously, around these supplemental payments, about the possibility of moving the provider tax limit from 6% to 5%. Have you guys looked at that? Do you have a sense of what that might mean or how to think about that?

Steve Filton (EVP and CFO)

Yeah. We certainly have looked at it, A.J. I don't know that any of the companies, as far as I know, have really, you know, estimated that impact because in part, it's a very detailed calculation. The states are not, you know, always forthcoming in terms of all the data that we would need to, to make the calculation. You know, again, I think everybody's kind of reserving, you know, estimates until we see what the, you know, the actual move might be. Yeah, I mean, we're certainly going through those calculations and doing our best to try and understand what the impacts could be.

A.J. Rice (Managing Director)

Do you think most of the states, in which you get meaningful supplemental payments, where are they at relative to what percent of provider tax they're getting relative to revenues of hospitals?

Steve Filton (EVP and CFO)

Yeah. So, you know, several of the largest states, or states that are sort of most impactful to us are certainly under 6%. That would include Texas and Florida. So, you know, the impact, if legislation would go from a 6% cap to a 5% cap, the impact would be limited in those states. Again, those calculations can be pretty complicated.

A.J. Rice (Managing Director)

Okay. All right. I'll leave it at that. Thanks a lot.

Operator (participant)

All right. I'm showing no further questions at this time. I would like to now turn it back to Steve Filton for closing remarks.

Steve Filton (EVP and CFO)

I have just one quick housekeeping item. We omitted our gross revenue disclosure in the press release last night. I think we were under the impression that nobody was really using that metric. I have been disabused of that notion in the last 12 hours. A number of people have asked for it.

We filed an 8-K this morning as we normally do. Normally, it would just be a duplicate of the press release, but we've included in that the gross revenue information. People who are seeking that gross revenue data can find it in the 8-K that we filed today. Other than that, we'd just like to thank everybody for their time and look forward to speaking to everybody next quarter.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.