Universal Health Services - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered strong top-line and earnings growth: net revenues rose 11.1% to $4.114B and diluted EPS was $4.96 ($4.92 adjusted), with EBITDA net of NCI up 30% to $620M; adjusted EBITDA margin expanded to 14.9% from 12.8% YoY.
• Management issued FY 2025 guidance implying continued growth: net revenues $17.02–$17.36B (+7.5%–9.7% YoY), adjusted EBITDA $2.357–$2.484B (+4.9%–10.6% YoY), EPS $18.45–$19.95 (+11.1%–20.1% YoY vs 2024 adjusted EPS) and capex $0.85–$1.00B.
• Operating catalysts: supplemental Medicaid reimbursements above internal projections in Q4, improved labor costs (premium pay ~$60M in Q4), robust cash generation ($658M in Q4; $2.067B FY) and active buybacks (~1.25M shares repurchased in Q4; ~$598.5M FY).
• Risks and watch items: malpractice reserve additions ($35M in Q4; $79M FY) expected not to recur in 2025, ongoing policy uncertainty around Medicaid programs and provider taxes; Tennessee and DC DPP not included in 2025 guide until CMS approval.
• Estimates context: S&P Global Wall Street consensus for Q4 2024 EPS/revenue was unavailable at time of retrieval; management did not reference beats/misses versus Street in materials.

What Went Well and What Went Wrong

What Went Well

• Same-facility growth across segments: acute care revenues +8.7% (pricing +5.3% per adjusted admission), behavioral revenues +11.1% (revenue per adjusted patient day +9.1%) in Q4 2024.
• Cost discipline and wage moderation: “The amount of premium paid…declined from a peak of $153M…was $60M in the fourth quarter of 2024,” aiding margin expansion in both segments.
• Forward momentum and tech investment: “We’ve accelerated technology investments in our behavioral hospitals to improve patient care, including electronic health record implementations and expanded use of patient monitoring automation”.

What Went Wrong

• Malpractice reserves raised: “We recorded a $35 million increase…during the fourth quarter of 2024…our operating results for the full year…included a $79 million increase” (volatile but expected not to recur in 2025).
• Behavioral volumes softer in late December and impacted by winter weather, especially for child/adolescent populations; volumes expected to normalize in 2025 with 2.5%–3% patient-day growth.
• Ongoing reimbursement uncertainty: FY25 guidance widened to reflect potential federal/state changes; Tennessee and DC supplemental programs excluded pending CMS approvals.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2024 Universal Health Services earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Filton, Executive Vice President and CFO. Please go ahead.

Steve Filton (EVP and CFO)

Thank you, and good morning. Marc Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the fourth quarter ended December 31, 2024. 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 December 31, 2024. We'd like to highlight certain developments in 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 for diluted share of $4.96 for the fourth quarter of 2024.

After adjusting for the impact of the items reflected in our supplemental schedule included with the press release, our adjusted net income attributable to UHS for diluted share is $4.92 for the quarter ended December 31, 2024.

Marc D. Miller (CEO)

During the fourth quarter of 2024, on a same-facility basis, adjusted admissions to our acute care hospitals increased 2.2% over the fourth quarter of the prior year. Same-facility net revenues in our acute care hospital segment increased by 8.7% during the fourth quarter of 2024 as compared to last year's fourth quarter, driven primarily by a 5.3% increase in net revenue per adjusted admission. Meanwhile, operating expenses continue to be well managed. The amount of premium paid in the quarter, for example, which declined from a peak of $153 million for the first quarter of 2022, was $60 million in the fourth quarter of 2024, remaining consistent with the previous two quarters. For the full year of 2024, our strong acute care revenues, combined with effective expense controls, resulted in a 13% increase in EBITDA, even after excluding the growth in Medicaid supplemental payments.

During the fourth quarter, same-facility revenues at our behavioral health hospitals increased by 11.1%, driven primarily by an 8.7% increase in revenue per adjusted patient day. Excluding the year-over-year growth in Medicaid supplemental payments, the same-facility revenue increased with 7.4%.

Steve Filton (EVP and CFO)

Included in our operating results during the fourth quarter of 2024 were aggregate net incremental reimbursements of approximately $50 million recorded in connection with various state supplemental Medicaid programs, including $31 million of additional net reimbursements from the Nevada State Directed Payment Program covering the six-month period of July 1, 2024, through December 31, 2024. These net reimbursements were more than the supplemental program projections included in our earnings guidance for the full year of 2024, as revised on July 24, 2024. As a result of unfavorable trends experienced during the past several years during the fourth quarter of 2024, we recorded a $35 million increase to our reserves for self-insured professional and general liability claims. Our operating results for the full year of 2024 included a $79 million increase to our self-insured professional and liability reserves.

Our cash generated from operating activities was $658 million during the fourth quarter of 2024, as compared to $452 million during the same quarter in 2023, and $2.067 billion during the full year of 2024, as compared to $1.268 billion during 2023. We spent $944 million on capital expenditures during 2024, which was consistent with our original forecast for the year. In our acute division, we opened West Henderson Hospital in Las Vegas late in 2024 and plan to open Cedar Hill Regional Medical Center in Washington, D.C., in the next few months.

We forecast that these facilities will be EBITDA positive in 2025 on a combined basis. In both of our segments, we continue to invest in expansion of our outpatient presence and the broadening of our continuum of care. For the full year of 2024, we acquired $599 million of our own shares pursuant to our share repurchase program. Since January 1 of 2019, we have repurchased more than 29.2 million shares, representing approximately 32% of our shares outstanding as of that date. As of December 31, 2024, we had $1.17 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility.

Marc D. Miller (CEO)

The core operating assumptions underlying our 2025 operating results forecast, which was provided in last night's release, largely reflect the historical trends in the respective businesses, with EBITDA growth in the mid-single digits. We expect continued improvement in salary and wages and general cost trends that will remain largely stable in 2025. As noted in our 10-K filed yesterday, our 2025 operating results forecast excludes any supplemental Medicaid revenues in Tennessee and the District of Columbia pending CMS's approval of those programs. As the 10-K schedule reflects, our 2025 forecast assumes total consolidated Medicaid supplemental payments will decrease slightly as compared to 2024. We believe demand for our behavioral services remains solid, and our same-facility adjusted patient day growth in 2025 at our facilities located in the U.S. is forecasted to be in the 2.5%-3% range.

We've accelerated technology Investments in our behavioral hospitals to improve patient care, including electronic health record implementations and expanded use of patient monitoring automation. We acknowledge that the current political environment has created a level of uncertainty, especially as it relates to ongoing Medicaid reimbursement. Our 2025 forecast is based on current Medicaid reimbursement projections in connection with various programs that could be subject to change. In our acute business segment, we are pleased that 80% of our hospitals currently have an A or B grade in our rating, well above the national average. In our behavioral division, we saw meaningfully significant improvement in patient experience scores in 2024. We are focusing on continued improvement of these metrics in 2025. We are now pleased to answer your questions.

Operator (participant)

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered or you were assumed to be yourself from the queue, please press star 11 again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Andrew Mok with Barclays. Line is open.

Andrew Mok (Analyst)

Hi, good morning. The 2025 EBITDA guidance is up 5% to 11%, which is higher than typical growth rates, despite state supplemental payments forecasted to be down year over year. So we'd love to hear a little bit more color on what's driving the higher underlying growth in 2025. Thanks.

Steve Filton (EVP and CFO)

Sure, Andrew. Well, I think there's a couple of things. I mean, number one, just the core growth, core EBITDA growth that Marc talked about in the two segments, I think is being driven by a return, as he described, to sort of historical norms: solid volume growth, pretty robust pricing, and I think very effective expense control, and I think we don't have the pressures on our operating expenses that were such a drag during the COVID years. The wage inflation, the very high use of premium pay, not necessarily related to COVID, but on the acute side, the professional fee expense pressures that we faced in 2023, etc., so I think, as our commentary reflected in our prepared comments, that we're expecting a much more sort of stable operating environment outside of potentially the reimbursement changes that are being discussed at a pretty high level.

In addition to that, as I think our comments indicated, we incurred a significant amount of incremental malpractice expense in 2024 that we are hoping will not recur in 2025, and so that's another source of upside in the earnings, and then I know you're really talking about operating earnings, but from an EPS perspective, we then get a boost from a reduction in interest rates or interest expense, as well as a continued reduction in our share count.

Andrew Mok (Analyst)

Great. And then maybe just a follow-up. The guidance range, I think, is $127 million wide, which is higher than previous years, despite better operations and visibility. So why is the range of outcomes here wider than usual? And where are the puts and takes within that range? Thanks.

Steve Filton (EVP and CFO)

Yeah, I mean, I think, and I think Marc commented on this in the prepared remarks, and we acknowledge that the items that are sort of beyond our control in terms of government reimbursement and potential changes in that regard. We've tried to provide some level of caution and conservatism in the guidance. I think part of that is the wider range that we've provided.

Andrew Mok (Analyst)

Great. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is open.

Ben Hendrix (Analyst)

Hey, great. Thank you very much. Just wanted to go back to the slight decrease in DPP that you're foreseeing for next year. Is there any way to parse out how much of that is just overall conservatism versus foreseeable changes in specific programs?

Steve Filton (EVP and CFO)

Yeah, Ben, I think the main reason for the decline is, as we've disclosed in each quarter, during 2024, we've recognized some DPP payments that were related to prior periods. And I think that's the main reason for the decline, is that some of the DPP payments and DPP revenues that we recognized in 2024 really related to prior periods. There may be some programs that had small declines next year, but I think that's the main reason driving the decline.

Ben Hendrix (Analyst)

Thanks. And then just to follow up on the malpractice reserves, just how are you thinking overall about adequacy at this point? Are we at a point where there is a reasonable cushion, or are there trends that you're seeing now that could increase the probability of another adjustment this year? Thanks.

Steve Filton (EVP and CFO)

Yeah, so I think it's worth noting that in establishing our malpractice reserves, we use a third-party actuary who evaluates our claims history, pending claims, industry trends, etc. It's a relatively comprehensive analysis. Historically, we've tried to set and establish our reserves sort of at the midpoint of the range that our third-party actuary provides to us. Given some of the volatility in that area and some of the pressure, we tried this year to move a little bit towards the higher end of the range. So we are hoping that there's an element of conservatism built into those reserves and that there won't be a need for another uptick in 2025. Obviously, we can't be assured of that, but we feel like we've taken a pretty prudent position here.

Ben Hendrix (Analyst)

Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Ann Hynes with Mizuho. Your line is open.

Ann Hynes (Analyst)

Hi, good morning. Thank you. Can we talk about behavioral contribution to our patient days? I remember thinking, and maybe I'm remembering incorrectly, that you thought you would be exiting 2024 at about 3%, which I believe it was below 2%. So what was the driver of that? And I think you said in guidance you assume it's going to accelerate to 2.5%-3%. Can you just tell us what the drivers of that acceleration is?

Steve Filton (EVP and CFO)

Yeah. So, and in fact, Ann, I think for the first two-thirds of the quarter, October, November, we were tracking sort of in that 2.5% range and felt pretty good about things. I remember, and honestly, probably my last public appearance was at your conference in early December. And I remember telling people that I thought we were doing well, except it was always hard to predict what would happen in the back half of December with the holidays. That's always sort of unpredictable. And in fact, we did see a fairly dramatic decline in our patient day volumes and behavioral in the back half of December. I think having the Christmas and New Year's holidays right in the middle of the week on a Wednesday really sort of made those last two weeks, particularly for that child and adolescent population, a much softer result than we were anticipating.

Quite frankly, we've experienced historically, volumes tended to sort of rebound in early January, which led us to believe that that was really kind of a temporary transient sort of thing. We've struggled a little bit over the last month, mainly because of difficult winter weather around the country, particularly in places that, quite frankly, are not generally used to or equipped for winter weather. We've seen school closures at a pretty large scale in places like Virginia and Tennessee and Kentucky and Mississippi, places that don't generally close schools in the wintertime. Again, I think we feel that those are transient sorts of dynamics and that for the full year, getting to that 2.5%-3% patient day growth should not be sort of a heroic metric to achieve.

Ann Hynes (Analyst)

Great. And then staying on the behavioral theme, Medicaid rates have been good for Universal in the industry. Can you remind us what they actually were in 2024 and what you expect in 2025?

Steve Filton (EVP and CFO)

Yeah. I mean, so what's built into our guidance for 2025 is, I would say, same-store behavioral revenue growth in the 6%-8% range. And again, I think that's sort of 2.5%-3% volume and 3%-4% price. To be fair, that 3%-4% and that 3%-4% price is exclusive of any changes in supplemental payments. That's just what I would describe as core pricing. Our core pricing, and I think that's sort of the crux of your question, has generally been better than that over the last several years and will continue to press our payers and hope to do better than that. So if there's an element of conservatism in our behavioral projections, it's probably on the pricing side of the equation.

Ann Hynes (Analyst)

Great. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Justin Lake with Wolfe Research. Your line is open.

Justin Lake (Analyst)

Thanks. Good morning. Wanted to move over to the policy stuff. Specifically, looks like the bigger ticket items like caps are off the table on Medicaid, some discussion that maybe provider taxes would be a place they would pivot to. I know you're sophisticated on this stuff. What are you hearing there in terms of the appetite to look at provider taxes as an area of savings within this legislation?

Steve Filton (EVP and CFO)

Yeah. So Justin, I would say, and I think you know this, I mean, I think the administration has really made no sort of definitive public statements about provider taxes. The point that we've made, and I think our peer companies have made, is there appears to be wide support for these provider tax or directed payment programs around the country in a large number of states, including states of all political stripes. And so I think one of the things that we're learning or observing from this debate within Congress over the budget bill is that there is a fair amount of support, again, I think, throughout the country for Medicaid programs and protecting Medicaid programs.

There hasn't been a whole lot of discussion specifically about directed payment programs, but we believe that there's a significant amount of political support at the state level for those programs in a great many states.

Marc D. Miller (CEO)

And I just want to add to what Steve just said there because we're clearly monitoring this very closely, talking off the record with many of the folks, not just in Washington, but in the states. And I think that's a key point. The folks in Congress are hearing from the governors' offices in many of these states. And like Steve said, it's a bipartisan effort. It's not just the Democratic states, but it's many of the large Republican-led states as well. So that tends to suggest that the pushback is significant, and I think we're in a better position than sometimes what we see on the news.

Justin Lake (Analyst)

Great. And then just another question on DPP. I know you've got some dollars potentially coming in DC and Tennessee. You guys do a great job of giving color on that in your 10-K. Looks like you're not projecting that. Anything to read into that for 2025? Any change in your level of confidence that this stuff comes through at the end of the day?

Steve Filton (EVP and CFO)

We believe that our 2025 forecast reflects our historical practices when it comes to DPP. And that is, once a program has been approved and is in place, even though all these programs have to be renewed and reapproved annually, we presume that programs that have been approved historically will continue to be approved and they remain in our guidance. The two programs you referenced, Tennessee and Washington, D.C., are new programs that have only been partially approved. For instance, Tennessee, the actual program has been approved and the dollars have been approved for the back half of 2024, but it still requires CMS approval of the 1115 Medicaid waiver. Until full approval is granted, we haven't included any of those Tennessee dollars.

The D.C. approval is pending in its entirety, and we haven't included any of those dollars either in Q4 or in our 2025 guidance. In both cases, the state or the district hospital associations tell us and tell their constituents that they've not heard anything from CMS suggesting that the programs are problematic in any way in their structure. They expect them to be approved. There's some uncertainty as sort of with the timing of that. But yeah, I mean, I will tell you the expectation of the hospital associations themselves is that approvals are pending and have just sort of been slowed by the transition of administrations. We'll see. But again, nothing to be read into how we've handled it other than in our minds, consistent with the way we've handled these DPP programs from the beginning.

Justin Lake (Analyst)

Thanks. Appreciate all the color.

Operator (participant)

One moment for our next question. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open.

Pito Chickering (Analyst)

Hey, good morning, guys. And thanks for taking my questions. Leverage is now below sort of two times here. Can you just remind us what your targeted leverage ratios are here? And today, are you using all of your free cash flow to do share repurchases? At what point do you start borrowing to maintain your leverage ratios and using those borrowings to increase your share repurchases?

Steve Filton (EVP and CFO)

Thanks, Pito. So I think we have historically operated at a leverage level, generally in sort of the high twos, approaching three. We're certainly comfortable at a level like that. And I would think that that's where we would generally target things in the future. I think our guidance for the year presumes that we'll use the bulk of our free cash flow for share repurchase. The possibility that we could lever up and use even more than that, I think, is certainly a real possibility and not something we've decided today. But again, in our guidance, I think we were reasonably conservative in thinking that our share repurchase levels would be around what they've been the last several years in that sort of $600 million-$800 million range.

Pito Chickering (Analyst)

Okay. But so, intellectually, we could be thinking about you guys start actually using leverage here to at least maintaining some leverage above where it is today, if you feel comfortable with a macro level to start increasing beyond just free cash flow.

Steve Filton (EVP and CFO)

No, I think that's fair, and I think that if you look at our historical practices, there certainly have been times where we have done that, for sure.

Pito Chickering (Analyst)

Okay. Fair enough. And then on behavioral, you close three hospitals this quarter. How does it impact your EBITDA when you close those facilities? How many other facilities do you look at for portfolio trimmings for 2025? And with such a larger supply-demand imbalance in behavioral, I guess, why is there a need to close any of these facilities? Thank you.

Steve Filton (EVP and CFO)

Yeah. I think if someone wanted to take the time and, for instance, take a look at our portfolio of behavioral facilities, let's say, 10 years ago and where we are today, I think that you would find that portfolio rationalization is sort of an ongoing part of our behavioral strategy and that the portfolio of hospitals that we have today is different than it was 10 years ago. We have sold some facilities. We've consolidated a number of facilities. We've sort of retooled facilities to provide different services. We've done any number of things. It's a large portfolio, and generally, an individual hospital is not material to the portfolio, so we don't necessarily disclose or discuss in detail when we do these things. But it's really that aspect of it.

When you ask sort of what's the rationale for that or what causes that, while we acknowledge or we would agree with your overall comment that I think behavioral demand has been strong during this period, obviously, demand for particular services in a particular area, particular reimbursement dynamics, all those things can change in the interim. We do react to those things and effectively try and look at those facilities that are sort of least efficient, lesser returning, and try and determine whether they have kind of a path to getting sort of more towards the bell curve of performance. If they don't, we look for potential exit strategies, which, again, could be closure, could be sale, could be consolidation, could be retooling. All those things, I think, are always on the table.

Pito Chickering (Analyst)

Great. Thanks so much, guys, and nice job.

Operator (participant)

One moment for our next question. Our next question comes from Joanna Gajuk with Bank of America. Your line is open.

Joanna Gajuk (Analyst)

Hi. Good morning. Thanks so much for taking the questions. So I guess first, because I don't know that they're admitted, but yeah, thanks for talking about your assumptions for your behavioral segment growth for 2025. But what do you assume for acute revenue growth, volumes versus pricing?

Steve Filton (EVP and CFO)

Yeah. So I think the assumptions for the acute division are also mid-single-digit revenue growth, probably a little bit more modest, maybe in the 5%-6% range. And I would say it's split pretty evenly between price and volume. So 2.5%-3% adjusted admission growth, 2.5%-3% pricing growth. And again, I think in both segments, in this environment where expenses have moderated, wage inflation is moderated, the use of premium pay is moderated, physician expenses are moderated, that mid-single-digit revenue growth in both divisions in our minds should be sufficient to allow us to grow EBITDA and expand margins.

Joanna Gajuk (Analyst)

Thanks for that, and I guess on wages, because I think the nationwide data on wage growth for nursing kind of showed some acceleration in the late 2024. Are you seeing that, or is it just a function of some comp issue there?

Steve Filton (EVP and CFO)

Joanna, I'm sorry. When you said that the national data is showing what, I didn't hear what you meant.

Marc D. Miller (CEO)

Increase in wages.

Joanna Gajuk (Analyst)

Yeah. Wages. Yeah. Wages, acceleration slightly. Nothing material, obviously, but just kind of versus the earlier in 2024, and then somehow the couple of these last months in 2024 kind of showed a little bit higher growth year over year. So I don't know if you're seeing any of that. I mean, it sounds like you're thinking about kind of moderation in wage inflation for 2025, but I just want to ask you if there was anything that happened in late 2024 that kind of might have changed that view a little bit.

Steve Filton (EVP and CFO)

Yeah. So again, clearly, we've seen a moderation in wage inflation coming out of the pandemic over the last couple of years. And I would sort of characterize the wage environment as fairly stable. I apologize. I didn't hear you the first time. But I think, like you said, the national survey sort of suggests kind of some incremental pressure on wages. I don't think we're really seeing that. It doesn't mean that we won't. But it doesn't feel like there's that sort of comprehensive pressure and real significant pressure on wages that we were seeing a couple of years ago. It feels like the wage environment and basically the supply-demand environment for labor has stabilized pretty significantly.

Marc D. Miller (CEO)

As we lessen our dependence on temporary labor, our wages are overall going down, continue to go down.

Joanna Gajuk (Analyst)

Exactly. Thanks. And if I may, just quickly a last follow-up on the DPP discussion and how you assume 2025 down versus 2024. So two items there, right? Can you quantify how much was prior period that you recorded in 2024? And also because you also said there are some programs that you expect to decline. So is it based in those states, particularly, those programs are based on enrollment, and that's what's happening? Some of these states are going to have lower DPP dollars available to them because it's linked to enrollment? Thank you.

Steve Filton (EVP and CFO)

Yeah. So I think if you go back and you look at our transcripts from the first three quarters, in each quarter, we call out how much prior period there might have been. And it strikes me that it was a roughly sort of $15-$20 million a quarter. So you can extrapolate that, and it's maybe $60-$80 million of non-recurring or out-of-period items that we had in 2024. And as I said to kind of a previous question, I think that's the main driver. There may be some individual programs that are showing sort of slight declines next year. But for the most part, once programs have been established, our historical sort of experiences, they stay at or, if anything, they sort of grow.

So again, I don't think that the slight decline in DPP for next year that we're forecasting is mostly driven by the out-of-period stuff we had in 2024 rather than any real declines in the programs in 2025.

Joanna Gajuk (Analyst)

Thanks for that clarification. Appreciate it. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Stephen Baxter with Wells Fargo. Your line is open.

Stephen Baxter (Analyst)

Hi. Thanks. Just two quick ones. I was hoping at first, just in case I might have missed it, but sizing the full-year amount that the medical malpractice expense came in above your initial plan and how much of that you assume normalizes and becomes a tailwind to the year-over-year EBITDA growth? And then just another follow-up on the DPP discussion. I understand fully you're not including 2025 amounts for Tennessee or for Washington, D.C. at this point, pending approval. But how do we think about what percentage of this DPP contribution that's in the guidance still for this year is tied to programs that do need to be renewed at some point this year, so might only have partial-year coverage kind of as it exists today? Thank you.

Steve Filton (EVP and CFO)

Yep. So as far as malpractice goes, what we said in our prepared remarks was we had $79 million of additional malpractice reserves that we added or recorded above and beyond what we had in our original guidance, and for the most part, I think we don't believe that those expenses recur, and so that contributes to some of the growth that we have in 2025. We think we've been reasonably conservative. To be fair, that's a volatile area that can change and does change, but we feel like we've been fairly prudent and fairly conservative in general. As far as your DPP question, I think as the previous questionnaire indicated, we have a significant amount of disclosure about our DPP programs by state.

I'd refer everyone to. I know we filed the 10-K last night, so I'm sure people have not had a chance to review it in detail. But we literally go through each program, indicate what's been approved, what's not been approved. I mean, my guesstimate is that probably half of the DPP monies in our forecast roughly have been approved for next year already, and probably half have approvals still pending.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Sarah James with Cantor Fitzgerald. Would you like to open?

Sarah James (Analyst)

Thank you. I wanted to go back to your strategy around the behavioral portfolio. Can you talk a little bit about areas that you're looking to expand? Are you guys looking at CTC or methadone clinics? Are you looking at more outpatient, or is it really still focused on inpatient?

Steve Filton (EVP and CFO)

Yeah. I mean, I think we've said in previous calls, Sarah, and I think this is true really of both segments. But specific to the behavioral business, I think we're looking to build out our continuum of care. And I think either Mark or I mentioned that in our prepared remarks, which I think in behavioral specifically means building out the outpatient continuum. And I think that's reflective of historically building out the outpatient continuum generally meant on our campuses and sort of related to our inpatient programs. So patients who were discharged as inpatients often require continued follow-up care and often receive that care in our intensive outpatient or partial hospitalization programs. I think we've started to develop more of a presence in freestanding outpatient facilities around the country.

We acknowledge that some people who are receiving outpatient care don't necessarily feel comfortable receiving it on the campus of an inpatient hospital or affiliated with an inpatient hospital, and so we're finding that there is demand for freestanding outpatient care separate and apart from our hospitals. We continue to build out our outpatient capabilities as it relates to both active military and retired military. We have a real special specialization in that. We have begun, and again, I think we've talked about this in previous calls, to establish a little bit more of a presence in the opioid disorder space. I think we are tending to do so, again, more as sort of part of a broader continuum of care rather than just sort of flat-out medically assisted treatment facilities that are just dispensing medication.

I think we feel like, given our presence and such a broad continuum, our real ability to provide a competitive or clinical advantage is being able to provide patients with sort of a whole continuum of care, not just medically assisted treatment, whether that's methadone or Suboxone or whatever, but outpatient treatment, etc., inpatient treatment if that's required, etc. To the degree that we're entering or expanding our presence in that opioid space, I think it'll be in that context of integrating with our broader continuum of care.

Sarah James (Analyst)

Great. And can you give us an idea of timeline to materiality of that? So what does the pipeline look like, or how fast do you expect those businesses to grow?

Steve Filton (EVP and CFO)

Yeah. I mean, so again, I would make the point that we have a significant outpatient presence currently, mostly associated with our hospitals and on our hospital campuses. The freestanding sort of efforts, I think, reasonably could result in probably 10 or so or a dozen or so additional facilities each year. The OUD space requires a bit more of a development pipeline. So I think a little bit harder to project that. But again, the point that I make there is I think that's likely to be integrated with some of our existing continuum, but a little bit harder to predict and a little bit slower to ramp.

Sarah James (Analyst)

Thank you.

Operator (participant)

One moment for our next question. Our next question comes from AJ Rice with UBS. Your line is open.

A.J. Rice (Analyst)

Hi, everybody. I appreciate, Steve, that you guys are really the only one that's made comments about what it might mean if the exchange-enhanced subsidies were to go away in 2026. I think you put about a $50 million headwind on that. Since you're the only one that's really done that, can you just flesh out some of the key assumptions you've got in coming up with that number and how much variability you think there might be around that, or is that you have a pretty good target on that?

Steve Filton (EVP and CFO)

Yeah, so we made those comments, or I made those comments back in the fall, and honestly, AJ, I made them because I think people were generally overestimating the impact that we might have if the exchange subsidies were to go away, which I don't believe is a certainty in any event at the moment, and I made the point when we floated that estimate that it was very much a guesstimate. It's really based on some pretty high-level assumptions. About 5% of our acute admissions are exchange-covered patients right now. We assumed that about half of those folks would lose their coverage if the subsidies went away. Now, again, there's a lot of nuances that go along with that. Some might be able to get other coverage. Some might qualify for Medicaid in certain states, etc., but we assumed about half of those folks would lose their coverage.

We would lose the elective business that those folks were bringing to our hospitals now. And we presumed they would still come to our hospitals for their emergency coverage. And obviously, we wouldn't be reimbursed for that. And so that's kind of the basis of the assumptions that we made. The other point I think that we made is this is, I think, largely an acute care dynamic. We don't separately track the number of exchange patients we have on the behavioral side in large part because we don't think it's quite as significant. And I think that's historically been because so many of these exchange products have very high copays and deductibles that are often not relevant to providing coverage in a behavioral hospital where they're likely to incur a much smaller bill than they would in an acute hospital.

A.J. Rice (Analyst)

Okay. All right. Thanks for that. I just want to ask maybe two aspects of the guidance. I want to see if they're reflected in there. I think you've got some insurance revenue step up in 2025. Can you just comment on that? And is that a top-line dynamic that doesn't affect the operating income and so on? And then the second thing I was going to ask about in the guidance is you opened West Henderson in Las Vegas late last year. You've got, I believe, a DC hospital that you're opening this spring. Do you think those are going to have much impact on consolidated revenue and EBITDA? And how about on the same-store numbers? Because those are two big markets. Do they draw away from your existing facilities enough to impact the same-store trends?

Steve Filton (EVP and CFO)

Yeah. So as far as your first question about insurance revenue, a number of people, I think, sort of noted that the revenue guidance that we issued last night is sort of above the mid-single digits that I've talked about on this call. And I think your question addresses that. There's probably an assumption of about a $200 million increase in the revenues at our insurance subsidiary. So that affects that top line. As we've sort of discussed historically, our insurance subsidiary tends to operate at something pretty close to break-even. So it's reflective on the revenue line, but not really reflective in a significant way on the EBITDA line. As far as your second question about the two hospital openings, we mentioned in our prepared remarks that we expect that the combination of West Henderson in Vegas and Cedar Hill in Washington, D.C. will be EBITDA positive.

I will note, and this will be a cosmetic thing, that as we look at same-store admissions and same-store revenues and even same-store earnings, that'll be a little bit, I think, distorting in our next year's numbers because both of those facilities are opening in markets where we have an existing presence. And so there'll probably be some cannibalization of our existing business. So I think it will make our same-store numbers look a little bit depressed, particularly admission numbers. But I think overall, West Henderson has gotten off to a very fast start, as has been our experience when we opened hospitals in Las Vegas. We're expecting Cedar Hill to get off to a solid start as well. So neither hospital should be much of a drag on earnings in 2025.

A.J. Rice (Analyst)

Okay. All right. Thanks a lot.

Operator (participant)

One moment for our next question. Our next question comes from Michael Ha with Baird. Your line is open.

Michael Ha (Analyst)

All right. Thank you. Two quick ones to start. Just to confirm on DPP for Tennessee and DC, is the total current, I guess, payment upside $169 million across those two? And what do you typically recognize in terms of the flow-through down into earnings on DPP?

Steve Filton (EVP and CFO)

Yeah. So Michael, I don't have our 10-K right in front of us, but that number sounds reasonably close. But people can validate that we disclose the numbers on both our expected benefit from both those programs in the 10-K. And as to your second question, we generally have the view because all of our DPP numbers disclose our net numbers. That is net of the provider tax. So we assume those numbers generally drop to the bottom line. Obviously, we make the point all the time that those reimbursements are really meant to provide for, frankly, what's been inadequate Medicaid reimbursement for many years. So the immediate impact is a significant boost to our earnings, but it's really making up in our minds for deficient earnings in the past.

Michael Ha (Analyst)

Got it. Thank you. And then maybe a quick one and then another longer one. For flu season, I haven't heard you mention it. We're seeing one of the strongest in recent history. Any impact on 1Q? And then my real question would be just to return to historical margins. You're there on behavioral a lot quicker than I think everyone expected. Looks like acute margins is really the next phase, and the embedded margin improvement seems quite powerful. I guess at this kind of pace of margin improvement over the past year, would it be fair to say you might only be about a year or two away from getting back to those pre-COVID levels? And then what does that path look like? What needs to happen operationally for that to materialize?

Is it more like a return to normative patient mix levels or other efforts, initiatives in flight? Any commentary would be great. Thank you.

Steve Filton (EVP and CFO)

So as to your question about the flu season, I think what we found is the flu season, which started earlier than usual for us in 2024, excuse me, in 2023, started later in 2024, although seemed to be more intense once it got going. Overall, I think when we look at our respiratory cases for the fourth quarter, not altogether different in 2024 than they were in 2023. To your point, I think the flu season and the busy flu season has continued into the first quarter. I think generally, we always have the view that a busy flu season, or frankly, not a busy flu season, tends not to have a really significant impact on earnings. Flu and respiratory cases tend to not be the most profitable cases that we have.

So overall, I think when we look back on annual results, we tend not to, I think, cite a busy flu season or a non-busy flu season as something that moves the needle in a significant way, although we acknowledge that volumes have been impacted, particularly or will be impacted in Q1 by the busy flu season. As far as your margin question goes, I think mainly directed towards the acute hospitals. We've mentioned before, I think, that there are some structural hurdles that make it difficult for the acute business to necessarily return to pre-COVID margins. Things like the significant increase, like 150 basis points increase in physician expenses that we experienced mostly in 2023, the continued shift of profitable procedural and surgical business from inpatient to outpatient. But generally, our margins have been improving in that business.

And I think we'll continue to improve, like you said, over the next couple of years, whether or not during that period we can get all the way back to pre-COVID margins. I'm not sure or I'm not certain about that. I think, to your point, we've gotten there on the behavioral side. I think we'll continue to grow those. And so as a result, I think we will get back to consolidated pre-COVID margins over the course of the next couple of years.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Ben Rossi with J.P. Morgan. Your line is open.

Benjamin Rossi (Analyst)

Hi. Thanks for the question. Just on premium pay, you mentioned premium pay at about $60 million coming in flat quarter over quarter versus your previous goal of exiting the year at about $50 million a quarter. Is that more opportunistic usage to manage throughput during 4Q? And then with acute volumes coming down, moderating a bit for 2025, where do you see premium pay leveling out in this coming year?

Steve Filton (EVP and CFO)

I think one of the challenges in terms of further reductions to premium pay is that one of the things that occurred during COVID was more and more nurses chose to work as temporary or traveling nurses, preferring the flexibility that came with those jobs. Some of those nurses have returned to full-time work in our hospitals. We'll certainly try and attract more. I do think there has been kind of that structural shift, and there are just more nurses who are wanting to and willing to work as temporary and traveling nurses. I think realistically, we made the comment in our prepared remarks that we've run at about that $60 million a quarter of premium pay for the last three quarters. Might we be able to tweak that a little bit lower? Sure.

But I don't see really significant savings from driving that number a whole lot lower than where it is today.

Benjamin Rossi (Analyst)

Great. Thanks for the color there. And then as a follow-up, I know it's early here, but had some conversation on tariffs and proposed reciprocal tariffs. Just curious how you're thinking about the potential impact of supply spend and maybe where your fixed pricing stands for your 2025 supply spend or where you have any other pricing buffers within your supply contracts? Thanks.

Steve Filton (EVP and CFO)

Yeah. So the challenge about making any sort of terribly meaningful comments about the impact of tariffs on our results is twofold. One is really trying to figure out what the tariffs are going to be, what countries, what the rates of the tariffs are going to be. As you know, they've changed quite a bit just in the four or five weeks of the new administration. The good news, I think, which you've sort of alluded to in your question, is that a great many of our supply contracts are multi-year contracts that essentially have pricing protection so that the risk of tariffs or the risk of increased costs really fall on the manufacturer while those contracts are in place. So I think our sense, and we certainly didn't really provide for any significant impact on our supply expense in 2025 from the tariffs.

I think that's generally our point of view. It's entirely possible that that changes depending on these dynamics and, as you suggested, retaliatory tariffs and that sort of thing. But we'd have to see how that plays out in sort of the real world before being able to quantify this in any more meaningful way.

Benjamin Rossi (Analyst)

Understood. Appreciate the comments here.

Operator (participant)

One moment for our next question. Our next question comes from Scott Fidel with Stephens. Your line is open.

Scott Fidel (Analyst)

Hi. Thanks. Good morning. First question, just can you give us just the split when looking at the net supplemental payments for 2024, the $1.016 billion, just what the split is between acute and BH from that? And then similarly with the projection for 2025, whether that split seems similar or if there's any directional change around that?

Steve Filton (EVP and CFO)

Yeah. I mean, honestly, I don't have it right in front of me, Scott. I think they're split relatively evenly between the two segments, but I can loop back with you after to be more precise about that. And no, I don't think the split changes much in 2025. Again, as we've sort of talked about before, I think the 2025 assumption is that most of the programs kind of continue at their current level.

Scott Fidel (Analyst)

Okay. Got it. And then just want to follow up. I know AJ had asked a bit about the increase in the insurance revenue. We were just looking at the CMS data this week. Looks like your MA plan actually had some healthy growth. So that seems to be a driver of that. Probably not where I would see that getting to $200 million, though. So maybe if you could just walk us through, clearly, it does look like the MA piece is a driver of that, but maybe just sort of walk us through from a product perspective what's building up to that $200 million.

Steve Filton (EVP and CFO)

So, our subscriber population is split pretty evenly between MA patients and commercial patients. I think most of the growth next year is in the MA population, but we do have both MA patients and commercial patients. So, we're just, again, it's a relatively small plan, but as we continue to gain more experience and have established a track record in the various markets where the plan operates, we're able to attract more patients, etc. So, the $200 million, I think, is reflective of the amount of new subscribers that we have.

Scott Fidel (Analyst)

Got it. If I could just one quick question, last one. Just around accruals that you have on the balance sheet, legal accruals for behavioral litigation, just any updates on sort of where you ended the year on that and sort of how that may have sort of evolved in terms of any assumptions there. Thanks.

Steve Filton (EVP and CFO)

Yeah. So again, I mean, in the legal section of our 10-K, we describe the status of the two large malpractice cases and malpractice verdicts that we had in 2024. I suggest people can read through those. We don't have specific reserves established for those cases. They're both going through an appeal process and significant. Obviously, as I said earlier, when our third-party actuary goes through their exercise, they are taking into account all of cases, decided cases, pending cases, appealed cases, etc., as well as cases that have not reached that level, and they're putting a value on cases that have incurred but not yet sort of been filed, that sort of thing. So all that, I think, has been taken into account in the actuarial calculations.

Scott Fidel (Analyst)

Okay. Thank you.

Operator (participant)

One moment for our next question. Our next question comes from Ryan Langston with TD Cowen. Your line is open.

Ryan Langston (Analyst)

Hi. Thanks. The SWB performance in behavioral was the strongest, I think, in actually quite some time. Can you maybe just update us on the labor trends on BH, like if that was just related to specific facilities, geographies, or job classes? And I guess how does, if at all, the fourth quarter inform the 2025 guidance?

Steve Filton (EVP and CFO)

Yeah. I mean, I think we have been saying for a number of quarters now that the labor supply-demand dynamic within behavioral has clearly improved from the really significant pressures that we experienced during the pandemic. And so I think you're seeing a combination of things that are really sort of contributing to that strong performance. I think number one, productivity has been improving where we've got the right number of people for the right number of patients to care for patients safely and providing top-quality care. But we've also seen a moderation in the use of premium pay and outside temporary labor, and we've seen a moderation in wage inflation. And all those things, I think, are contributing to the strong sort of productivity and efficiency performance that you've noted.

Ryan Langston (Analyst)

Got it. And then just piggybacking on the leverage and the share repo, just kind of where the shares are trading and kind of what's going on in the market, is there a potential that the repos for 2025 are maybe more front-loaded than maybe they have been in the sort of last couple of years? Thanks.

Steve Filton (EVP and CFO)

Yeah. I mean, obviously, when you talk about what's going on in the markets, that changes day by day. So a little bit hard to make a judgment about exactly how the trajectory is going to look for the year, but it's certainly a consideration on our part. What I would say historically is our share repurchases tend to be kind of more programmatic and ratable rather than really trying to time market changes, etc. I don't think we view ourselves as particularly good at market timing. What we do believe and what we try and take advantage of is the prospects of the business. We have a lot of confidence in the business, and we're willing to invest in, if you will, buying back our own EBITDA, what we think are pretty attractive multiples. And I think that's the case now.

And honestly, I think it's been the case and probably will be the case for some time. So I wouldn't commit to any particular sort of trajectory for this year, but as we have been for the past several years, I'm sure we will continue to be an active repurchaser.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Jamie Perse with Goldman Sachs. Your line is open.

Jamie Perse (Analyst)

Hey. Good morning, guys.

Steve Filton (EVP and CFO)

Jamie, could I just interrupt? But this is going to have to be our last question. We have another commitment after this.

Jamie Perse (Analyst)

Sure. Thanks for sneaking me in. I guess just on commercial payers, what are you seeing in terms of payer activity and denials, prior authorization, Two-Midnight Rule implementation, etc., and just sustainability of rate growth, particularly in the behavioral business? It's been very strong.

Steve Filton (EVP and CFO)

Yeah. So I'll take the second part of your question first. I mean, we've talked about this for some time now. We've had really strong behavioral pricing over the last several years. I think that's a function in large part of the scarcity of supply of beds and care in the behavioral space. And as a consequence, we've been able to negotiate higher rates from many of our payers, payers who really are struggling to find a place for their subscribers to be treated, etc. I don't know that that dynamic has changed a great deal. There's not a ton more, particularly inpatient capacity, I think, in the space, etc. So again, I think the pricing environment for behavioral remains strong. As far as sort of payer behavior, I don't know that we would sort of suggest that there's been a significant change.

I think this is sort of a day-to-day issue with us. We find payer behavior broadly challenging, and it's kind of a daily struggle with us. We've devoted a significant amount of resources to making sure that our claim submissions are as efficient and as clean as possible, that our appeals processes are as efficient and as clean as possible. It's been a huge focus of ours, and unfortunately, I think we'll have to remain that because I don't see payers all of a sudden becoming much more lax in their utilization review and denial management, etc. So it would be great if that dynamic were to change in our industry, but it doesn't seem to be something that's likely to change in the near term.

Jamie Perse (Analyst)

All right. Great. I'll leave it there in the interest of time. Thanks, Steve.

Steve Filton (EVP and CFO)

Thank you. So operator, I think that's going to have to be the end of it for us. We'd like to thank everybody for their participation and look forward to talking with everybody after our first quarter results.

Operator (participant)

Thank you, ladies and gentlemen. So that concludes today's presentation. You may now disconnect and have a wonderful day.