Q2 2024 Earnings Summary
- Successful cost management and labor efficiency improvements are leading to margin expansion and EBITDA growth. Premium pay has been reduced by almost two-thirds from its peak during the pandemic, and acute care turnover is down to pre-pandemic levels in the low to mid-20% range. This reflects greater success in hiring permanent positions and reducing costs per discharge through decreased length of stay.
- Strong underlying demand in the behavioral health segment, with plans to increase capacity and reduce staff turnover to meet this demand. UHS expects to achieve 3% patient day growth by the end of the year, supported by positive net hires over the last 18 to 24 months and initiatives to reduce turnover rates. Reduction in turnover will help satisfy the outstanding behavioral demand, including treatment for opioid illness and other diagnoses.
- Expectation to return to pre-pandemic margin levels and continue EBITDA growth, supported by sustainable cost improvements and volume growth. The company has increased its guidance, reflecting substantial first-half outperformance and ongoing cost management improvements. UHS anticipates same-store revenue growth of 5% to 6%, split evenly between price and volume, in its acute care segment.
- UHS is experiencing a moderation in acute care demand, with adjusted admissions increasing only 3.4% year-over-year and surgical growth flattening out.
- A significant portion of UHS's earnings guidance raise is dependent on supplemental Medicaid payments, which may not be sustainable or guaranteed, potentially making earnings less predictable.
- UHS is facing challenges in achieving projected growth in the behavioral health segment, with patient day growth expected to be lower than anticipated, and progress slower than expected.
-
Updated Guidance and Supplemental Payments
Q: How has updated guidance accounted for supplemental payments and second half expectations?
A: Steve Filton explained that the revised guidance includes the first half's outperformance and ongoing supplemental payment programs but excludes any potential benefits from Tennessee or Washington D.C. ( , ). He stated that about half of the guidance raise is due to supplemental payments, increasing expected Medicaid supplemental payments from about $810 million to the low to mid-$900 million range for the year ( , ). -
Medicaid Supplemental Payments Impact
Q: What is the expected financial impact of new Medicaid supplemental programs in Tennessee and Washington D.C.?
A: The potential annual benefit from the Tennessee program is estimated between $42 million and $56 million, and from Washington D.C., between $80 million and $90 million ( ). These programs are pending CMS approval and could be retroactive, with Tennessee possibly retroactive to July 2024 and D.C. to October 2024 ( ). -
Behavioral Volume Performance
Q: How have behavioral volumes performed and what's the outlook?
A: Behavioral patient days increased by 1.4% in Q2, below expectations. Challenges include labor vacancies, Medicaid disenrollments affecting adolescent volumes, and specific facility issues. Steve Filton expressed confidence in reaching the 3% patient day growth target by year-end, believing underlying demand remains strong ( , , ). -
Margins and Cost Management
Q: What steps are being taken to improve margins and return to pre-COVID levels?
A: Marc Miller highlighted plans to incrementally improve margins by addressing volume issues and better expense management. Progress has been made over the past 12 months, and continuing this trajectory is expected to achieve desired margins in the near future ( ). -
Acute Pricing and Payer Mix
Q: What's affecting acute care pricing and payer mix?
A: Adjusted admission growth was 3.4% in Q2, with surgical volumes flattening due to difficult comparisons to last year. Steve Filton noted a return to pre-pandemic patterns and expects same-store revenue growth of 5% to 6%, evenly split between price and volume, excluding supplemental payments ( ). -
Impact of Medicaid Redeterminations
Q: How are Medicaid redeterminations affecting the business?
A: Medicaid redeterminations have led to increased commercial exchange patients on the acute side, rising from 4% to 5% of adjusted admissions, slightly benefiting revenue. In behavioral facilities, particularly in Southern states, disenrollments have negatively impacted volumes, especially among adolescents, due to delays in reenrollment and higher copays and deductibles ( , ). -
Labor Dynamics and Staffing
Q: How are labor challenges being addressed to meet volume demands?
A: Turnover rates have improved to the low to mid-20% in acute care, returning to pre-pandemic levels ( ). Efforts focus on reducing turnover through mentorship programs and career development to retain staff. Net hires have been positive for 18 to 24 months, aiming to meet the 3% volume growth target in behavioral facilities by year-end ( , ). -
Two-Midnight Rule Impact
Q: Is the Two-Midnight Rule change affecting the business?
A: Steve Filton stated they have been unable to identify any significant impact from the Two-Midnight Rule change on metrics like denials or patient status changes, differing from some peers' observations ( ). -
Share Repurchase Program
Q: What is the plan for the share repurchase program?
A: The company intends to spend around $500 million to $600 million of free cash flow on share repurchases this year, with the recent authorization supporting this plan ( ). -
Health Plan Business Performance
Q: How is the health plan business performing, and is it core to UHS?
A: The health plan operates at breakeven but provides narrow networks and aligns with Medicare physicians, funneling patients to UHS facilities. It remains a strategic part of UHS's operations in acute care markets ( ).
Research analysts covering UNIVERSAL HEALTH SERVICES.