Q3 2024 Earnings Summary
- UHS is improving margins through enhanced cost management, with decreasing salaries as a percentage of revenues contributing to margin recovery in the acute care segment.
- Strategic expansion of the care continuum, including investments in ambulatory surgery centers, freestanding imaging, and freestanding emergency departments, along with strong physician alignment initiatives, positions UHS for future growth.
- Significant investments in technology within the behavioral health segment, such as implementing Electronic Medical Records (EMRs) in 25-30 facilities by early next year, are leading to operational efficiencies and higher quality of care.
- Slower than expected recovery in behavioral health volumes: UHS has acknowledged that the recovery in behavioral health patient volumes has taken longer than anticipated due to staffing challenges, issues at specific residential facilities, and the impact of Medicaid disenrollments. This suggests ongoing operational difficulties within this segment.
- Anticipation of moderating behavioral health pricing: The company expects that behavioral health pricing, which has been a significant driver of revenue growth, will moderate from historically high levels. This potential slowdown in pricing growth could impact future revenues in the behavioral segment.
- Normalization of acute care volume growth limiting future prospects: UHS does not foresee elevated acute care volume growth, as volumes have begun to resemble pre-pandemic patterns. This normalization could limit growth prospects in the acute care segment moving forward.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +11% ($3.963B) | Higher patient volumes in both acute care and behavioral health facilities drove revenue growth, alongside improved reimbursement rates. Ongoing cost management (e.g., lower premium pay) further supported margins ( ). |
Acute Care Hospital Revenue | +11% ($2.246B) | Same-facility revenue increases and inpatient volume growth boosted acute care results. Company-specific initiatives, such as expanding service lines, also helped capture market demand ( ). |
Behavioral Health Revenue | +11% ($1.715B) | Increased revenue per patient day and moderate volume gains, especially in outpatient services, contributed to this growth. Reduced labor costs and ongoing service expansions further enhanced performance ( ). |
UK Revenue | +13% ($230M) | Favorable market conditions and increased patient demand in UHS’s UK facilities led to higher revenue. Currency fluctuations offered a slight tailwind, though the primary driver was the solid underlying operational performance ( ). |
Operating Income (EBIT) | +35% ($384M) | Cost efficiencies (e.g., lower premium pay) and revenue expansion combined to strengthen EBIT. Improved labor management and enhanced payer mix also increased operating leverage relative to the prior year ( ). |
Net Income | +52% ($259M) | Stronger operating margins and effective expense controls contributed to significantly higher net income. Interest expense management and favorably timed reimbursements (e.g., state-directed programs) also influenced this figure ( ). |
Diluted EPS | +59% ($3.80) | Net income growth amplified by fewer shares outstanding (due to share repurchases) drove EPS higher. Revenue increases and controlled costs both contributed to a robust bottom-line performance, surpassing the prior year’s earnings level ( ). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS | FY 2024 | Midpoint: $15.80 | Midpoint: $15.80 | no change |
Adjusted admissions growth | FY 2024 | Acute care: 3% to 4% | Acute care: 3% to 4% | no change |
Patient day growth (Behavioral) | FY 2024 | 3% | 3% | no change |
Same-store revenue growth | FY 2024 | Acute care: 5% to 6% | Acute care: 5% to 6% | no change |
Share repurchase | FY 2024 | $500M to $600M | $500M to $600M | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Acute Care Revenue Growth | Q3 2024 | 5% to 6% year-over-year growth | 11.3% YoY growth (from 2,017.3MTo 2,245.5M) | Beat |
Share Repurchase Program | Q3 2024 | $500M–$600M total for FY 2024 | $420.6M spent year-to-date ($142.1M+ $95.9M+ $182.6M) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Cost management, margin improvement, and labor cost pressures | Ongoing focus on returning to pre-pandemic cost structures, with premium pay reductions and stable physician expenses. | Decreased premium pay (down to $60M), stabilized wage inflation, and lower salaries as a % of revenue contribute to margin recovery. | Consistent across periods, driving continuing margin improvement. |
Behavioral health services expansions, volumes, and investments | Regular expansions (e.g., Southridge JV), 1.4%-2% volume growth earlier, with steady focus on new beds, outpatient services, and tech investments. | 3% same-store patient day growth, resumed bed additions, and new facility openings (e.g., River Vista). | Ongoing emphasis, with volumes gradually improving; expansions remain a key strategic priority. |
Acute care volume shifts from strong growth to normalized levels | Previously showed higher growth (e.g., 3.4%-4.5%), but moderation foreseen in all earlier calls. | Volumes up 1.5% Y/Y, returning to pre-COVID patterns; prior pandemic-driven surge has dissipated. | Continued normalization after pandemic-era peaks. |
Medicaid supplemental payments | Key revenue driver, significantly boosting margins; expansions in multiple states (e.g., Nevada). | Extra $20M recognized above guidance, with future upside from pending programs (Tennessee, D.C.). | Large revenue impact persists; expansions point to continued reliance. |
Major malpractice litigation risk | Mentioned in Q1 2024 regarding an unprecedented verdict in Illinois and high coverage limits; no substantive mention in Q2, Q4 calls. | Not mentioned in Q3 2024 (no new references). | No longer mentions after Q1 2024, indicating reduced concern or resolved status. |
Shift from Medicaid to exchange coverage | Stronger mention in Q1 and Q2 calls (e.g., shift helped acute but hurt behavioral volumes); not specifically highlighted in Q4. | Referenced as a challenge for behavioral segment (high deductibles/co-pays), but impact is dissipating. | Previously tracked, now less highlighted beyond minor impacts. |
Anticipation of moderating behavioral health pricing | No explicit mentions of moderation in Q2/Q1; mild caution noted in Q4 about future rate anniversaries. | New mention in Q3 2024, expecting pricing to remain strong but gradually moderate in 4%-5% range. | Emergent topic suggesting slight softening in future pricing trends. |
Expanded investments in ambulatory services | Only light references to outpatient expansion in previous calls, mostly around behavioral outpatient growth. | New emphasis on ASCs, freestanding imaging, and EDs to provide care in cost-effective settings. | Recently spotlighted, signaling shift toward broader outpatient strategy. |
Changing sentiment on returning to pre-pandemic margins | Ongoing discussions in prior calls about progress toward pre-pandemic margin levels, buoyed by cost controls and revenue growth. | Confidence in margin recovery, citing flexible workforce management post-COVID. | Steady optimism, with reintroduction of traditional productivity measures. |
Reliance on supplemental payments for revenue growth and guidance | Consistently noted as key to revenue/EBITDA, with half of guidance raises often tied to these funds. | Acknowledged as exceeding projections, integral to current results; more potential from unapproved programs. | Continued heavy reliance; remains a major driver of profitability. |
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2025 Tailwinds and Medicaid Payments
Q: What are the major headwinds and tailwinds for 2025?
A: Steve Filton expects continued margin recovery in 2025 and highlighted significant potential tailwinds from Medicaid supplemental programs in Tennessee, the District of Columbia, and Nevada. UHS will open two new facilities: one in West Henderson, Las Vegas, and another in the District of Columbia, but neither is expected to significantly impact EBITDA. He also mentioned potential new or expanded programs in California and Florida that could be effective next year. -
Outlook for Acute Care Growth
Q: What's the outlook for acute care volume growth?
A: Filton anticipates acute care growth returning to pre-COVID levels, with same-store revenue growth in the 6% to 7% range, split evenly between price and volume. Year-to-date metrics show adjusted admissions up 3% and revenue per adjusted admission up 5%. He doesn't expect incremental benefits from the Two-Midnight rule change and hasn't seen evidence of structural changes leading to elevated volume growth. -
Physician Expenses and Labor Costs
Q: How are physician expenses and labor costs trending?
A: Pressures on physician expenses were driven by billing changes like the No Surprises Act rather than physician scarcity. Physician recruitment has remained stable over the last several years. Labor trends have stabilized in both business segments, with premium pay decreasing and salaries as a percentage of revenues coming down, contributing to margin recovery. -
Behavioral Health Volumes and Pricing
Q: What are the trends in behavioral health volumes and pricing for 2025?
A: UHS expects to exit the fourth quarter with 3% patient day growth in behavioral health. For 2025, they anticipate same-store revenue growth in the 6% to 8% range, with pricing growth of 4% to 5% and volume growth of 3% to 3.5%. While behavioral pricing has been strong, it may moderate but should remain within the 4% to 5% range. -
Managed Care Payer Behavior
Q: Have you seen changes in managed care payer behavior like denials or downgrades?
A: Since late 2022, there's been more aggressive behavior from managed care payers regarding denials and patient status changes. However, there was no dramatic change in the current quarter. On the Two-Midnight rule, UHS has been focused on appropriate coding and hasn't seen significant changes from recent CMS clarifications. -
Higher Corporate Expenses
Q: Why were corporate expenses higher this quarter?
A: The higher corporate expenses were due to a $5 million loss on debt extinguishment from refinancing and another $5 million in settlements of miscellaneous smaller lawsuits. These $10 million expenses are characterized as nonrecurring.