Universal Health Services, Inc.

Good morning and thank you for standing by. Welcome to the Universal Health Services Incorporated second quarter 2022 earnings conference call. I would now like to hand the conference over to our speaker today, Steve Filton, Chief Financial Officer. Please go ahead, Mr. Filton.

Thank you and good morning, everyone. Mark Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the second quarter ended June 30, 2022. During the conference call, we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecast projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in those 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, 2021, and our Form 10-Q for the quarter ended March 31, 2022. 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 an adjusted net income attributable to UHS per diluted share of $2.20 for the second quarter of 2022. As previously disclosed in our pre-announcement on June 30, 2022, our acute hospitals experienced a significant decline in COVID related patients during the second quarter of 2022. As a percentage of total admissions, COVID diagnosed patients made up 13% of total admissions in the first quarter of 2022, but only 3% in the second quarter of 2022. The decrease in COVID related patient volumes during the second quarter was not offset by an equivalent increase in non-COVID-related patients, resulting in significant shortfalls in revenues and earnings compared to our original forecast for the quarter. And even though we did make progress in reducing premium pay in the acute segment, which went from $153 million in the first quarter to $117 million in the second quarter, overall costs did not decline sufficiently to offset the weaker revenues. Specifically, a surge in patients with the Omicron variant of the virus, which began in December of 21, tended to peak in most of our geographies in January of 22. In our acute segment, we would note that in general, the Omicron patients were less acutely ill than the COVID-related patients treated in previous surges, and thus displayed somewhat lower acuity. Meanwhile, the amount of contract nursing hours used, and even more importantly, the rate we had to pay for those hours, increased significantly in the first quarter, both on a sequential basis as well as on a year-over-year comparison. In our behavioral segment, we also made progress in filling our vacant positions, but patient day volumes still did not recover as quickly as we originally expected. We do note that our reported second quarter results were benefited from approximately $10 million of revenues from supplemental Texas Medicaid reimbursements, which were not reflected in our estimates for the quarter in the pre-announcement. These revenues were originally contemplated to be recorded in the second half of the year, so the $10 million represents a shift in timing only. The second quarter also included approximately $20 million of startup losses incurred by recently opened de novo acute and behavioral health facilities, as well as a $16 million pre-tax charge incurred to increase our reserves for self-insured professional and general liability claims.

Our second quarter 2022 operating results were significantly behind our original forecast. The primary driver of the shortfall was that non-COVID volume did not recover as quickly as we had anticipated based on our previous experience during the pandemic when COVID volumes declined rapidly. We believe there are multiple contributing factors to the slower demand rebound. Most notably, labor scarcity issues, which continue to constrain our ability to meet demand in certain circumstances. In the end, however, we believe that the majority of demand shortfall has been simply delayed or postponed, and that ultimately it will be realized. We are encouraged by the progress made in reducing premium pay and filling vacancies, and we continue to invest heavily in recruitment and retention initiatives. Where appropriate, we are also developing alternative patient care models that allow us to use a wider variety of available caregivers to render the most efficient and high quality of care where we can. In reaction to the earnings softness and the fact that we are completing a refinancing during the quarter, We reduced the pace of our capital expenditure spend by about 20% or $100 million for the first six months of the year. Similarly, we moderated the trajectory of our share repurchases, although we still expect to acquire approximately the same number of shares as were in our original guidance. We are pleased to answer your questions at this time.