Universal Health Services, Inc.

Good day and thank you for standing by. Welcome to the universal health services third quarter 2023 conference call. At this time all participants are in a 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Steve Filton, CFO. Please go ahead.

Thank you and good morning. Mark Miller is also joining us this morning. Welcome to this review of universal health services results for the third quarter ended September 30, 2023. During this 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 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, 2022, and our Form 10-Q for the quarter ended June 30, 2023. 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 $2.40 for the third quarter of 2023. After adjusting for the impact of the item reflected on the supplemental schedule as included with the press release, Our adjusted net income attributable to UHS per diluted share was $2.55 for the quarter ended September 30, 2023. During the third quarter, same facility revenues at our behavioral health hospitals increased by 7.6%, primarily driven by a 6.5% increase in revenue per adjusted patient day. The patient day growth in the quarter was greater at our acute care behavioral hospitals, versus our lower acuity residential treatment centers, which tended to drive up the revenue per day beyond the already robust levels we've been posting for several periods. Additionally, as we have anticipated in our original 2023 guidance, we're beginning to see a negative impact of Medicaid redeterminations in certain states on behavioral health volumes. With 8.3% revenue growth, same facility EBITDA for our behavioral health hospitals has increased approximately 10% during the first nine months of 2023 compared to the comparable prior year period. Our acute hospitals experienced strong demand for their services in the third quarter, with adjusted admissions increasing 6.8% year over year. In part because the volume growth was skewed somewhat to lower acuity procedures, overall revenue growth was 7.5%. While overall surgical volumes increased about 3% from the prior year quarter, there was a continuing shift from inpatient to outpatient. Additionally, we note that managed care behavior has become more aggressive in 2023 as it relates to denials and patient status classification changes. Meanwhile, the amount of premium pay in the third quarter was $69 million, reflecting a 15% decline from the amounts in the previous several quarters. The continued robust increase in acute volumes is the major reason that premium pay has not declined farther. It's worth noting that our average hourly rate, which includes premium pay, was slightly lower than in the third quarter of 2022, in 2023 as compared to the comparable prior year quarter. Our cash generated from operating activities was $815 million during the first nine months of 2023, as compared to 699 million during the same period in 2022. In the first nine months of 2023, we spent $537 million on capital expenditures and acquired 2.7 million of our own shares at a total cost of approximately $367 million. Since 2019, we have repurchased approximately 26% of the company's outstanding shares. As of September 30, 2023, we had $721 million of aggregate available borrowing capacity pursuant to our $1.2 billion revolving credit facility. I will now turn the call over to Mark Miller, President and CEO, for closing comments.

Thanks, Steve. Despite what remains a difficult operating environment, our consolidated results continue to track our revised earning guidance. As we anticipated, acute care volumes have continued their recovery trajectory and have gradually begun to resemble the patterns we experienced before the pandemic. As Steve has previously commented, we recognize the need to counter the increasingly aggressive behavior on the part of our payers and seek appropriate price increases to offset the impact of inflation on our cost structure and to seek further contractual protection to ensure we are properly reimbursed for the level of care provided to our patients. We previously highlighted the upward pressure on physician expense, which tended to run at a rate of about 6% of revenues pre-pandemic, but is running closer to 7.6% in 2023. In our behavioral segment, we have been pleased with our strong pricing and related earnings growth to date, but acknowledge significant upside opportunity in our existing occupancy rates, particularly as we continue to improve our recruitment and retention metrics. As previously disclosed, we expect our operating results for the fourth quarter of 2023 to include revenues earned by our hospitals in connection with the Florida Medicaid managed care directed payment program. In addition, it is worth noting that we continue to believe a new Nevada state directed program, which we have previously disclosed, appears to still be on track for 2024 implementation with a potentially materially favorable impact on our Nevada hospitals. We are pleased to answer questions at this time.