Universal Health Services, Inc.

Good day and thank you for standing by. Welcome to the third quarter 2024 Universal Health Service Earnings 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 this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you 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 speaker today, Steve Fulton, Executive Vice President and CFO. Please go ahead, sir.

Thank you. Good morning and welcome to this review of Universal Health Services results for the third quarter ended September 30, 2024. During the conference call, I'll 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, 2023, and our Form 10-Q for the quarter ended June 30, 2024. I'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, company recorded net income attributable to UHS for diluted share of $3.80 for the third quarter of 2024. After adjusting for the impact of the items reflected on the supplemental schedule as included with the press release, our adjusted net income attributable to UHS for diluted share was $3.71 for the quarter ended September 30, 2024. As we anticipated, Acute care volumes have moderated somewhat and have gradually begun to resemble the patterns we experienced before the pandemic. Adjusted admissions to our acute hospitals increased 1.5% year over year with surgical growth slowing. Overall revenue growth was still a solid 8.6%, excluding the impact of our insurance subsidiary. Meanwhile, expenses were well controlled. Specifically, the amount of premium paying the third quarter was $60 million, reflecting a 12% decline from the prior year quarter. Included in our operating results during the third quarter of 2024 were aggregate net incremental reimbursements of approximately $20 million recorded in connection with various state supplemental Medicaid programs, approximately half of which was earned by our acute care hospitals. These net reimbursements were in excess of the supplemental program projections included in our earnings guidance for the full year of 2024, as revised on July 24, 2024. On a same facility basis, EBITDA at our acute care hospitals increased 36% during the third quarter of 2024, as compared to the comparable prior year quarter, and the increase was 17%, when excluding the impact of the incremental Medicaid supplemental payments earned in Nevada during the third quarter of 2024. The increase in operating income comparison to last year's third quarter for our acute hospitals is a further step towards a more extended margin recovery we hope to sustain for the next several periods. In our acute segment, physician expense, which was a significant headwind in 2023, has stabilized at approximately 7.2% of revenues thus far in 2024. During the third quarter, same facility revenues at our behavioral health hospitals increased by 10.5%, primarily driven by an 8.5% increase in revenue per adjusted patient day. Even after adjusting for Medicaid supplemental payments not included in our original 2024 guidance, facility revenues increased 8.3% and same facility EBITDA increased 9.6% in the third quarter of 2024 as compared to the comparable prior year period. As a result of untradable trends experienced during the last several years during the third quarter of 2024, we recorded a $30 million increase to our reserves for self-insured professional and general liability claims. Our cash generated from operating activities was $1.4 billion during the first nine months of 2024 as compared to $815 million during the same period in 2023. In the first nine months of 2024, we spent $698 million on capital expenditures and acquired $1.7 million of our own shares at a total cost of approximately $350 million. Since 2019, we have repurchased approximately 31% of the company's outstanding shares. As of September 30, 2024, we had 1.01 billion aggregate available borrowing capacity pursuant to our 1.3 billion revolving credit facility. In our acute care segment, we continue to develop additional inpatient and ambulatory care capacity. Construction continues on our de novo acute care hospitals consisting of the 150-bed West Henderson Hospital in Las Vegas, Nevada, which is expected to open shortly, the 136-bed Cedar Hill Regional Medical Center in Washington, D.C., which is expected to open in the spring of 2025, and the 150-bed Allen B. Miller Medical Center in Palm Beach Gardens, Florida, which is expected to open in the spring of 2026. In our behavioral health segment, we recently opened the 128-bed River Vista Behavioral Health Hospital in Madera, California, and we are developing the 96-bed Southridge Behavioral Health Hospital in West Michigan, a joint venture with Trinity Health Michigan, which is expected to open in the spring of 2025. The approval processes continue in connection with new Medicaid supplemental payment programs in Tennessee and Washington, D.C., as well as a proposed funding increase to the existing program in Nevada. Although we cannot provide assurance that any or all of these programs or program changes will ultimately be approved by CMS or the timing of such approvals, which may not occur until 2025, if approved in their current forms, the Tennessee program with estimated annual net benefit of 40 to $56 million would be effective July 1, 2024. The Washington D.C. program, with estimated annual net benefit of approximately $85 million, would be effective October 1, 2024. And the funding increase to the existing Nevada program, with estimated annual net incremental benefit of approximately $56 million, would be effective July 1, 2024. Our previously provided earning guidance for the full year of 2024, as revised on July 24, 2024, did not include the estimated incremental net benefit related to any of these programs. I'd be pleased to answer your questions at this time.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for our first question. And our first question is going to come from the line of Josh Ruskin with Niprin Research, your line is open. Please go ahead.