Universal Health Services, Inc.

Good day. Thank you for standing by. Welcome to the UHS 2025 conference call here. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a -to-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 that 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 like to now hand the conference over to today's speaker, Steve Filton, Executive Vice President and Chief Financial Officer. Please go ahead.

Good morning. Thank you. Mark Miller is also joining us this morning. We both welcome you to this review of the Universal Health Services results. The first quarter ended March 31, 2025. During the conference call, we'll be using words such as believes, expects, anticipates, 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, 2024. 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 $4.80 for the first quarter of 2025. 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 per diluted share was $4.84 for the quarter ended March 31, 2025. During the first quarter of 2025, on a same facility basis, adjusted admissions to our acute care hospitals increased .4% over the first quarter of the prior year. Same facility net revenues in our acute care hospital segment increased by .0% during the first quarter of 2025 as compared to last year's first quarter after excluding the impact of our insurance subsidiary. Meanwhile, operating expenses continued to be well managed. Other operating expenses on the same facility basis increased by .6% over last year's first quarter after excluding the impact of our insurance subsidiary. For the first quarter of 2025, our solid acute care revenues combined with effective expense controls resulted in a 21% increase in EBITDA after excluding the impact of Medicaid supplemental payments. During the first quarter of 2025, same facility net revenues at our behavioral health hospitals increased by 5.5%, driven by a .8% increase in revenue per adjusted day. Adjusted patient days were relatively flat compared to the prior year quarter. The -over-year patient day growth comparison was negatively impacted by the extra leap day in 2024 and challenging winter weather conditions experienced this year early in the first quarter in certain markets. We did experience a re-acceleration of patient day growth in March. Our cash generated from operating activities decreased from $396 million during the first quarter of 2024 to $360 million this year due in certain Medicaid supplemental payments in various states. We did receive $82 million of payments related to the Nevada supplemental program in April that were related to revenues recorded in the first quarter. In the first quarter of 2025, we spent $239 million on capital expenditures and acquired $1 million of our own shares at a cost of approximately $181 million. Since January 2019, we have repurchased approximately 30.3 million shares representing 33% of our shares outstanding as of that date. As of March 31, 2025, we had $1.02 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. I will now turn the call over to Mark Miller, President and CEO, for closing comments.

Thank you, Steve. We are pleased with our first quarter operating results, which on a consolidated basis exceeded our internal expectations. We were particularly encouraged by the control of our operating expenses in both business segments. Our first quarter operating results exclude any supplemental Medicaid revenues in Tennessee and the District of Columbia pending CMS approval of these new programs. For programs that were approved in previous years, we have continued to record those revenues under the assumption that programs will be re-approved. As these programs have been a recent focal point, I believe it is worth reminding people that these are federally authorized and state approved programs in place for many years, and they are designed to allow providers who have been underpaid by Medicaid to provide quality care to over 70 million Medicaid recipients nationally. Even where these programs exist, our net Medicaid reimbursement generally remains below both average commercial and Medicare reimbursement. West Henderson Hospital in Las Vegas opened in late 2024 and posted a modestly positive EBITDA in the first quarter. Cedar Hill Regional Medical Center in Washington, D.C., opened recently and has experienced strong demand for its emergency room services from the outset. While we acknowledge a great deal of uncertainty in our external operating environment, we feel confident in our underlying businesses and based on current reimbursement and operating cost levels reiterate our full year earnings guidance. We are pleased to answer questions at this time.

All right, thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you just need to 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. Please stand by while we compile the Q&A roster.

All righty. Our first question comes

from the line of Justin Lake of Wolf Research. Please go ahead. Your line is now open.

Thanks. Good morning. Appreciate all the details. I wanted to focus on the behavioral side, Steve. I know you talked about leap year. You talked about weather, especially earlier in the year. Maybe you could give us an idea of what you saw in March, given weather would have been passed to you, the leap year impact would have been passed to you. So how did March volume, maybe even early April volume look and any update on the full year guidance in terms of your thoughts around behavioral volume we should be assuming for the year?

Our full year guidance that we presented in late February presumed behavioral patient day revenue growth .5% to 3%. We believe that is still a reasonable target and that remains our embedded target for our guidance. We accelerated from our sort of more muted, flat X levels, maybe even negative levels in January and February. Didn't quite get to the .5% to 3% target in March, but feel like it was indicative of the fact that weather had muted our volumes for five or six weeks in January and February. April is a little bit hard to say because I know we had Easter and spring break in April, but it feels like recent volumes again give us confidence that .5% to 3% should be achievable for the full

year. Got it. And then maybe, Mark, you could just, on the DPP side, it was good to hear that the things kind of started up again in Nevada. Any other states that you're kind of focused on in terms of where you're expecting to hear soon and any kind of updates beyond Nevada?

I just think it's Washington, D.C.

and Tennessee. And in both cases, the state of Tennessee and the District of Columbia advise, not just us, but their hospital community that they continue to expect approval. That's the message they get from the folks they deal with at CMS. Obviously, timing is still somewhat up in the air, but again, kind of as your question eludes to, Justin, we're encouraged that after a, what seemed like a full pause in any new approvals or re-approvals by the Trump administration after they took office, a number of programs have been re-approved and there even have been a couple of new programs, none that affect us, but some new programs have been approved. So it feels to us like that process has sort of been resurrected or restarted and we view that as a hopeful sign. And again, most importantly for us, the Nevada program was re-approved and as I noted in my remarks, we were actually paid for the first quarter revenues in April.

Appreciate

it. Thanks,

guys. Thank you.

Our next question comes from the line of Sarah James of Tantor Fitzgerald. Your line is out.

Thank you. I just wanted to follow up on Justin's question a little bit. So if you're still at two and a half to three percent on behavioral volumes for the year, I think that implies a step up for the rest of the year that is above the guide range or above the high end of the guide range. Is that the right way to think about it?

Yeah, mathematically I think that's correct,

Sarah. Okay, got it. And then the Nevada DPP that came in from the quarter, how many months was that related to? Because I think it was approved in April. So should we think about that as four months? And if so, are you running a little bit ahead on your DPP guide for the year?

Yeah, so no, that was just the first quarter payment. That $82 million, I will remind people, is the gross payment that we get from the state. It's not net of our provider taxes. We've continued to pay the taxes on a regular basis. So we paid our taxes in Nevada in the first quarter. That gross amount that we received, the $82 million, is in April relates to the first quarter. But I think your confusion is you're thinking, you know, if you annualize that $82, it's a lot more than the benefit that we described. And it's because it doesn't include the provider tax element.

Got it. That's helpful. Thank you.

Thank you. Our next question comes from the line of Andrew Mock of

Barclays. Your line is now open.

Hi, good morning. Question on tariffs. Can you help us understand what actions you're taking now to prepare for potential tariffs and what your GPO has communicated to you thus far? Thanks.

Yeah, so first of all, you know, I'll reiterate, I think, what, you know, at least one of our peer companies talked about from a tariff perspective, just sort of framing the issue. I think they said that, you know, they estimate about 60% of their supply chain purchases are sourced in the U.S. and Canada and Mexico. So at the moment, they're not subject to tariffs. Another 15% are pharmaceuticals, which are also at the moment not subject to tariffs. So at the moment, and I would say our numbers we guesstimate are roughly the same, about three quarters of our supply chain purchases are insulated from tariffs. The way we're, I think, protecting ourselves or, you know, actively sort of dealing with the issue is we do find some vendors who have fixed contractual prices with us and have started to include things like fees or stipends or, you know, I'm not even sure how to describe them, you know, on their invoices. We've been sort of ignoring those, etc., you know, because I think we believe they're not, you know, part of the contract. You know, we continue to monitor any vendors who would tell us that they're considering cancellation of contracts or they're finding availability of products problematic. We're not really getting any of that feedback yet, but certainly preparing if we do for alternatives, you know, other, you know, other sourcing alternatives, other pricing alternatives, etc. But at the moment, it feels like there's not a great deal of pressure, again, in large part because I think a good chunk of our supplies are insulated from tariff impacts at the moment.

Got it. Maybe just a follow-up on the behavioral side. Maybe whether aside, are you seeing any changes in your behavioral referral patterns or willingness of JV partners to work with UHS? Thanks.

I don't think so. You know, I know you said weather aside, but I would just make the comment about weather. And we talked about this, I think, on the year-end earnings call. You know, the weather that we're talking about, winter weather, was in places that I think don't normally experience winter weather. And more in the central part of the country, Virginia, Kentucky, Tennessee, Arkansas. And the challenge, I think, is twofold for us from a winter weather perspective in those places. Number one, schools are closed. And then they, you know, I think, you know, I remember that I believe in February in a number of our Virginia facilities, schools were supposed to be open, I think, for 19 days that month, and we're only open for 11. And so that has a big impact on our child and adolescent population and admissions in our child and adolescent population. And the other thing that the weather impacts is our outpatient programs. Obviously, from an inpatient perspective, we may lose admissions over a two or three or four day period if the weather is bad, but we obviously continue to treat the patients that we have. But our outpatient programs pretty much close down during those days where it's difficult for people to travel and they can't clear the roads, et cetera. So we really see an outsized impact on our outpatient and our child adolescent business when we experience those winter conditions. Other than that, no. You know, question about are we seeing, you know, really any sort of structural changes in our referral patterns or willingness of referral sources to send us patients, the answer to that is no, which is really why I think ultimately, you know, we remain confident that we should be able to reach that two and a half, three percent target that we set originally.

Great. Thanks for the call.

Thank you. So our next question comes

from the line of Ben Hendricks of RBC Capital Markets. Your line is now open.

Great. Thank you very much. Just following up on that last question, moving to the rate side, the strong seven point two percent rate growth there. Just wanted to imagine there's some pair mix dynamics there with redetermination and then just wanted to also get any other observations you have on pair mix changes or any case mix developments in the behavioral side there driving that rate growth and also when you expect that to, I guess, normalize out to a more long-term steady state growth rate.

Thanks. Yeah, so our revenue per adjusted day on the same sort of basis, I think as we've disclosed in our opening comments, was five point eight percent. I think again, our guidance for the year was in the four to five percent range, so we continue to, and that four to five percent certainly would be a moderation of the rates that we've been getting over the last several years. And I think most of that is not necessarily kind of pair mix or redetermination impacts and such things that you mentioned, but just generally, you know, better contractual pricing that we've been getting, particularly from our managed Medicaid payers. That number has been moderating some over the last several years. I think partly because as we get those prices and we start to anniversary the impact, you know, it's not as significant. I also think that as capacity increases in the behavioral industry in general, it diminishes a little bit of our leverage over the payers who I think right now have to deal with a scarcity of capacity, particularly invasion capacity, where they can send their patients. So again, you know, I think the pattern that we're seeing in terms of strong behavioral pricing is one that we've been seeing for some time. It is moderated a little bit. It is moderating more slowly than maybe we originally anticipated and that our guidance presumed. And, you know, I think we would we would presume that that would continue to be the case. So as volumes recover, the year goes on. Hopefully we can if we're short of the two and a half to three percent target for any period of time, hopefully our pricing will offset that.

Great. Thank you.

Thank you. Our next question comes from the line of Stephen Baxter of Wells Fargo. Your line is now open.

Hi, thanks. Just wanted to ask more of a philosophical question on the Medicaid supplemental payment program. Obviously, we don't know what the ultimate outcome is going to be from a legislative or regulatory point of view here, but it does seem like, you know, we could be living a world where, you know, there's like significant restriction at a minimum in your ability to grow this economic, you know, earning stream going forward. I know that this has only served to, you know, kind of improve your Medicaid reimbursement to, you know, maybe more sustainable levels versus actually make money. But as we think about your P&L leverage to supplemental programs, I mean, how should we think about, you know, a world where maybe that is a more fixed stream going forward, your ability as a company to still kind of deliver the type of same store revenue and even the growth rates that you've targeted historically? Thank you.

Yeah, I mean, look, I think honestly, we're already in that world. I mean, I think, as you know, you know, our 10K, we present a very detailed disclosure on Medicaid supplemental payments. And our projected Medicaid supplemental payments for 2025 were already generally flattish with what they were in 2024. So, you know, we certainly are not counting on growth in those programs. And it's certainly possible that we will see some deceleration in those supplemental payments or in other Medicaid reimbursement. You know, and I think what that really means ultimately is the way we're going to grow the behavioral business in the intermediate and long term is with more volume growth. And that's why it is, you know, we acknowledge it's important that we get to that two and a half to three percent target, patient day target, because ultimately we think, you know, going forward, our Medicaid rates in particular are likely to be impacted by legislative action.

Travis, I think we can go to the next question.

All right. Thank you. Our next question comes from the line of Benjamin Rossi of JP Morgan. Your line is now open.

Hey, good morning. Thanks for taking my question. So, how would you describe, I guess, patient utilization activity during one cue across a cue and then when parsing those up by payer, how do you frame growth between maybe your traditional managed care book versus your ACA exchange related volume? Just curious if you've seen any variation at the regional level for states where enrollment is faster, like Texas or Florida versus a state like Nevada, where it might be less pronounced. Thanks.

Yeah, I don't. So I think specifically, you know, your question about exchange utilization, again, you know, I think one of our peers talked about the fact that their exchange volumes were up 20% or so in the first quarter over last year's first quarter. I think we saw a similar increase. Again, these are relatively small numbers on an absolute basis. I think about for us at least exchange or patients with exchange coverage represent about 6% of our adjusted admissions in our acute care space. That's a little bit of an example of what we were running. And if that utilization is coming from anywhere, I think it's probably, you know, our Medicaid utilization is probably not growing as fast and that's probably what's generating most of that exchange increase. But overall, I don't think that patient mix is affecting our pricing or our profitability in any significant way. Got

it. Thanks. And then just as clarification on the Medicaid taxes, said you received the payments in April. Did your one queue other operating expenses contain those related Nevada Medicaid taxes or is that a two queue item?

No, the point that I was trying to make to Sarah before was we continued to pay the provider taxes on a regular basis. So our first quarter provider taxes were in our numbers, even though, again, the revenue was in there as well. It's just that the cash was not.

Got it. Thanks for

the clarification.

Thank you.

So

our next question comes from the line of Joshua Raskin of Nefron Research. Your line is now open.

Yeah, thanks. Good morning. Just back on the behavioral, I'm curious on demand trends outside of weather and some of these other temporal effects. Are you seeing any differences in demand by acuity, sort of demand for specific services? And then just a quick follow up on West Henderson. I know it's very early there, but I'm just curious how you're seeing competitive dynamics impact in the market and maybe just a comment on your other facilities there as well.

Yeah, so I'll answer West Henderson's question first and come back to behavioral. Yeah, I mean, we're very encouraged by our West Henderson results for a hospital basically in its first full quarter of being open to have positive events. It really is extraordinary. There's a little bit of cannibalization from our existing hospitals and we talked about this in our year end call. So I would suggest that a little bit of our same store adjusted admission metrics, a little bit our same store profitability is sort of muted by the fact that there's been a bit of cannibalization, although I don't think it's terribly significant. But just generally pleased. And that's honestly, while I think it's better than we even expected, the whole reason we built West Henderson and invested in this project is we think that it's a growing part of the Las Vegas market. The demand would be there. It has been. And I think we think West Henderson will continue to grow at a brisk pace. We're very encouraged by the early results. As far as your behavioral questions and really sort of if demand has changed, no. And again, I think we've said the same thing really for the last several years, which is measured both by sort of macro kind of data, industry wide data that tracks behavioral demand across a variety of diagnoses and services. I think generally that has been strong in our own sort of micro data, which is our inbound activity of calls and internet inquiries, et cetera, continues to be quite strong. And so the challenge is do we have the physical capacity to meet those demands? Do we have the labor force to meet those demands? I think those have improved in the last several years, but can still be challenging in some markets. We also acknowledge there is more competition in some markets. But again, I'll sort of go back to what I said before. I think because the demand remains strong, because the labor market is stabilized, et cetera, I do think we have the view that that 2.5 to 3% patient day growth target is still a very achievable target.

Perfect. Thank you. Thank you. So our

next question comes from the line of Craig Hittenbach, excuse me, from Morgan Stanley. Your line is now open.

Great. Thank you. On the acute business, can you talk about any trends that sit out just from an acuity perspective? And then outside of volume growth, any levers there that you're looking to potentially pull to continue to margins in that segment?

Yeah. So from an acuity perspective, I would say acuity was muted a little bit in Q1 by the busier flu season. So we had on a relative percentage basis more medical patients than surgical or procedural patients in Q1 because of the busy flu season. I think that will normalize as the year goes on. But our acuity, as measured by our CMI, actually was still relatively strong in Q1, which I think suggests that the procedural business that we did have was still pretty solid relatively high acuity business. And obviously, I think after the first quarter, even in March, we saw flu volumes decline dramatically, as you would expect. And so I think as the year goes on, you know, it's fair to expect acuity will grow a little bit.

And then just as a follow-up on just capital deployment, updated thoughts on just kind of CapEx plans for this year versus buybacks and how you're approaching that?

Yeah. I mean, our original guidance was for, you know, 800 to a billion dollars of CapEx. We had 240 in Q1, a little bit high in Q1 because, you know, we still had some costs, you know, falling over from West Henderson. We still have some other whole hospital projects ongoing. So yeah, I mean, I think we're on track to be in that range, as we suggested. I think our share repurchase guidance for the year was in the $600 million range. We had $180 million in the first quarter, so we're tracking a little bit above that. You know, we'll see. But I think, you know, as long as there continues to be some level of uncertainty and softness in the market and our share price, I suspect, will continue to be an active acquire of our shares.

Thank you. All right. Thank you very much. Our next question

comes from the line of Matthew Gilmore, KeyBank Capital Markets. Your line is now open.

Hey, thanks for the question. I wanted to ask about the expense management topic. Any areas of particular performance to call out and sort of how you're feeling about the sustainability of that? And I was particularly interested in the premium labor costs. I think they've been running $60 million per quarter. Just kind of curious where that's running through the early part of 25.

Yeah. So as to premium pay, premium pay in the quarter was, I think, $63 million, which I think you suggest, Matthew, is we've been running in the low 60s, so pretty consistent. Yeah, I think the operating expense controls, which really have been present now for several quarters, are really a reflection of a few different things. I think as the labor markets have settled out, obviously, premium pay, use of temporary labor has declined and reached kind of a steadier level. I think wage inflation has certainly decelerated from the heights that it had reached during the pandemic. That's certainly helpful. It limits the amount of sign-on bonuses or recruitment bonuses and things that we have to pay in order to attract talent. I also think, and we've talked about this on previous calls, we've been more actively managing productivity and appropriate staffing levels, et cetera, post pandemic because there isn't nearly as much competition for labor. It's still a pretty tight labor market, but not nearly as tight as it was at the height of the pandemic. So it's allowed us to go back to some of the blocking and tackling mechanisms that I think we saw during the pandemic because there was such a lack of staff. So I think, again, our operating expenses in both business segments really look positive, and I think they should remain so. Obviously, we've talked about some of the exogenous pressures, mainly tariffs, and obviously, that's difficult for us to predict. But I think in terms of things we can control, we think that these expense levels and expense controls are certainly sustainable.

And then, Steve, a quick follow-up on the Medicaid supplementals. We all appreciate the level of disclosure you provide. In terms of the expectation for 2025, are you still expecting $997 million from the last disclosure, or has that number changed at all?

Yeah, so we're still compiling that for our first quarter 10Q, but I would that number has not changed in any material way.

Got it. Thank you. Thank you. So our next question comes from

the line of Michael Ha of Baird. Your line is now open.

Thank you. Just want to follow up on Sarah's question on behavioral health volume, cadence for the rest of the year. It is a pretty big implied step up. So I was wondering if you elaborate more on cadence, quarterly cadence. Are we talking an immediate large step up in two Q, or something more modest, and then larger step ups in three Q, four Q, and maybe specifically as it relates to the three big headwinds that impacted volumes last year? How much of that is still redeterminations, labor constraints, those handful of sites? What's the latest update on those? I presume maybe labor is still ongoing, but have we now fully stepped over the other two headwinds, trying to get a better sense on falling recovery over the balance of the year?

Thanks. Yeah, so Michael, I think you kind of answered your own question. I mean, I think of the three that we have talked about historically, the only one that is persistent, I think is labor. The labor scarcity has certainly improved from, again, when it was really, really extreme during the height of the pandemic, but it's still a tight labor market, and we still compete in various markets, or find the competition for a variety of kind of staff levels, whether that's nurses, or therapists, or mental health technicians, to be problematic in certain markets. And in certain markets, I do think it creates kind of a cap on our volumes. But I don't think that's getting worse, and I think we continue to make progress there. I'll make the point that I think a big computing factor in Q1 is simply the leap day comparison that probably has about a little over 100 basis point impact. Obviously, that's something that we know over the year will, the impact will diminish, and I think we always assume that the two and a half to three percent for the year took into account the one leap day for the year. So that will get, that comparison will not be as difficult as the year goes on. Yeah, I'm not going to make a comment about exactly where we're likely to wind up in Q2. Again, just repeat what I said now a number of times, which is the original guides of two and a half to three percent for the year is something we think we can achieve. We acknowledge that it requires a step up from where we were in Q1.

Thank you. Just one more question about California and Florida's proposal. I think they already submitted a file to CMS to raise the DPP payments to average commercial rates. Is there any update there? I know historically, I think about six months for approval, but there might have been a bit of a moratorium just given the new administration. But I also know, Steve, you mentioned a lot of DBC programs that were paused are now being resurrected. So serious on those two and also maybe more broadly, given this administration's focus on budget, Medicaid, provider taxes, whether you think future proposals to raise DPP to average commercial rates might have maybe less likelihood of being passed over the next few years. Thank you.

Yeah, and so it feels, Michael, like this is really kind of a two track process at the moment in that there are new programs being submitted. There are new programs that have been submitted in our case in Tennessee or in Paso Tos, Tennessee and D.C. that are being considered by CMS. And the impression that we have, again, as your question alluded to, is that there was sort of a pause as the administration changed and the policymakers and CMS changed. But it feels like the administrative process of reviewing and approving these programs has sort of been restarted. Again, forget about what we're saying. I think what the states who have submitted these programs are saying is that they expect that they're going to go through the normal process, be approved in the normal course, etc. That's separate and apart from any legislative action that the House and Senate may take to limit these programs in the future, etc. So again, you know, I think we're viewing this separately. We think that the Tennessee and D.C. programs, based on the feedback we get from those respective governments, are likely to be approved at some point. I think it's difficult to predict. California and Florida have just been submitted. I think it's even more difficult to predict what the timing of that would be. But that, I think, is separate and apart then from whatever legislative action may impact those supplemental programs

going forward. Thank you. So our next question comes from the line of

Peto Chickering of Deutsche Bank. Flyer line is now open.

Hey, good morning, guys. Thanks for taking my questions. I guess the first one here is, can you guys sort of talk about the settlement of the Pavilion case and remind us how much commercial insurance you have for the lawsuits and what is the timing of the Cumberland case?

Yeah, so as we disclosed in the press release, we have a tentative settlement in the Pavilion case. It is limited by, you know, disclosure is limited by confidentiality. It also requires approval of the court, which we think probably is not coming until next month. And, you know, when we get that approval and, you know, in our next filing, you know, we'll disclose how much insurance is still, you know, remaining. But I will say at this point, there is still substantial, if this settlement is approved, there will still be substantial commercial insurance for the 2020 year remaining. And that's important because the Cumberland cases that you also referenced are 2020 cases. But we'll give those details once the settlement is approved by the court. As far as the timing of the Cumberland cases, they've moved very, you know, the three cases have been adjudicated, are moving slowly. We have not gotten rulings even on the post-trial motions, let alone any appeals, etc. None of the other cases have been tried. So it's moving, you know, quite slowly, you know, from the perspective of those cases.

All right. I agree. And then follow up here, the acute hospital segment saw 110 basis point improvement in supply costs. You know, how much of that leverage is due to just the flu and lower surgical volumes? How much is just due to better supply management? And how should we be thinking about supply leverage in 2025 as surgical volumes come back? Thanks.

Yeah, I mean, I think, you know, our original guidance for the year presumed, you know, relatively modest inflation rate for supply expense increases, you know, in this sort of two and a half, three, three and a half percent range. We did obviously better than that in Q1. I think some of that, as your question suggests, is that mix of patients, you know, more medical, more respiratory, less procedural, you know, so that by its nature, you know, medical cases tend to have, you know, less of a supply component than procedural cases. You know, I would think for the year, again, you know, something in that sort of, you know, modest inflationary expense is the way that I would think about supply expense growth. Although to be fair to both our operators and our contractual pricing standpoint and, you know, product replacements to cheaper products, etc. So, you know, some of that positive supply results are from active management on our part.

Great. Thanks so much.

Thank you. So our next question comes from the line of Ryan Langston of TD Cohen. Your line is now open.

Thanks, Mark. Can you tell us how physician fee expense growth ended up in the first quarter, both from a year over year perspective and versus your internal expectations?

So, you know, we said, you know, in our original guide, we said professional fees broadly and the physician expenses that you're talking about would, you know, simply increase by, you know, again, you know, an expected inflation rate, 5%, something like that. And that is certainly the way that we're tracking, you know, we see some amount of pressure, meaning, you know, requests from physicians for, you know, either accelerated or increased or new fees. But I think, you know, we're dealing with that. And our, you know, general expectation is that we should be able to control those professional fees and physician expense to or limit it to, you know, just some overall inflationary increase.

Got it. And then just lastly, I'm sorry if I missed it, but can you parse out the impact from the higher flu and respiratory season we saw in the first quarter? Thanks.

Yeah, I mean, so the easy part is I think we would suggest that there was probably, you know, something less than 10 million, maybe seven or eight million dollars of incremental profits from the, what we would describe as sort of excess flu cases, you know, the number of flu cases this year in excess of last year. What's harder to do is kind of calculate any sort of kind of crowd out effect, you know, procedural cases, I think were somewhat softer as I think a number of our peers have suggested as well, whether that was due directly to the flu season, not hard to say. But I think, you know, we have always had a position that the flu tends to have a relatively immaterial impact on results, both positive and negative, meaning, you know, during a busy flu season, which this was or not busy flu season, and then, you know, I don't think this quarter was any different. The one other item I'd add just to clarify is while the flu was, I think if you, you know, there are these maps that show flu activity around the country. And while generally flu activity was much higher just about everywhere, Nevada was one of the few states that had a very light flu season. So in our biggest acute care market, I don't think we had much of an impact from the flu season.

Okay, thank you.

Thank you very much. Our next question comes from the line of Joanne Goodrick of Bank of America Securities. Your line is now open.

Hey, good morning. Thanks so much for taking that question. So maybe just switching gears a little bit to pricing. So first, can you talk about commercial rate updates you've seen, I guess, this year for future, you know, have you noticed any change in managed care contracting terms and maybe any change, you know, from plans in terms of just, you know, how aggressive they are or how willing they, you know, they are to respond to your request given, you know, they see high costs? Thank you.

Yeah, so first of all, again, I'll just remind everybody that, you know, our overall guidance for our acute care segment this year was five to six percent same store revenue growth split pretty evenly between price and volume. So two and a half to three percent price, two and a half to three percent volume. That two and a half to three percent price assumption includes, you know, a commercial price assumption, probably the four to five percent range. Again, I think we're tracking those numbers. You know, I would describe, you know, the relationship with the managed care companies as always, you know, difficult and a slog, whether that's contractual pricing negotiations or the -to-day processing of claims and then denials and denials appeals, etc. We're very focused on that. I think we've improved the number of our own internal revenue cycle functions to deal with some of the more aggressive behavior on the part of payers. But again, I think, you know, our first quarter results would suggest that we're not seeing any meaningful impact from any more aggressive behavior on the part of the payers.

Thank you. And if I may, in your psych segment, can we talk about pricing there too? So you alluded to the idea that you do think there could be, you know, some changes to Medicaid funding coming from Congress. So with that uncertainty, our states behave differently when it comes to, you know, the budgeting process when it comes to rates for psych?

Yeah, I don't think so. I think, you know, the reality is providers, payers, government entities are all in this sort of uncertain environment. And I think, you know, the way most of us are behaving is, you know, as we, whether it's negotiating contracts or the states that are dictating rates, etc., are doing so based on the best information they have available. If that changes, their behavior may change. But I think it's very difficult for any player in the space to anticipate exactly what the changes are going to be and to react to them currently. So I think we all, for the most part, are, you know, dealing with the information at hand and, you know, when and if it changes, we'll, you know, adopt or adapt our behavior to that.

And if I may squeeze that very last and sorry if I missed it, just to confirm, in your guidance, you still do not assume a Tennessee and DC DPP approval, correct?

All right. So our guidance did not assume anything for Tennessee or DC, and our results do not include anything for DC or Tennessee.

Great. Thanks. All

right. Thank you. Our next question comes to the line of AJ Rice of UBS. Your line is now open.

Hi, everybody. Maybe just to go back to, I know we've gotten asked a lot about supplemental payments, but one thing that one of your peers raised the other day that was sort of interesting is they were saying that they saw some states maybe tweaking down payment rates under the traditional Medicaid formula because they had supplemental payment programs that were offsetting it and aggregate the industry was doing okay, they felt. Are you seeing any of the base payment rate, which probably would lend some support to the discussion the industry's making about, you got to look at the total picture, but I was wondering if you're seeing any of that.

Yeah, AJ, I don't know that we've seen that in any sort of material way. It certainly could be on the horizon, but we have not seen that in any really impactful way.

Okay.

I know you were, helped out a lot by making some comments about what it might look like if you lost the enhanced subsidies on the exchange. I think your number was $40 to $50 million for that. I don't know, I assume there's no update on that because there's really not any new information, I don't think, but I wondered because there's a lot of discussion obviously around these supplemental payments about the possibility of moving the provider tax limit from 6% to 5%. Have you guys looked at that? Do you have a sense of what that might mean or how to think about that?

Yeah, we certainly have looked at it, AJ. I don't know that any of the companies as far as I know have really estimated that impact because in part it's a very detailed calculation. The states are not always forthcoming in terms of all the data that we would need to make the calculation. So again, I think everybody's kind of reserving estimates until we see what the actual move might be. But yeah, we're certainly going through those calculations and doing a lot of that to try and understand what the impacts could be.

Do you think most of the states, once you get meaningful supplemental payments, where are they at relative to what percent of provider tax they're getting relative to revenues of hospitals?

Yeah, so several of the largest states or states that are most impactful to us are certainly under 6%. That would include Texas and Florida. So the impact, if legislation would go from a 6% cap to a 5% cap, the impact would be limited in those states. But again, those calculations can be pretty complicated.

Okay, all right. I'll leave it at that. Thanks a lot.

All right. So I'm showing no further questions at this time. I would like to now turn it back to Steve Bilton for closing remarks.

So I have just one quick housekeeping item. We omitted our gross revenue disclosure in the press release last night. I think we were under the impression that nobody was really using that metric. I have been disabused of that notion over the last 12 hours. A number of people have asked for it. So we filed an 8K this morning, as we normally do. Normally, it would just be a duplicate of the press release. But we've included in that the gross revenue information. So people who are seeking that gross revenue data can find it in the 8K that we filed today. Other than that, we'd just like to thank everybody for their time and look forward to speaking to everybody next quarter.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.