Universal Health Services, Inc.

Good day and thank you for standing by. Welcome to the Q2 2026 Universal Health Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Darren Lyric. Please go ahead.

Thank you. Good morning and welcome to Universal Health Services' second quarter 2026 earnings conference call. I'm Darren Lyric, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller, and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks and then we will open it up for Q&A. During today's conference call, we will be using words such as believes, expects, anticipates, estimates and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, we recommend a careful reading of the section on risk factors and forward-looking statements and risk factors. Form 10-K for the year ended December 31, 2025, and Reform 10-Q for the quarter ended March 31, 2026. In addition, we may reference during today's call measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI, and adjusted net income attributable to UHS, which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in yesterday's press release and our supplemental materials on our website. With that, let me now turn it over to Marc for some introductory remarks.

Thanks, Darren. Good morning and thank you for joining today's call. I'm pleased to share some operational and strategic highlights from the second quarter before Steve discusses financial highlights. Overall, our second quarter of 2026 featured a rebound in acute care volumes, behavioral health volumes, that were consistent with recent trends, continued expense management, and exchange trends that progressed in line with our expectations. During the quarter, we also benefited from the approval of the Florida DPP program for 2025, which was not contemplated in our original outlook. From an operational perspective, I want to highlight the investments we are making. to expand capacity in the communities that we serve. We continue to see favorable demand trends across our markets, supporting confidence in the long-term need for capacity in both inpatient and outpatient service lines in our acute care and behavioral health segments, allowing us to extend our footprint with access points that are convenient to our patients and help further align us with physician stakeholders. In acute care, we added 177 licensed beds in three hospitals during the second quarter. These new beds represent a 2.5% increase to our same facility bed capacity and position us to respond to strong demand in these communities. In May, we officially opened the Alan B. Miller Medical Center in Palm Beach Gardens, Florida. And we are very pleased to have achieved Joint Commission accreditation for the Stenovo Hospital in July, reflecting sound execution by our local team. We've experienced a strong reception from the Palm Beach Gardens community and are excited to serve this fast-growing area of Florida with the newest and one of the most advanced medical campuses in the region. Within our behavioral health segments, we continue to make strong progress in our integration planning for the pending Talkspace acquisition. which we expect to close in mid-August of this year. Talkspace represents not only a unique opportunity for us to accelerate our presence in the outpatient market, but also creates the nation's first end-to-end continuum of behavioral healthcare services, from acute inpatient and residential services, inpatient, in-person outpatient care, and soon with Talkspace, virtual services nationally. As Steve will detail shortly, we've increased our professional and general liability reserves and now assume higher anticipated operating losses at our de novo hospital in Washington, D.C., as well as San Diego, I'm sorry, San Antonio, Texas Behavioral Hospital that we're in the process of recertifying in order to reestablish much needed mental health services capacity in that region of Texas. Accountability and delivery of high quality care are at the core of our purpose. We are deeply committed to excellence and to addressing any instances that fall short. Overall, the broad portfolio continues to perform well operationally and clinically, and we have a 46-year track record of strong quality and safety performance across both our behavioral health and acute care divisions. Before passing it over to Steve, I want to make a brief comment about our share repurchase activity during the second quarter, which accelerated to $320 million as compared to $127 million in the first quarter of 2026. The recent dislocation in our share price represents a compelling opportunity to deploy capital and retire UHS shares at heavily discounted levels. Given the strength of our balance sheet and the confidence we have in our ability to generate cash flow, we intend to remain highly active with our share repurchase program at these levels. In closing, I want to thank the UHS team for their focus on quality ability to adapt in such a dynamic 2026 operating environment. I want to emphasize that our strategy remains steadfast to invest in high growth markets, expand access to care, operate efficiently, and create long-term value for patients, employees and shareholders. I remain very optimistic about our long-term outlook given the quality and strength of our portfolio, the experience of our management team and the underlying demand characteristics of the markets that we serve. With that, I'll now turn the call over to Steve Filton for more details on the quarter.

Thanks, Marc. I will highlight a few financial and operational trends before opening the call up to questions. The company reported adjusted EPS of $5.98 for the second quarter of 2026, representing growth of 12% on a year-over-year basis. Second quarter adjusted EBITDA less NCI was $678 million, representing growth of 5% on a year-over-year basis. When excluding the $100 million out of period Florida DPP benefit not contemplated in our guidance, our Q2 adjusted EBITDA less NCI fell short of our internal expectations, primarily attributable to three items approximating 63 million, including 28 million attributable to higher professional and general liability reserves, approximately $20 million attributable to the San Antonio Behavioral Facility, and approximately 15 million attributable to a continued slower ramp up of our Cedar Hill Medical Center De Novo Facility in Washington, D.C. At the segment level, on a same facility basis, adjusted admissions at our acute care hospitals increased 2.9% as compared to the second quarter of 2025. Volume performance improved sequentially from the first quarter of 2026 and was broad-based geographically. Same facility acute care emergency department visits increased 4%, while same facility surgeries decreased 0.8% as compared to the second quarter of 2025. Although surgical volumes continue to be somewhat muted, the trend in the second quarter improved slightly compared to the past several quarters. From a service line perspective, we experienced positive trends in certain higher acuity inpatient service lines, notably urology, neurology, and cardiology as compared to last year's second quarter. Pay or Mix trends remain consistent with recent quarters with stronger growth in Medicare and managed Medicare, modest growth in managed care volumes excluding the exchanges, and slightly lower Medicaid volumes. Year-to-date facility, same-store facility acute care adjusted admissions growth through the second quarter of 2026 was 1.4%, and we believe it's appropriate to fine-tune our volume guidance for the full year to a range of 1.5 to 2.5% or 50 basis points lower at the midpoint of our prior range to reflect the year-to-date trends. On the same facility basis, net revenue in our acute care segment during the second quarter of 2026 increased 8.2% and increased 5.9%, excluding the impact of our health plan. acute care same facility revenue per adjusted admission increased by 3.0% during the second quarter of 2026 on a reported basis and increased 2.7% after excluding net out-of-period Medicaid supplemental benefits from both periods. Acute care rate growth continues to track in line with our expectations overall. Operating expenses were well managed across labor, supply, and other expense categories. Same facility acute care salaries, wages, and benefits expense per adjusted admission increased 2.7%, and supply expense per adjusted admission decreased 2.5% over last year's second quarter. Contract labor was 2.5% of acute care segment revenue, or 20 basis points lower year over year. Other operating expenses increased primarily due to our health plan, which experienced revenue growth of approximately 35%. For the second quarter of 2026, our acute care performance resulted in 8.2% same facility segment EBITDA growth. Excluding the out-of-period supplemental program benefit from both periods, second quarter 2026 same facility acute care segment EBITDA increased 6.3% on a year-over-year basis. In our acute care segment, the net out-of-period benefit related to supplemental payments was approximately $7 million, comprised of approximately 23 million in the second quarter of 26 from the Florida program as compared to approximately 16 million of out-of-period amounts in the second quarter of 25 related to other state programs. With respect to health insurance exchange trends during the second quarter of 2026, we estimate an impact of approximately $20 million, which was in line with our expectations. Exchange volumes declined approximately 15% as compared to the second quarter of 2025. The reduction in the number of exchange volumes corresponds to the increase in self-pay volumes during the second quarter. Based on the trends during the first half of 2026, we expect the full-year pre-tax impact to be within the upper half of our originally contemplated guidance range, or approximately $85 million, while the The first half decline in exchange volumes was below the 25% plus range in our original forecast. We believe our impact estimate is supported by the trends we have observed year to date in our business and other dynamics such as shifts in the metal tier that are playing out within the exchange market. As it relates to our acute care de novo hospitals, our Palm Beach Gardens facility opened in May and second quarter startup losses at this facility were in line with our expectations. In Washington, D.C., Cedar Hill Regional Medical Center entered the same facility hospital group in the second quarter and continued to ramp at a slower than expected pace. Second quarter performance at Cedar Hill represented an improvement of approximately $15 million year over year, although results there were similar to our first quarter. Turning to our behavioral health segment results during the second quarter of 2026, same facility net revenue increased 7.4%, supported by a 6.1% increase in same facility revenue per adjusted patient day and a 1.4% increase in same facility adjusted patient days as compared to the second quarter of 2025. Year to date, same facility adjusted patient day growth through the second quarter of 2026 was 1.5%, and we believe it's appropriate to fine tune our volume guidance for the full year to a range of 1.0 to 2.0% or 100 basis points lower than the prior range at the midpoint to reflect year-to-date trends and an outlook for second half volumes to be similar to Q2 performance. Same facility behavioral health segment EBITDA increased 9.0% in the second quarter of 2026, excluding the net benefit from out-of-period supplemental payments same facility revenue per adjusted patient day increased 5.3%, and same facility segment EBITDA increased 5.7% on a year-over-year basis. In our behavioral health segment, the net out-of-period benefit related to supplemental payments was approximately $18 million, comprised of approximately $77 million in the second quarter of 2026 from the Florida program as compared to approximately $59 million of that period amount in the second quarter of 2025 related primarily to the Tennessee program. For the second quarter of 2026, behavioral health segment facilities salaries, wages, and benefits per adjusted patient day increased 4.8% on a year-over-year basis showing improvement on a sequential basis as headcount moderated further to 2% growth. In California, based on our success in hiring and training, we remain on track with the $35 million impact that we contemplated in our original 2026 outlook with respect to the state's nurse staffing ratio requirements that went into effect June 1. As it relates to our behavioral health hospital in Texas that is in the process of getting recertified, we stopped receiving reimbursement at the end of April and do not expect to receive reimbursement from government or managed care sources until we regain certification, which we anticipate in 2027. The facility will operate in the meantime with limited patient census, and therefore we will incur operating losses and the facility will be excluded from our same facility performance. During the second quarter of 2026, pre-tax losses at this facility totaled approximately 10 million, including staff severance costs. We expect operating losses to run between $5 and $10 million per quarter for the balance of 2026. During calendar year 25, this facility's EBITDA was approximately $25 million. Moving on to cash flow and balance sheet highlights, second quarter cash generated from operating activities was $44.3 million as compared to $549 million during the same period last year. During the second quarter of 2026, we spent $228 million on capital expenditures reflecting the de novo hospital opening and bed capacity expansions Marc referred to earlier. During the second quarter of 2026, we acquired 1.89 million of our shares at a total cost of $320 million. As of June 30, 2026, we had $978 million of repurchase authorization available pursuant to our stock buyback program, and we expect to remain active with share repurchase throughout 2026. For a balance sheet perspective, we end the quarter with cash of $139 million, total debt of $4.85 billion, and net leverage of 1.8 times. As of June 30, 2026, we had $1.27 billion of additional borrowing capacity available pursuant to our revolving credit facility. Turning to our outlook for 2026, we are updating our financial operating forecast to reflect year-to-date performance and recent developments. The components of our updated 2026 guidance compared to our previous forecast can be found in our second quarter earnings press release and our supplemental earnings material. Our updated guidance represents approximately 7% revenue growth, 3% EBITDA less NCI growth, and 6% EPS growth at the midpoint. Focusing my remarks specifically on adjusted EBITDA-less NCI, our updated 2026 forecast is in a range of $2.61 billion to $2.72 billion, representing a decrease of approximately $50 million from our prior outlook at the $2.66 billion midpoint. At a high level, we include approximately $150 million of additional Medicaid supplemental net benefit for the full year that is offset by approximately $200 million of adverse items not originally contemplated in our outlook. The primary drivers of these factors are as follows. First, we now expect the net benefit for Medicaid supplemental funding to be approximately $1.5 billion for the year. or an increase of approximately $150 million from our prior outlook. This $150 million is comprised primarily of the $100 million net benefit from Florida recognized in the second quarter, growth in other programs during the first half of 2026, and approximately $25 million related to the Texas Atlas program that we expect to record in the third quarter. It is worth noting that more than one-fifth of the $1.5 billion total is derived from state-based programs not subject to the reductions in the OBBA legislation. Second, we now include $50 million of impact associated with the Texas Behavioral Health Facility that is in the process of being recertified. This includes the loss of approximately $30 million in earnings originally budgeted for this year and approximately $20 million of operating losses assumed for the full year while we work towards recertification. Approximately $20 million of this impact was in the second quarter, and the remaining $30 million is expected to impact the second half of 2026. Third, we are adjusting the year-over-year tailwind related to Cedar Hill Regional Medical Center in Washington, D.C. from $50 million to $20 million. Our original guidance assumed Cedar Hill would be break-even during the first half and have positive earnings in the second half of 2026, which would have yielded a $50 million de novo tailwind net of anticipated startup losses at the Palm Beach Gardens de novo hospital. The $50 million difference in our guidance now assumes Cedar Hill will reach break even during the fourth quarter and therefore approximately $20 million of startup losses at our Florida hospital will not be contained by second half operating gains at Cedar Hill as originally contemplated in our prior outlook. Approximately $20 million of this impact was in the first half of 2026, and the remaining $30 million is expected to impact the second half of 2026. Fourth, we are increasing our professional and general liability expense estimate for the full year by approximately $50 million, of which $28 million was recognized during the second quarter of 2026 and the remainder represents increases to our quarterly expense going forward. It is important to point out that the increase to our reserve and additional expense for the balance of 2026 is split somewhat evenly between our acute care and behavioral health segments and reflects industry-wide trends generally associated with higher claims severity across all healthcare settings. The PLGL adjustments are in connection with our semi-annual third party for the actuarial review process conducted during the second quarter. Finally, we are fine-tuning other aspects of the 2026 outlook, including the same facility volume assumptions for both segments, which result in an EBITDA-less NCI impact of approximately $50 million. As mentioned earlier, we now expect acute care adjusted admissions to be in a range of 1.5 to 2.5 percent and behavioral health adjusted patient days to be in a range of one to 2% as compared to our prior range of two to 3% for both segments. We believe centering our same facility volume outlook at approximately 2% for acute care and one and a half percent for behavioral health still reflects a healthy demand environment while being respectful of our more recent performance. Operator, that concludes our prepared remarks and we're pleased to answer questions at this time.

Thank you. We will now open the call to questions and answers. To allow as many people as possible to submit a question, please limit yourself to one question and one follow-up. We also ask that you wait for your name and company to be announced before proceeding with your question. If you would like to ask a question, please press star 1 on your telephone. You'll hear the automated message advising your hand is raised. If you would like to remove yourself from the queue, press star 1 again. One moment while we compile the Q&A roster. Our first question of the day will be coming from the line of Anne Hines of Misuhu. Please go ahead. Hello, Anne, your line is open. Oh, sorry about that. I was on mute.

Just my question is focused on the acute care volume change. Is that non-ACA related, meaning you're seeing some pressure just in your base business?

And if that's the case, can you just provide a little bit more detail what you think is happening? Thanks.

Yep. So I think as we said, and in our remarks, we're just trying to be practically reflective of our first half performance. Acute care volumes sort of trended in that 2% adjusted admission range for the first half. I think we're seeing continued shift of certain elective and outpatient procedures into alternate site settings, ASCs, freestanding imaging, et cetera. And I think that's the primary contribution. We're pleased overall with our acute care volume growth in Q2, pleased with the surgical volumes in Q2, which both overall volumes and surgical volumes rebounded in Q2. So I feel good about that, but felt like we were being, I think as our comments indicated, sort of respectful of the first half performance by slightly lowering the midpoint of our admission growth for the back half of the year.

Next question. And our next question is coming from the line of Andrew Malk of Barclays. Please go ahead.

Hi. Good morning. When we contemplate all the puts and takes to the guidance revision for this year, it looks like underlying EBITDA growth accelerates several hundred basis points in the back half. Can you walk us through the drivers of that back half acceleration? Thanks.

Sure, Andrew. I think as we contemplated the revised guidance, we felt like we identified a number of positive developments that should occur during the second quarter. One, which we referenced in our prepared remarks, was the new capacity. We added 177 beds across three markets in our acute facilities during the second quarter. Those projects will continue to ramp up as the year goes on. The initial openings of all three of those projects, I think, indicated strong demand. And so we're very positive about that. And those beds, again, I think as Marc mentioned in his comments, represent about a 2.5% increase in our bed capacity. So that's one item. I think both Marc and I mentioned that Cedar Hill that benefit will continue to grow as the year goes on. If you recall, we lost $25 million in the third quarter of last year at Cedar Hill. We're expecting Cedar Hill to be at break even this year, so that's another positive swing there. In behavioral health, I think I said in my comments that our headcount growth was 3% in the first quarter, moderated to 2% in the second quarter. We expect the headcount and labor cost growth to continue to moderate during the second half. And finally, our comparison in the second half in Nevada, particularly in the fourth quarter, had seasonally softer trends during 2025. And we continue to see more normal growth trends in Nevada during 2026. So that's another opportunity for accelerated growth in the back half of the year.

Great, thank you.

Thank you. One moment, please, for the next question. And our next question will be coming from the line of Matthew Gilmore of KeyBank. Please go ahead.

Hey, thanks for the question. For the Florida DPP program, I heard that you booked the 25 portion in the second quarter. If this program is renewed for fiscal 26, would the sizing of the 26 program be about the same? I think bigger picture, just wanted to better understand if there are more opportunities with DPPs to be recognized during 2026.

So I think the answer, Matthew, is we're not certain what the impact of the 2026 approved program would be, which is partly why we have not either recorded any benefit in 2026 nor included it in our guidance. Obviously, if the program is approved, we will record it. and we'll be benefited by that. As far as other programs, there was a recent approval of a California program that we've been recording. I don't think we think that has a material impact on us. There are a couple of other states that are contemplating either new programs or expanded programs. I don't know that any of them at this point would be material and certainly none of them are included in our guidance.

Got it. And then as a quick follow-up, Steve, can you give us a sense for how we should think about the ramp of the facility in San Antonio once it gets the CMS certification back in 2027?

Yeah, that's hard to do at this point, Matthew. Obviously, we don't know when the facility would or could be recertified. We don't know if it will be recertified with certain sort of conditions, you know, as to its ramp, etc. So, As we go through the process of getting surveyed, of dealing with the regulatory environment as we learn more about it, we'll be relaying that to you all, both in terms of timing and ramp expectations, et cetera. The one thing that I will say is just reiterate what Marc said, and that is we've had a lot of support from the broad San Antonio community The beds at Laurel Ridge Hospital represent about half of the behavioral beds in the market, and so they are sorely missed in the community by the population, by referral sources, et cetera. So our hope would be and our expectation that the demand will be there when and if we get recertified, and we would be prepared to ramp up relatively quickly and efficiently. But we'll continue to keep you posted on the timing of that. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Jason Carceria of Guggenheim Partners. Please go ahead.

Great. Thanks. Good morning. Maybe just hoping you can discuss behavioral volumes, just how that 1.4% compared to your internal expectations, I guess particularly after the headcount increases you've had over the past few quarters. Anything changing on the demand front, or is this very much like more of the same as you've flagged before around outpatient preference or outpatient shifts? Just any thoughts on the behavioral health volume demand environment would be helpful, too. Thanks.

Yeah, Jason, I mean, in the case of behavioral, I think, you know, the 1% to 2% change to our estimated volume range is very consistent with what we have been running for and now a number of quarters. I think we had originally anticipated a slightly higher growth rate largely based on increases in outpatient demand, and I think to date outpatient has been growing at about the same rate as inpatient. To your point, we've added some headcount in order to allow us to accommodate more outpatient capacity. I think it's just growing a little bit slower than we originally imagined. As we, I think, talked about in the last couple of calls, we do expect the acquisition of Talkspace to be a significant accelerant to our outpatient growth, really providing our patients this virtual option for outpatient treatment and outpatient care that we really weren't able to offer before in any sort of and more sizable ways. So obviously the Talkspace acquisition will be completed until August. It will take a little bit of time to complete that integration fully, but I feel like at that point in time we may revisit our outlook for particularly for outpatient growth. But, yeah, I think the change that we made was largely really just to recognize that that's kind of the environment that we've been operating in for some time.

Got it. Thanks. Very helpful. And then if I could follow up, I just wanted to ask about the malpractice reserve headwinds. It looks like increases to those reserves have had like a 2% to 3% annual EBITDA headwind over the past few years. I guess just stepping back, do you think these types of hefty increases will be like simply structural moving forward? Or are there any developments that could give some sort of visibility into deceleration in those costs? Or any thoughts around that would be helpful. Thanks.

Difficult for us to predict, Jason. What I would say is we include in our guidance and in our budget the amounts from our third party actuaries. We don't independently come up with those numbers. And then, of course, we have on a twice a year basis a third party actuarial review of where our expense and reserves stand. And to your point, they've been increasing. As we said in our prepared remarks, I think the main reason they've been increasing has been an overall increase in the severity of claims across healthcare providers of all sorts, including acute and behavioral. I don't think this is anything UHS specific. In terms of the things that we do to control that, obviously, internally, we have significant risk management programs to reduce the number of negative outcomes, et cetera, and are very focused on that. But in terms of the broader sort of environment where cases are just worth more, both in settlements and in verdicts, difficult for us to control that. There is a significant amount of lobbying going on by the industry for malpractice and tort reform at both the state and federal levels. but very difficult to predict how that will turn out. Got it. Thank you.

Thank you. One moment for the next question. And our next question is coming from the line of Pito Chickering of Deutsche Bank. Please go ahead.

Good morning, guys. A question on surgical volumes. Can you talk about the emergent versus elective surgeries that you saw on the 2Q and split out between inpatient and outpatient? And what do you think the demand setup is for that in the back half of the year?

So, Peter, we don't necessarily track elective versus non-elective surgeries. What we said in our prepared remarks was overall surgical volume was down 0.8% in the quarter. That's a bit of an improvement from the first quarter sequentially. On a blended basis, it reflects an increase in inpatient surgeries and a slight decline in outpatient surgeries. What I would say is that, you know, surgical performance or our surgical volume seemed to be A little bit better than some of our peers. Always hard to know exactly why that is. I will say that internally, we've been very focused in the last several quarters, maybe the last year, in an environment where we are otherwise, I think, trying to be very tight on expense control and capital spending. We've been very focused on investing in those areas. and other investments that will be revenue producing, whether that's robotics, whether that's more advanced imaging equipment, et cetera. And it feels like that is having some impact, some positive impact, so we're pleased with that.

A follow-up there. I mean, I guess, you know, were there any areas within specific weaknesses because you don't track emergent versus elective. I guess just overall, are there any sort of categories that were sort of stronger or weaker within the quarter? And then you talk about this in a script, but how should we think about the continued focus from CMS to push outpatient procedures into the ASC, and kind of how do you guys combat that, and how do you view, I guess, sort of medium-term outpatient surgical growth things?

Yeah, so we didn't necessarily comment specifically on surgeries, but having talked about service line growth in areas like urology and neurology and cardiology, I would suggest that those are areas where procedural volumes were strong as well. Obviously, the shift to outpatient is nothing new, as you know, Pito. I think we combat that in a number of ways. We continue to invest in Ambulatory Surgery Centers, where they're appropriate and where they make economic sense. We certainly have at least one ASC in every single one of our markets, and in many cases, multiple ASCs. We continue to expand and, like I said, invest in our own outpatient surgical capacity, whether that's physical capacity, building more OR suites, or whether that's investing in equipment responsive to the needs of OR proceduralists. and we continue to do that and I think obviously based on the second quarter performance I would say do it effectively but the shift to outpatient certainly is going to continue and we'll continue to pursue the initiatives that we've been pursuing to counter that.

Great. Thanks so much.

Thank you. One moment for the next question. And our next question is coming from the line of Ryan Langdon. of TD Calum. Please go ahead.

Thanks. Sounds like you had fairly strong, same story, ED volume, Steve. I think I heard you say around 4%, but a little less growth in inpatient admissions and surgical procedures. Anything in particular driving that sort of slightly lower ED conversion to inpatient, right?

No, I think, Ryan, you know, that's, again, that's not a new phenomenon. I think the issue is that for a good and a portion of the population who don't have their own primary care doctors. They use hospital ERs as their primary care doctors and as a consequence, those visits are not necessarily sort of traditionally emergent. While we continue to see a lot of acutely ill patients in our ERs, we also continue to see patients who are coming there for What, you know, traditionally have been, you know, more like a PCP visit.

Got it. And then just quick follow-up. I appreciate the comments and the share, repurchase, and prepared remarks. Any way to size how much of the $978 million authorization you may use for the rest of the year and maybe how much you've repurchased quarter to date? Thanks.

Yeah, so we're not in the practice of reporting share repurchase on an intra-quarter basis. I think we went into the year with the notion that we'd repurchase somewhere in the $800 to $900 million worth of shares. We'll certainly meet that, if not exceed that. We don't have a specific plan, but we'll continue to monitor the market, as Marc indicated in his comments. We view the current share dislocation price as a compelling opportunity. We'll continue to be active. We'll continue to evaluate it against other capital deployment opportunities we might have. But again, in this environment, we certainly are committed to remaining an active acquirer of our own shares.

Thank you. One moment for the next question. Next question is coming from the line of A.J. Rice of UBS. Please go ahead.

Hi, thanks, everyone. First, this is something we get asked a lot about, so I'll throw it out. I know it's out there, but you sort of sized your EBITDA from supplemental payments. Obviously, in 2028, they'll start to ratchet down somewhat because of the one big beautiful bill. Are you doing anything to sort of think about that. I know there's a chance that Congress could act and delay the implementation, but how do you think about how that might impact your long-term growth rate? And I know there's technology investments you're doing and other things like that. Just wondering how you think about that and are there things you're doing now to prepare to offset that?

So, AJ, that's a pretty comprehensive question. I'm going to try and answer it at a high level. You know, probably can explore it in more detail in some other setting. So, one, you know, I think Marc talked about the fact that, and my comments as well, that there was, I think, strong, from our perspective, strong expense management in the quarter, a number of initiatives to control productivity, make it more efficient. supply expense on the acute side on a per adjusted admission basis was actually down in the quarter. All those initiatives leading to that, you know, I think strong, you know, expense outcomes will continue and, you know, we will build on those and compound those. I think in previous calls, we've talked about significant amount of investments in technology, both AI and non-AI technology that is leading us to and so forth. From productivity improvements to improvements in our revenue cycle management, we've undertaken a significant review of our entire revenue cycle management on the acute side with the aid of a third-party consultant. That has yielded some, I think, significant and measurable results and improvements. We're currently just beginning a similar process on the behavioral side where I think there are equal opportunities. and then I think the third very broad piece is as we think about the OBB pressures which are largely on the Medicaid revenue reimbursement, I think particularly in the behavioral business, we are looking at a lot of different ways to manage our exposure to Medicare. I think the emphasis on outpatient growth in behavioral is a result of an acknowledgement that that's where the demand is growing and we want to treat people where they want to be treated and where their insurers want them to be treated. But also, you know, we acknowledge that outpatient revenue and behavioral tends to be much more Medicare-centric and managed care-centric than Medicaid-centric. So all those issues all consume a fair amount of focus and time are ways in which we're anticipating and trying to stay ahead of those OBB reductions that are scheduled to start beginning in 2028.

Okay. And maybe just to follow up a more specific question around results, you gave some comments about your payer mix, and it doesn't sound like the public exchange impact is as materially different as we saw for some of the other peers. Are you seeing any uptick? You didn't really mention uncompensated care in your comments on payer mix. Are you seeing any meaningful shift in your uncompensated care burden?

What was fairly apparent in the second quarter, AJ, was that the decline in exchange volumes was offset almost on a direct one-for-one basis to an increase in self-pay volumes. So it felt like virtually everyone who lost their exchange coverage became an uninsured patient. We had assumed in our original assumptions that a small percentage of those folks, maybe 10 to 20% of them, would replace their exchange coverage with other commercial coverage. We felt more likely coverage to their employers. That didn't seem to be true and probably that phenomena is what gave rise to the $10 million increase in our exchange impact projection from 75 to 85 million. But yeah, that's been the primary sort of observation about self-pay and its relationship to the exchange subsidies lapsing.

Thank you. One moment for the next question. Our next question is coming from the line of Craig Heckenbach of Morgan Stanley. Please go ahead.

Yes, thank you. Just following up on the comments of the kind of advanced integration planning of Talkspace ahead of that closure in a few weeks here. Anything else you would add in terms of things that you think you'll be able to kind of hit the ground running and how you're thinking about kind of that outpatient ramp, you know, next 12, 18 months?

Yeah, I mean, what we've talked about, I think, in previous calls, Craig, is that one of the things that, or maybe a couple of things that limit our ability to capture, particularly the step-down business, that is the business that's created by patients who are discharged from our inpatient facilities but require certain amounts of follow-up care, there are often limitations that prevent them from getting that care from us. and they tend to be, you know, really fall into two categories. One is geographic. You know, they may live two hours from our facility and, you know, while they were willing to come there as an inpatient, you know, making that trek two days, three days, five days a week as an outpatient is more difficult so that if we can offer them a virtual alternative or even another in-person alternative through our thousand branches initiative, you know, that's helpful to us. The other is simply oftentimes we just don't have the available therapist capacity to offer those follow-up services. And one of the great advantages of Talkspace is that they have a panel of over 6,000 therapists that can be available to our patients. once the acquisition is completed. So I think those two items really kind of cemented our view that the Talkspace acquisition should help accelerate our growth in outpatient.

Got it. And then just following up on the acute side, you mentioned kind of the new capacity, 177 new licensed beds. Any update on the freestanding emergency rooms in terms of investments there? And you also kind of talked about ASC, kind of at least one in each market. Just curious about the outpatient investments that you're making.

Yeah, our investments in freestanding emergency departments have really been among, you know, our best investments in the last, I'm going to say, five-year period. We have, unfortunately, I don't have the data right in front of me, but somewhere around 40 FEDs currently operating with probably another five to 10 in some form or stage of development. And again, I think those facilities are, just as I talked about in the sense of behavioral outpatient, we're treating patients where they want to be treated in the most cost efficient setting. And again, we have found that Patient demand for these freestanding EDs is significant. Payers are receptive to them. Care is being delivered more efficiently. And again, as I said, one of our best investments over the last decade or so.

Got it. Thank you.

Thank you. One moment for the next question. Next question is coming from the line of Ben Hendricks of RBC Capital Markets. Please go ahead.

Hey, great. Thank you very much. We've heard some of your peers talk about higher professional fees, specifically higher subsidies related to radiology and anesthesiology, hospitalists, et cetera, you know, amid service line mix shifts.

I was wondering if you could elaborate on kind of what you're seeing in that department. Thanks.

Yeah, you know, the comment that we've made about professional fees, both in our guidance and in our actual results, is that, you know, we did see and many more. We've seen significant increases in professional fees as did many of our peers in the back half of 2023 and into 2024. I think beginning in 25 and now into 26, what's embedded in our guidance is generally an inflationary, maybe slightly higher than inflationary uptick in professional fees, so maybe something in the 7, 8, 9% increase range annually. That's, I think, relatively reflective of our experience in 26 I think what we would continue to expect to see. I will say we're getting that pressure and we feel that pressure. We're responding to it in many different ways, in some cases by hiring the hospital-based physicians and putting those contracts out to bid and trying to control the amount of locums coverage we have to use, which is very expensive. So it is a challenge for our operators, but I think they have responded well. and, as I said, are keeping the increase to a manageable level in the upper single digits.

Thank you. Thank you. One moment for the next question. And our next question comes from the line of Andrew Cooper of Raymond James. Please go ahead.

Hey, everyone. Thanks for the questions. A lot covered already, so maybe just one I want to touch on Cedar Hill. If you could give a little bit more color on what the drags are, whether it's demand versus cost, just kind of the friction of getting up and fully running. And then what does that mean for the way we think about, you know, I know new new bed additions are different, but how we think about the ramp for these 177 beds you talked about adding and maybe a little bit more color on where those those are geographically.

Sure. So as far as Cedar Hill goes, I think the issue is we, in partnership with the District of Columbia, who built the Cedar Hill facility, the notion was they built it in an underserved area of the district in Ward 7 and 8. We think, and they thought, that the demand there would be significant, and it has been, I think, as reflected in our emergency room volumes. Almost from the outset, from the day we opened, we had a busy emergency room What I think has been lacking in the Cedar Hill region is an established physician base, primary physician specialists, et cetera, who just have generally been treating those patients in other facilities across the district. And we've been building up the physician component in that region. It takes some time, and then patients have to sort of you know, reorient their utilization practices, etc. But that's occurring, and that's why I think, you know, we have the view that by the end of this year, the facility will be at break-even. It's just taken a little bit longer than we thought. I think our long-term view of the prospects of that hospital remain, you know, quite, you know, positive because we believe that that population really needs a hospital facility and will use it fully as all the physician components are in place. As far as it's sort of comparison and relevant to the 177 beds that we added, I think it's really not related. The 177 beds we added at Lakewood Ranch Hospital in Florida and Henderson Hospital in Las Vegas and the Inland Rancho facility in Southern California are all additions to existing facilities where there was already demonstrated demand. And it just really requires sort of a ramp up, hiring of staff, et cetera. But I think the ramp ups and the opening of will occur much, much faster.

OK, great. That's helpful and maybe somewhat related and it's been touched on a little bit, but curious if you could give a little bit more on the way you're thinking about capital allocation and how it's changed when you look at the current environment, you know, some of the potential challenges in the state Medicaid supplemental programs and work requirements next year, et cetera. Does that change the focus from, you know, whether it's acute facilities that are de novo versus bed additions Outpatient, and the freestanding EVs. Just kind of what's the latest thinking on where the best use of the dollar is today?

Yeah, I mean, I think if you look at the way the capital has been allocated over the last several years, for us, it's had an emphasis on organic capital spending, versus, let's say, M&A. We have not done, especially prior to Talkspace, a lot of external M&A. Obviously, the focus has shifted more to outpatient. I think we're doing more investment in outpatient. We've already talked about some of those things on the call, freestanding EDs on the acute side of the business, freestanding outpatient behavioral clinics, what we describe as our 1,000 branches initiative on the behavioral side, So there's been that shift. And we've been a very active acquirer of shares as well because that's been a compelling investment for us. So I don't really see it changing dramatically or changing dramatically in response to OB3 or any of the other sort of regulatory changes other than what we already discussed, which is emphasis on outpatient, emphasis on Services and service lines that are probably somewhat less Medicaid centric, perhaps, than we've invested in historically.

Great. I'll stop there. Thank you.

Thank you. And one moment for the next question. Our next question is coming from the line of Benjamin Rossi of J.B. Morgan. Please go ahead.

Great, thanks for the question. Sticking to the de novo discussion, just this time on the Florida facility, you previously mentioned that facility would carry startup losses that offset the improvements to Cedar Hill. For Florida specifically with the changes to Cedar Hill, where are you today on your initial census trajectory, the staffing readiness, and ability to ramp with expectations? And then is that facility eligible for the Florida DPP under the approved program for 2025? And does that at all change your thoughts on that ramp? Thanks.

So the Florida DPP program, as you said, was a 2025 program. The new hospital was not open in 2025, so that's sort of a moot point. I think we said in our comments the hospital's drag in Q2 was about $15 million. That was very consistent with our expectations. The hospital got its Medicare certification in, I believe, late June, opened in July. We're seeing patients. The volumes are building. We have every expectation and our guidance presumes that it will perform consistent with our initial expectations and the expectations in our original guidance.

Great. Just a quick follow-up on denial trends. How do denial rates and net yield trend during 2Q, and are you expecting these denial trends to improve or worsen during the back half of the year? Thanks.

I think as we've said in previous quarters, I'm not sure we're seeing any significant change in denials, payer behavior, patient status changes. Payers continue to be aggressive in the way that they approve treatments and that they process claims. As my comments previously indicate, we've been pretty aggressive in investing in our own revenue cycle initiatives, both are all people, process, and technology. So I feel like we're at least trying to stay even with the payers and, again, not as reflected in things like denials and patient status changes, not seeing huge changes.

Thank you. That does conclude today's Q&A session. I would like to turn the call back to Darren Lyric for closing remarks. Please go ahead.

Yeah, thanks everyone for participating in the call today and for your interest in UHS. Have a great rest of your day. This concludes today's programming.

Thank you so much for joining. You may now disconnect.