UHS: Managed Care Pressures Eased During Pandemic, But Future Unclear

Last year was one of the toughest in recent history for behavioral health care providers, who dealt with unprecedented financial strain and sky-high demand. Despite those challenges, the industry also scored a number of important wins in 2020, from being granted several important regulatory flexibilities to finally being recognized as vitally important to the healthcare continuum.

For Universal Health Services (NYSE: UHS), one such victory came in the form of negotiations with insurers and managed care organizations (MCOs). Specifically, UHS saw fewer denials and better rates from MCOs on the behavioral health side of its business in 2020, CFO Steve Filton said Friday during the company’s Q4 and year-end earnings call.

“That trend continued into the fourth quarter,” Filton told analysts and investors. “We see the level of charity care and the level of denials down about 10% from prior year comparisons. … To some degree, it certainly is attributable to less aggressive utilization management behavior on the part of some of our insurers.”

Advertisement

Headquartered in King of Prussia, Pennsylvania, UHS is one of largest hospital management companies in the U.S. It has both acute care and behavioral health services lines. On the behavioral side, UHS operates more than 330 facilities across the U.S., the United Kingdom and Puerto Rico.

On top of less stringent utilization management from MCOs, UHS also saw a number of measurable contractual price increases within its managed Medicaid behavioral portfolio in 2020. While none of those increases were large, they were “much needed” after years of relatively suppressed price increases in that space, Filton stressed.

“We’ve gone, at least with some payers, for a number of years without increases,” he said. “That can be a difficult population to treat with some incremental expenses, et cetera, so I think those increases are justified.”

It’s anyone’s guess if those positive MCO trends will continue post-pandemic. Amid COVID-19, managed care companies have done well financially due to reduced utilization and volumes across all of health care. It’s unclear if their attitudes will change when the industry returns to pre-pandemic norms, Filton said on the call. 

“While we would hope that their behavior remains more reasonable and rational, it certainly would make intuitive sense that they’d return to a more aggressive posture,” Filton said.

Regardless of what happens there, UHS is bullish on its behavioral health outlook for 2021 and beyond, leaders told analysts on the call. One reason for that is the sheer level of demand for UHS’s behavioral services. 

“We measure that in a number of ways,” Filton said. “A primary [way is] by incoming inquiries: telephone calls, internet inquiries, et cetera. What we have generally noted in 2020 is that the level of intake or inquiries has remained rather strong.”

In fact, demand was so high, UHS couldn’t keep up, as COVID-19 reduced the number of patients it could care for in its behavioral facilities and temporarily took staff members who had been exposed out of the workforce. 

“The real impact is just the sheer inability to find sufficient numbers of clinicians, especially nurses, and therefore an inability to accept as many qualified patients as we could otherwise,” Filton said. “And so it’s reflected in lower volumes rather than elevated expenses.”

In Q4 2020, UHS saw adjusted behavioral admissions on a same facility basis decrease 9.2% year-over-year. For 2020 as a whole, those admissions were down 8% compared to the previous year. 

Filton said he believes volumes will return to pre-pandemic levels — or even higher due to increasing demand — as 2021 progresses. The same goes for many of the company’s other performance metrics.

“We’re changing up a lot of the way that we look at especially our behavioral segments,” CEO and President Marc Miller said on the call. “We’re doing a lot more on the project management side, trying to ramp up some of our current and existing programs and then really get into some new areas that we think will provide greater revenue opportunities going forward.”

Financial results

UHS reported $308.7 million in profit for the fourth quarter of 2020, up from $245.2 in Q4 2019. Meanwhile, it reported revenues of $3.1 billion in the fourth quarter, up 6.6% year-over-year.

UHS reported $944 million in profit for the year ending Dec. 31, 2020, up from $814.9 million for 2019. Revenues were also up about 1.6% in 2020, coming in at $11.6 billion. 

However, it’s worth noting that UHS received $417 million in funds from various governmental stimulus programs in 2020, as well as $695 million from the Medicare Accelerated and Advance Payment Program.

Also worth noting: The massive cyber attack that hit the company in late September ultimately cost UHS an estimated $67 million in pretax dollars last year as a result of lost revenues, incremental recovery expenses and delayed coding and billing.

The company’s stock was down more than 7% as of end-of-day trading Friday. It closed at $125.33.

Companies featured in this article: