UHS CFO: Staffing Shortages the ‘Single Biggest Obstacle’ to Restoring Behavioral Volumes

As Universal Health Services (NYSE: UHS) continues to recover from the coronavirus, industry-wide behavioral health workforce shortages are standing in the way.

“Shortage of appropriate clinical and, in some cases, non-clinical personnel are probably the single biggest obstacle and headwind to getting back to pre-pandemic volumes [on the behavioral side],” CFO Steve Filton said Tuesday during the company’s first-quarter 2021 earnings call.

Headquartered in King of Prussia, Pennsylvania, UHS is one of largest hospital management companies in the country. In addition to its robust acute care service line, UHS also runs one of the nation’s biggest behavioral health businesses, operating more than 330 behavioral facilities across the U.S., the United Kingdom and Puerto Rico.

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Last year, the coronavirus took a toll on UHS, as it did on most health care businesses. The company saw a drop off in elective surgeries and an increase in medical patient volumes, including for COVID-19, hurting the company’s revenues and profitability.

On top of that, behavioral volumes dropped off for UHS in 2020, despite the fact that several studies have shown that the pandemic has caused more Americans to struggle with mental illnesses and substance use disorders (SUD).

The industry-wide supply-demand mismatch is a big reason for that. Workforce shortages have been one of the behavioral health industry’s biggest pain points for years, and the pandemic only made things worse.

Last year, behavioral admissions were down 8% from 2019. For Q1 2021, they were down just under 5% year-over-year, with patient days down just under 4%.

During the company’s year-end 2020 earnings call back in February, Filton said he believes behavioral volumes will return to — or exceed — pre-pandemic levels as 2021 progresses. On Tuesday’s Q1 call, Filton went further, explaining how UHS is addressing workforce shortages to help make that possible.

“I can assure you that it’s … most certainly the single biggest focus of our operators, as we turn our attention to what we need to do to both recruit and retain the proper amount of nurses,” he said.

Specifically, Filton said UHS is “constantly” conducting compensation surveys, as well as evaluating its processes for recruiting, hiring and training. While the company has already made some progress on those fronts, Filton said he expects more movement later this year.

“There’s an expectation and a hope that as the pandemic eases and the pressures of the pandemic ease, the labor pressures will ease as well and that some of the initiatives that we’ve been implementing will gain more traction,” he said.

Despite the dip in volumes, demand for UHS’s behavioral services has remained high amid the pandemic, with inbound call traffic and internet inquiries for behavioral care on the rise. That’s on top of macro trends that suggest behavioral health conditions have become more prevalent nationwide.

“Our biggest challenge throughout has really been our ability to satisfy that demand,” Filton said. “Labor shortages have probably been the single biggest impediment to doing that.”

In Q1 2021, net revenue per adjusted behavioral admission increased 6.2% year-over-year, while net revenue per adjusted behavioral patient day increased 4.9% for the same period.

Net revenues generated from our behavioral health services increased just under 1% on a same-facility basis in Q1 2021, compared to the same period a year earlier.

Overall, UHS reported $209.1 million in net profit for the first quarter of 2021, up from $142 million, or $1.64 per diluted share, in Q1 2020. Meanwhile, it reported net revenues of just over $3 billion in the fourth quarter, up 6.5% year-over-year.

One reason the company’s financial performance has remained steady amid COVID-19, even with the volume drops, is that managed care insurance payers have improved their rates, CEO and President Marc Miller said on the call.

“My gut is that once the pandemic eases some more, that behavioral pricing increase will settle in … that 3% to 4% range,” Miller said. “That’ll be a little bit higher than historical, but a little bit lower than where we’ve been running over the last several quarters.”

M&A outlook

Miller also talked M&A for the year ahead on UHS’s recently Q1 earnings call.

While the company is currently reviewing merger and acquisition opportunities on both sides of its business, Miller said he would “not categorize it as likely” that UHS would transact this year.

Additionally, when it comes to what UHS is looking for in a behavioral asset, priorities include market overlap, pricing and competitors, Miller said.

The company’s stock was up less than 1% as of end-of-day trading Tuesday. It closed at $145.81.

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