Universal Health Systems Inc. (NYSE: UHS) will likely continue its strategy of tough talk with low-paying health plans, as long as the workforce situation in its behavioral health segment improves.
UHS Chief Financial Officer Steve Filton said this approach could be sustainable and that it has already found “some degree of success.” However, the success of pushing for higher reimbursement rates hangs on several factors, he said Tuesday during the Goldman Sachs 43rd Annual Global Healthcare Conference.
Adjusted per day revenues typically increased 2% to 3% per year pre-pandemic. But following the onset of the crisis, UHS has seen rate increases of 5% and 6% in a year — and even higher than that in some narrower periods.
But the market trend that has given UHS leverage in its push with payers also plagues its financial success: the workforce.
UHS, a King of Prussia, Pennsylvania-based acute and behavioral health facility operator, has previously tied its success to its ability to stabilize its workforce. Among the disruptions on the labor front, the pandemic sent turnover rates and the need for contract labor at UHS sky high.
At the same time, the price of contract labor for health care staff shot up as well, hurting the company’s profitability.
Even when UHS has paid top-dollar for contract staff, the company previously said it had to shut down beds because it simply could not get enough staff into some facilities. That limited facilities’ ability to take in new patients and, thus, reduced their ability to generate revenue.
Further, the workforce issues have dragged on longer than the company anticipated.
In April, the company said that it may have to pull its financial guidance for 2022; it ultimately didn’t do so, opting to wait to see if time would provide better insights on the matter.
Still, Filton is bullish on UHS’ prospects, echoing what he and other executives at the company have said about the underlying demand for the business: That it’s never been higher.
“We’re going back to our most problematic contracts, our lowest-paying contracts and saying, ‘You’ve either got to give us a more reasonable increase or we’ll terminate the contract. … In a figurative way, we’ve got patients lining up outside our door whose payers or insurers are willing to pay us more,’” Filton said.
The company, though, says it has made some progress on its staffing efforts.
“In behavioral, … our rate of hiring has been setting records every month since, I’m going to say, the summer of 2021,” Filton said. “During a lot of those months, we would see just as many nurses leaving on the back end.”
Encouraging to UHS, he continued, is the fact that net hires “have actually been positive” in the last few months.
And the general economic unease in the U.S. — public equities entered bear territory Monday — could shift the labor market in a way that may help UHS.
“I think if there is further economic uncertainty and recession, etc. — while I don’t necessarily view that as a good thing broadly — I think it actually would be helpful from a labor perspective,” Filton said.
UHS’ workforce prospects also look comparatively brighter as possible future economic uncertainty intersects with an apparent peak in the overall demand at hospitals for contract labor.
Filton tied a downward demand for contract labor to the end of federal financial aid packages that helped some hospitals weather the pandemic and to lower COVID volumes at hospitals.
The CARES Act, a COVID federal aid package passed in March 2020, allocated billions of dollars in subsidies and payment advances to help hospitals endure the onset of the pandemic. Filton said this, in turn, incentivized nonprofit hospitals to be “more generous, more aggressive” in paying premium rates for staffers and contractor labor, contributing to the inflation of contract labor prices.
“Part of that is they’re accustomed to operating at a lower margin,” Filton said. “I also think that they were operating, if you will, with the courage of a significant amount of government subsidies behind them.”
However, the impact of that aid has passed, and Filton said that nonprofit hospitals are “mitigating or rationalizing their behavior” on hiring and contracting.
“I do think, in the long run, that should be helpful to bring back a labor supply and demand equilibrium to the industry,” Filton said. “But I also think it’s taking some time. … It’s taking longer than the industry anticipated.”
Still, the process of reevaluating payer contracts requires a judicious approach, Filton said, one that considers UHS’ regional leverage with a payer. Some elements UHS considers include its market share, the market share of the payer and the overall capacity of the behavioral health providers in the market.
UHS posited in its investor presentation, as of the end of the first quarter, that the “vast majority” of its behavioral health facilities are the No. 1 or No. 2 in their respective markets.
The company is one of the largest behavioral health operators in the U.S. and a sizable health care operator overall, including the acute hospital business. Combined, UHS employs about 90,000 people at over 400 facilities.
The behavioral health segment operates 335 in-patient facilities and 14 outpatient facilities in the U.S. and the United Kingdom, according to the presentation.
“The ultimate threat in the payer-provider negotiation is termination,” Filton said. “The provider or the hospital, I think, is much more likely to threaten termination if they feel the payer doesn’t have a place to put their patients. … And the payer, I think, is much more likely to pursue termination or accept it if they do have a place to put their patients.”
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