UHS Execs Warn Payers to Keep Up with Inflation or Go Elsewhere

Universal Health Services Inc. (NYSE: UHS) is doubling down on its reimbursement rate strategy. Company leadership warns payers to keep up with inflation or elsewhere.

On July 26, the King Of Prussia, Pennsylvania-based acute care and behavioral health system operator held its second-quarter earnings conference call.

During the call, UHS CFO Steve Filton said some payers are accounting for inflationary pressures like labor costs on their care provider partners. He referred to comments that executives with UnitedHealth Group (NYSE: UNH) made on their July 15 earnings call.

UnitedHealth Group CEO Andrew Witty said the company was “very, very respectful of the underlying phenomena within the cost trends of the environment,” including inflation, according to a transcript of the call. 

Brian Thompson, CEO of UnitedHealthcare, the insurance arm of UnitedHealth Group, added that payment arrangements also accounted for higher labor costs.

Higher labor costs related to the national workforce shortage have persistently ground down UHS’ earnings. The shortage has seen UHS use more contract workers. Further, COVID-19 made the labor shortage worse, sending demand for temps, as well as the price for them, skyrocketing. A report by Kaufman Hall finds the share of contract labor costs among all other costs is 5x higher than pre-pandemic levels.

“At least for me, it was the first time that a payer had acknowledged that,” Filton said of the UHS second-quarter conference call. “Our expectation is that payers will be more receptive to [increasing rates] in 2023.”

Filton continued the company’s strong language around renegotiating payment arrangements with payers who didn’t pay what UHS expected.

“We’ve been aggressively giving notice of termination on contracts in both the acute and the behavioral business at a pace faster than, quite frankly, I can really remember ever historically as we identify contracts that are not even remotely keeping up with inflation pressures and labor pressures,” Filton said.

In a previous public appearance, Filton said UHS has “patients lining up outside our door.”

By the numbers

At the end June, UHS announced new annual financial guidance. The guidance lowered its earnings estimates for 2022 by 19% to a range of $9.60 and $10.40 per share. In June, the company cited lower patient volumes and protractedly high labor costs as being worse year-to-date than anticipated going into 2022.

UHS leaders suggested after the first quarter of 2022 that they might adjust financial guidance numbers. Other publicly traded hospitals and health care operators — such as the nation’s largest hospital company HCA Healthcare Inc. (NYSE: HCA) — did so at the time.

At the end of June, UHS also estimated that second-quarter earnings per share would be $2.05 to $2.15 per share. A Yahoo Finance consensus estimate of several analyst’s projections posited $2.35 earnings per share.

Actual EPS came in at $2.22. That’s off 5.5% from a consensus estimate but exceeds the guidance UHS gave. Net income totaled $164 million.

Second-quarter revenue totaled $3.32 billion, beating the Yahoo Finance revenue estimate consensus of $3.28 by about 1%.

Year-over-year, revenue increased 3.9% while net income decreased by 51%.

The behavioral health business brought in $1.77 billion, up 0.5% year-over-year, and $250 million in pre-tax income, according to a news release from UHS. It also saw an annual decrease in admissions of 0.1% but an increase in patient days of 0.7%.

“We continue to believe that the historic levels of growth that we’ve experienced in our behavioral business — mid-single-digit volume growth of 3, 4 or 5% same-store patient day growth year over year — is still achievable once we can get beyond the current labor scarcity,” Filton said.

Filton added that UHS is rolling out care models on the behavioral health side that rely less on registered nurses where “the total care that’s given to patients and attention that’s given to patients is the same and that is of the same quality.”