UHS Sees Payer Rates, Workforce Effort Improve, Leading to Strong Behavioral Health Margins

Universal Health Services Inc. (NYSE: UHS) attributed its year-over-year increase in revenue to improved payer rates and diminishing impacts from the COVID-19 pandemic.

Specifically, top executives at the company said Wednesday that patient volumes and improved staffing retention and recruiting attributed to the increased earnings in the first quarter.

UHS’ behavioral health division delivered a 23% adjusted earnings margin compared to a 20% margin a year ago, belying improved conditions in the facility-based segment of the behavioral health industry.


King of Prussia, Pennsylvania-based UHS operates an acute care facility division and a behavioral health facility division that includes 398 facilities. Last year, most of UHS’ portfolio (87%) were behavioral health facilities. However, 57% of the company’s revenue comes from its acute facility division.

“We envisioned that 2023 would be a year of transition out of the pandemic environment and into a post-pandemic world in which we’d have much greater success in filling our labor vacancies,” Steve Filton, UHS’ CFO, said on the company’s earnings conference call for the first quarter. “We’re feeling very good about how the year has started out and anticipate that most of these trends will continue as the year goes on.”

Challenges in hiring and retaining staff in both segments, especially in the behavioral health segment, have nagged at UHS for years. It had multiple impacts on the company’s financial performance. UHS turned to more expensive staffing agency labor to fill workforce vacancies, increasing its expenses. Even with the increased expense of staff workers, some behavioral health facilities still had to limit capacity, limiting revenue.


Revenue in the behavioral health division increased by about 10% to $1.5 billion in the first quarter.

Filton and other company executives have attributed the workforce dynamics to the coronavirus pandemic. Rates of burnout for behavioral health professionals skyrocketed during the pandemic. Many providers left the workforce while others turned to contract work, which pays higher than average wages.

On top of improving workforce trends, the company’s earnings on the behavioral health side were boosted by a 5% increase in revenue per adjusted patient day, a result of continued tough-talk negotiations with payer partners.

This bold stance with payers continues. Filton said the company’s size gives it an advantage in rate negotiations. In certain places, UHS’ market concentration makes it difficult for payers to let contracts fall apart for lack of other options for plan members.

“There’s not a lot of excess capacity around the country,” Filton said. “And payers, while they certainly are always going to be aggressive, are going to find themselves having to be reasonable if they really want to make sure that there is a place for their subscribers to be adequately treated.”

UHS CEO Marc Miller reflected a similar sentiment on the call. The company has decided to “push the issue,” and that leverage in negotiations with payers is shifting in their favor. He also said that the conversations with payers are different than in the past but didn’t elaborate on how they were different.

“I think that we’re going to have more positive results from the types of conversations that we’re having now,” Miller added.

The shift in staffing payer negotiation dynamics may allow the company to grow its capacity. UHS leaders touched on this in the 2022 year-end earnings call.

The company has a “whole chunk” of facilities that operate at 80% capacity in the behavioral health segment, Filton said, adding that UHS’ increased success in hiring staff and treating more patients will increase its interest in expanding existing facilities or opening new ones “over the next several years.”

UHS saw revenue increase 5.4% to $3.5 billion while net income increased 7.3% to $162 million in the first quarter. The company’s share price increased slightly Wednesday following the earnings announcement.

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