Universal Health Services Inc.’s (NYSE: UHS) behavioral health segment grew in the second quarter, as patient volumes and lengths of stay improved at its acute behavioral health facilities.
However, UHS management deemed the company’s Q2 2023 earnings results for the segment a bit of a slowdown compared to recent performance.
Still, UHS is bullish on the behavioral health sector, believing the company will continue to see improved financial and operating results as the impacts of the coronavirus pandemic recede and some pre-COVID expectations become more relevant.
“If you look at the last four quarters, [earnings are] up substantially, and I think that’s how we’re looking at earnings power of our behavioral business — a little bit of slowdown in Q2, but we think that the long-term trajectory is much more reflective of the experience we’ve had over the last two to four quarters,” UHS CFO Steve Filton said during a Wednesday earnings call.
Behavioral health earnings were boosted by patient-day revenue at acute behavioral health facilities, including psychiatric hospitals and units, but offset by a volume slowdown at UHS’ residential facilities.
Filton attributed the residential facility volume slowdown to problems with regulatory issues or with referral sources. The problem was not indicative of a wider market trend. He noted the company expects the problems to resolve in the second half of 2023.
Other previous trends identified by UHS management are still in play and continue to improve the prospects of the behavioral health division. These include increasingly favorable workforce and wage trends, success with growing facility capacity and productive renegotiations with the company’s lowest-paying health plan partners.
The financial services firm Stephens identified a handful of other issues leading to financial results within the behavioral health division that were “lackluster relative to expectations.”
“[Behavioral health] margins came in sequentially lighter given one-time charges related to loss on disposal of assets (~$3 million) and unfavorable exchange rate impact from U.K. business (~$2 million – $3 million), along with higher-than-anticipated salary increases,” a research note from Stephens states.
Consolidated company revenue increased 6.8% to $3.55 billion, and net income increased 4.4% to $171 million in the second quarter compared to last year.
Reactions to increased behavioral health utilization at UnitedHealthcare
Last week, UnitedHealth Group (NYSE: UNH) reported a “double-digit” increase in behavioral health utilization.
The payer said the uptick in utilization was applicable across age demographics and tended to be more relevant to outpatient services and self-paced tools and content.
“Over the long-term, the more people who are getting care and getting appropriate assessments, etc., is good for our business, which tends to have a much broader continuum of care — that includes more intensive outpatient services, partial hospitalization and and all sorts of inpatient care across many diagnoses,” Filton said in response to an analyst’s question about the topic
UHS didn’t experience a noticeable growth in outpatient service volumes, Filton said.
UHS’ EMR rollout
Filton went out of his way to correct the notion that UHS was just now expanding its electronic health record (EHR) to its behavioral health division. Oracle Corp. (NYSE: ORCL) announced July 19 that UHS would implement a Cerner EMR across the behavioral health division, apparently for the first time.
But UHS had committed to establishing an EHR through Cerner “years ago,” Filton said. It even conducted EHR pilots in a handful of facilities in 2022, and some facilities are already live on the Cerner platform. He also said that the company is not doing an EHR integration across the entire behavioral health division at this time.
Oracle acquired Cerner in 2022.
“We have certainly not committed to that,” Filton said. “We have smaller residential facilities that may not be appropriate for an investment of that scale.”
UHS will likely spend much less on the behavioral health EHR than the EHR in the acute care division. And that investment will be spread across several years. Combined with operational efficiencies, the overall impact of establishing an EHR in the behavioral health division should be minimal, Filton said.
The company began its Cerner implementation in the acute care division about a decade ago.