Universal Health Services (NYSE: UHS) is looking to get its behavioral health margins back to pre-COVID times.
Reductions in labor costs, enhanced productivity and a bump in patient volume are among the factors that will support that goal, according to Steve Filton, the company’s chief financial officer.
“We had originally set a target for [2024] of 3% patient day volume growth for the year,” Filton said Friday during an investor presentation. “We now say that that’s going to be difficult to achieve, but … if we can grow at 3% given the strong pricing, getting to that 6%, 7%, 8% historical level of behavioral pricing, which is a level in which you can have margin expansion and growth in the business, it shouldn’t be a big stretch.”
UHS has experienced slower-than-anticipated increases in patient-day volume, Filton said. He attributed the shortfall to persisting labor supply shortages, Medicaid disenrollments and reduced volumes in “a handful” of its residential facilities.
Filton previously acknowledged the impacts of Medicaid redeterminations on UHS’ behavioral health business in its second-quarter earnings call. He specified that redeterminations impacted the company’s adolescent business the most.
Labor shortages led UHS to pay out significant amounts in incentives and sign-on bonuses, Filton said, but these costs have begun to diminish in frequency. The associated savings, as well as some productivity improvements, will contribute to the company’s ability to drive margin improvement.
UHS’ behavioral patient volume has increased by one or two percentage points, Filton said, and the small has increase has made an outsized impact on the company’s operating leverage.
UHS has more upside to its behavioral business than its acute business, Filton said, due to its larger geographic footprint.
The company operates more than 400 facilities, including acute care hospitals, behavioral health facilities and ambulatory centers.
UHS recently slightly downsized its behavioral network when it sold River Crest Hospital, an 80-bed San Angelo, Texas-based psychiatric facility in June.
Evaluating the bottom 5% of the company’s portfolio is common practice, Filton said, and if businesses do not show significant room for improvement, UHS begins to determine the best course of action to exit that market.
UHS is planning to expand its behavioral health capacity further, Filton said. The company is considering multiple localities for growth, but recent legislation in California, known as Proposition One, “bodes well for the ability to profitably provide behavioral care in the state of California.”
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