Universal Health Services (NYSE: UHS) is enjoying robust behavioral health pricing, driven by negotiations with lower-paying payers.
Steve Filton, UHS’s chief financial officer, attributed historically high behavioral health pricing to the company’s ability to leverage higher rates from lower-paying payers, naming managed Medicaid payers specifically on the company’s Q3 earnings call Friday.
“In an environment where there’s not a great deal of excess capacity in the behavioral industry writ large, that’s been an effective strategy,” Filton said.
Despite effective payer negotiations, during which UHS is more likely to cancel contracts than receive inadequate rates, the King of Prussia, Pennsylvania-based provider anticipates that pricing will drop in the future.
“We’ve been suggesting for some time that payer pricing is likely to moderate at some point, and we continue to believe that,” Filton said. “But to be fair, it is hanging in there very robustly and strongly at the current time, and obviously we’re not doing anything to try and reduce that. But we do believe that behavioral pricing, which has been running at historically high levels, will moderate at some point, but still should track in that 4% to 5% range for the foreseeable future.”
Net revenues for UHS came in at $3.96 billion during the third quarter of 2024, up 11.2% compared to $3.56 billion during the same quarter a year ago.
Same-facility revenues increased at UHS’s behavioral health hospitals by 10.5% in Q3, largely driven by an 8.5% increase in revenue per adjusted patient day, executives said during Friday’s call. In Q3, facility revenues increased by 8.3% and same-facility EBITDA increased by 9.6% year over year, even when accounting for Medicaid supplemental payments, which were not included in UHS’ original 2024 guidance.
UHS set a goal of full-year 3% patient day growth in its original 2024 guidance, but Filton previously said volume increases were more sluggish than anticipated, and UHS instead hoped to achieve 3% in the fourth quarter.
The company achieved its goal slightly ahead of the revised schedule and reached patient day growth of 3% in Q3, Filton said, despite behavioral health volume experiencing “a little bit of drag” from the impact of the hurricane in South Carolina and Georgia. Patient day volume would have been around 25 to 30 basis points higher had it not been for the hurricane, he said.
The hurricane also impacted UHS’ labor costs, causing salaries as a percentage of revenue to sequentially increase from Q2 to Q3. Salary increases are expected to continue to rise, Filton said.
“[Higher salaries are] a function probably of the impact of the hurricane that we saw at the very end of the quarter,” Filton said. “A number of our facilities, particularly in the Georgia, South Carolina market, saw diminished volumes. It’s a double whammy because we see diminished volumes, but we’re also paying overtime, etc., to keep people in the facility and make sure it’s fully staffed. But I think outside of that, I would say that labor trends have stabilized substantially in both business segments.”
UHS plans to continue to invest in its technology stack. The provider has rolled out an electronic medical record (EMR) to increase efficiency and improve care, with plans to have 25 to 30 of its facilities on EMRs by early 2025.
The provider is also looking to wearable technology to improve the quality of care and risk management. Apple Watch-like devices could allow UHS clinicians to keep track of patients more effectively without in-person rounding requirements, Filton said.
UHS recently agreed to sell an 80-bed psychiatry hospital in Texas, but is hardly diminishing its overall behavioral health footprint. UHS is in the process of developing a 96-bed behavioral health hospital set to open in the spring of 2025 through a joint venture with Trinity Health Michigan.
Filton also touted UHS’s River Vista Behavioral Health hospital as a recent build. The hospital’s ribbon cutting was held in June 2023 and its capabilities were opened in phases.
With a more stable, post-pandemic labor market, UHS is now looking to increase value by adding beds to its behavioral health facilities with higher occupancy, but M&A remains on the provider’s backburner.
“As far as opportunities for M&A, we often comment that we are presented with opportunities reasonably regularly,” Filton said. “We have found, if you look at the last five to seven years, not a great deal of those opportunities to be very compelling, although we’ll continue to look at them. My guess is that our capital deployment will remain focused on capital expenditures and on share repurchase much as it has been for the last five to seven years.”