Following news of a strong financial quarter, executives at Universal Health Services (UHS) said the company is in a strong position to maintain pressure on payers during upcoming contract negotiations for behavioral care.
Though major volume gains across both the King of Prussia, Pennsylvania-based company's acute and behavioral segments helped secure a $163.1 million profit for the opening frame of 2023, it was the latter side of the business that saw the strongest year-over-year increases—and has the greatest demand among patients and payers alike.
Chief Financial Officer Steve Filton told investors Wednesday morning that revenue per adjusted day in the behavioral division had risen from pre-pandemic 2%-3% annual increases to 5%-6% during the last several quarters. For Q1 2023, the increase was 5% year over year.
The jump was primarily due to staffing constraints that forced UHS to limit its volumes and subsequently turn up the heat on payers to secure adequate rates to cover expenses, he said.
But even as hiring has improved over several consecutive quarters and restored capacity allows for greater volumes and revenues, executives said they're more than willing to keep playing hardball with payers.
"As we continue to hire more people in those capacity constraints, you know, there's a change in the dynamic with the payers," Filton told investors. "In many instances, I think we're still going to have leverage with the payers in many of our geographies. ... Their choices and their options to have their patients treated at other settings, at least in some geographies, is severely limited. I think we've been pretty successful, and at the end of the day, that revenue per adjusted day is evidence of that."
"We have just decided, a little more forcefully now, that we're going to push this issue," added CEO Marc Miller. "We need to be paid fairly for the work that we're doing. Our expenses are up and some of the payers don't meet us halfway all the time, and we've been clearly saying to them that's not going to be adequate going forward."
Miller said that the last six to 12 months' conversations with payers had taken a turn "that we've not had before" due to the growing demand for behavioral services. Because UHS is the country's largest behavioral provider—and still sees room to keep growing with new hires—it's becoming more prudent for payers to accept UHS' higher rates than to have a gap in their offerings, he said.
"The leverage is shifting a little bit, and we're trying to work with them, to show them how it's more conducive for them to pay us a little more and have their patients served in a better way than to try to continue to nickel and dime. ... Those discussions are, I would say, escalating, and they're different discussions. I think we're going to have more positive results from the types of conversations that we're having," Miller said.
UHS' $163.1 million profit during the first three months of 2023 was a $9.2 million boost over the first quarter of 2022’s $153.9 million net income, according to results shared this week.
The company reported $174.8 million in net income in the fourth quarter of 2022 and a full-year net income of $675.6 million.
Net revenues rose 5.3% year over year, from $3.3 billion in the first quarter of 2022 to nearly $3.5 billion in the first quarter of 2023. Expenses increased from $3 billion to nearly $3.2 billion during the same period, with salaries, wages and benefits increasing by $61 million.
Executives noted that volumes, hiring and other performance metrics were stronger in March than they were in January, suggesting that momentum seen near the end of 2022 is continuing into the new year.
Among the company’s behavioral healthcare facilities, same-facility-adjusted admissions increased 7.5% year over year while adjusted patient days rose 4.7% year over year. Net revenue per adjusted admission was up 2.2% year over year as net revenue per adjusted patient day rose 5% year over year.
Together, these increases drove a 9.7% year-over-year increase in net revenues generated by UHS’ behavioral health care services.
Within UHS’ acute care services division, adjusted admissions increased by 10.5% year over year as adjusted patient days rose 3.7%, both on a same-facility basis. Net revenue per adjusted admission fell 7.5% as net revenue per adjusted patient day dipped 1.5%.
Between these, net revenues from acute care services rose by 3.5% year over year on a same-facility basis, UHS reported.
UHS reported $291 million in net cash provided by first-quarter operating activities, a $155 million year-over-year decline due primarily to the timing of disbursements for accrued compensation and accounts payable, the company said.
UHS repurchased about $78.7 million in shares during the quarter and, as of March 31, remains with an aggregate available repurchase authorization of about $869 million.
Executives will provide additional context on first-quarter earnings during a Wednesday morning investor call.
The revenue and volume gains put UHS in line with fellow for-profits HCA Healthcare and Tenet Healthcare. Both companies enjoyed stronger-than-expected performances during the first quarter and have updated their full-year guidance to reflect what they described as continued recovery momentum.
UHS did not adjust its projections despite the strong performance, with executives telling investors that the upward momentum was already taken into account when they released the guidance earlier this year.