Q2 2020 Universal Health Services Inc Earnings Call
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Thank you and Italia. Good morning, Alan Garcia was also joining us. This morning, we welcome you to this review of Universal Health Services' results for the second quarter ended June 32020.
During the conference call, we'll be using words, such as believes expects anticipates estimates and similar words that represent forecasts projections and forward looking statements.
Anyone not familiar with the risks or uncertainties inherent in these forward looking statement I recommend a careful reading of the sections on risk factors and forward looking statements on risk factors in our form 10-K for the year ended December 31, 2019, and our form 10-Q for the quarter ended March 31 2020.
We would like to highlight just a couple of development and business trends before opening the call into question.
As discussed in our press release last night. The company reported net income attributable to you a chats per diluted share of $2, a 95 cents for the quarter.
After adjusting for the impact of the items is reflected on the supplemental schedule has included with the press release, our adjusted net income attributable to you a chats per diluted share was $2 or 93 cents for the quarter ended June 32020.
As of June 32020, we have received approximately $320 million of funds from various governmental stimulus programs, most notably the care that.
Included in our reported income for the second quarter is approximately 218 million of net revenues recorded in connection with the stimulus programs.
Approximately 157 million up these revenues were attributable to our acute care facilities and 61 million were attributable to our behavioral health installed.
In addition, during the second quarter 2020, we received approximately 375 million up Medicare accelerated payments, which had no impact on earnings during the quarter.
As previously discussed in our first quarter conference call beginning in mid March the incidence of Cobot 19, and suspected covert cases increased in our acute facilities.
And correspondingly the volume of non cobot patients declined significantly.
These declines in patient volume is generally continued into the first half that April.
Beginning with the second half of April our admission and patient day metrics began to rebound by the first half of many local authorities have lifted restrictions on elective surgeries and other procedures and those volumes began to rebound sharply as well.
You are visits while also gradually improving had been the volume unit slowest to recover but the increased security of our patient population suggests at least in part that the more severely ill patients who tend to read I tend to return to the emergency rooms, and the last acute patients were the ones continuing to avoid that lever.
Care.
In late June and continuing into July most of our hospitals experienced the second wave of cobot cases, although to date. This second wave has not been accompanied by the same magnitude of non cobot case declines that we experienced in the first wave in the March April time frame.
Generally our hospitals, we're better able to prepare for the second wave with greater I see you in isolation room capacity as well as more ample inventories of P. P.
Obtaining timely koby test results as demand has increased does remain a challenge in certain instances.
The behavioral health segment experienced a similar pattern of volume changes with patient day metrics hitting a trough in early April and incrementally recovering for the rest of the quarter.
Despite a number of headwinds, including a decline in referrals from acute care emergency rooms, and from schools, which mostly remain closed and from travel restrictions on potential patients behavioral patient days returned to close to pre code levels by mid June prior to the late June 2nd Cold and wave.
As we noted in the first quarter are Paramount concern throughout the Kobin crisis has been taking all the necessary steps to keep our patience and employees as safe as possible.
We did however, also recognize the severe financial stress has created by the cobot crisis, and we undertook a series of steps to mitigate the dramatic revenue declines and to protect our capital structure, including.
One cost reduction initiatives across all of our expense categories.
Our approach in this regard, especially as it relates to labor expenses has been a balanced one reflecting our expectation that the dramatic declines in volumes would in many instances be temporary in nature and also recognizing the severe strains that the crisis has created on our employee caregivers.
To a reduction in planned capital spending.
This effort was somewhat transparent in the second quarter as most of our existing and committed projects continued on schedule, but we expect the pace of spending to slow in the second half of the year as newer projects are reprice and possibly postponed.
And three a suspension of share repurchase and quarterly dividend programs.
As a result of these actions as well as the funds received during the second quarter in connection with the governmental stimulus programs and Medicare accelerated payments the company had close to $1.4 billion or the aggregate available borrowing capacity as of June 32020, along with almost 600 million dollar.
As of short term cash investment on the balance sheet.
While we are encouraged by the improving volume trends in the quarter, we acknowledge that potential material cobot 19.
The potential impact covert 19 could have on our future operations and financial results and since the nature of these future Cobra developments are largely beyond our ability to control. We have continued to withhold any further earnings guidance for the balance of 2020.
And then I would be pleased to answer your questions at this time.
Italian whenever you're right.
Ladies and gentlemen at this time, if you would like to asking questions. Please press Star then the number one on your telephone keypad again that is star one to ask a question. It was door. Your question press the pound key please standby we compile the Q1 day roster.
Your first question is on the line of Andrew <unk> with Barclays.
Hi, good morning, Thanks for all the color on the quarter first can you put some numbers around the acute behavioral volume trends exiting June and how they performed so far in July against the backdrop of rising cases.
Yeah. So so Andrew I think that in terms our patient days as an example, I would say in mid June.
Both our acute and behavioral patient days aren't were averaging something like 95% up pretty cold at levels.
I think there were some days, where we are even higher than that.
Same thing with elective and elected surgical and other procedures had climbed back to those levels.
Our business as I noted in my remarks, we're still probably 25% short of three Kelvin levels.
But then as we saw their second wave head in the last maybe 10 days of June and into July.
Though most of those metrics took a step back I would say that for instance, elective procedures were now running in mid July timeframe, maybe 85 to 10, 90% of pre called at levels.
Behavioral patient days were running like say, 90% to 95% of pretty cold and level. So a bit of us, let's step back from where we were but not that dramatic decline that we saw in the March April.
Got it that's helpful. And then just wanted to follow up on the of the key Girl segment, you mentioned that your behavioral patient days rebounded in mid June 10th near pre Copel levels, even though your volumes were still down meaningfully and schools were closed what does that say about underlying demand for behavioral in this environment and what are your expectations for volumes once all.
Carl sources are open to that most strike. Thanks.
Sure I think it says a few things I mean, one is.
That our facilities and our operators took steps during the crisis to reach out to our.
Potential patient population.
Who might have had concerns or anxiety about going to hospital he ours.
And tried to.
Deliver the message to that population that there were other ways that they could enter this system and get care get the assessments that they need it and the ultimate care that they need it and I think of that as the quarter went on.
Those efforts, where more and more successful.
But also I think as your question sort of alluded to I think it suggests some and I tried to say this in my prepared remarks that despite the headwinds that existed fewer referrals from me ours.
Schools being calls for the most part across the country travel restrictions.
That behavioral demand really was restored to something close to pre called at levels and I think it suggests that the at that underlying behavioral demand is quite strong.
And I think our belief is that we'll continue to face some of these same headwinds, including incidence of of cold winter cold virus amongst both our employee population and our patient population.
At that the fundamental demand for behavioral services across the board and all sorts of diagnoses and illnesses seems to be growing and that seems to be consistent with what one might expect it's an incredibly stressful environment for all of us.
And so if you are someone who is predisposed to having a chronic behavioral elements.
You can only imagine how difficult this environment is and.
The fact that a lot to those patients are being stressed now I need some extra care is not surprising at least in my mind.
Great. Thanks for all the color.
Your next question is from the line of Justin Lake with Wolfe Research.
Hi, Thanks, and good morning, this huge non for Justin.
Quick follow up in Andrew's question earlier.
Fourth of July declining volume.
Okay. At these declined from buys a few states are you seeing Olivia level Corbett or just more broad based in your in Europe and their facilities.
Sure well that the reality is that in our acute division <unk> almost all of our facilities. The vast majority are located in hot spots in Florida, and Texas and in Las Vegas, any Riverside County, California, and South Texas.
I am all those areas have been hotspot and so a we've we you know we've experienced this the trends that I noted a really across the acute division.
Our behavioral division is more geographically desperate, but obviously the fact that there has been a resurgence and cobot cases across the south and west.
On means that we certainly have a large number of facilities that had been affected.
In the states that I mentioned also in Arizona.
And in a number of other places as well so it's been pretty broad based this second wave, although certainly not in every single facility.
Got it. Thank you and wanted to quickly ask about marches on lost revenue for the quarter.
The pure Dod decremental margins have improved quarter over quarter, but saw remain.
Pretty high and north of 50%.
Can you give us a little more color how we should think about this going forward. If there's room for to further improve in the back half if the volume doesn't fully recover.
Yeah, I mean, so the margins in the first quarter and I think we discussed this at some length on the call were really dramatically impacted in a negative way I think for two reasons. One is we saw the rise in Colombia cases in mid March but saw this dramatic commensurate declined in non coal.
Good business the cessation of elective surgeries the decline in New York visits the decline in behavioral patient days et cetera, I think the other issue in Q1 was because it happened so suddenly and happened so late in the quarter.
It was very little cost adjustments and cost reductions that took place in Q1.
In Q2, I think margins certainly look sequentially better as you know it for a variety of reasons.
Excluding the government stimulus funds obviously.
But you know volumes rebounded during the quarter.
Elective surgeries came back and the acute side, we made a significant amount of adjustments to our cost structure.
But I.
I think we said this at the end of the first quarter. The nature of the hospital business is such that because so much of our cost.
Our fixed and semi fixed in nature, it's almost impossible for us to reduce costs at the same rate.
Revenues are being reduced particularly in this sort of environment, where revenues have been reduced by a fairly dramatic in now.
So as long as that's the case, where we're going to face that margin headwind. Obviously, if volumes are restored to sort of pre coated levels. We would have every expectation that we should be able to get back to margin profile, but also looks like.
The pre coven margins.
Got it thank you for other color.
Your next question is from the line of Peto tinkering with the Deutsche Bank.
Hi, Good morning, guys. Thanks for taking my question keep talk a little more about expense management, Oh, you walk us through the mean actions you've taken into Q.
During Twoq you talk about premium labor, we use paid for in one keepers is to Q and as you roll into the back half the year are there any areas for additional cost savings on acute inner behavioral and at the same time can you talk about any stress points. It could actually lead to increase expenses for both businesses in the back half year.
Sure Peto pretty broad question, so I'll try and cover all the points but.
I think when the Kobin crisis first began and we saw this dramatic reduction in revenue. We tried to take abroad look across all of our expense categories and reduce expenses wherever that was possible. Obviously you know you're looking to reduce expenses first in those places where expenses are more naturally.
Variable supply expense sort of being obvious.
Labor being kind of the next obvious one and it was a little bit difficult because.
What we saw was a very uneven pattern enough demand so in other words.
Our emergency room volume was down but it was it was high with appropriate patient and suspected colby patients or I see you volumes tended to be down, but you know the activity in a lot of elective and procedural areas were down significantly. So we tried to make labor adjustments where that.
Was.
Most appropriate.
Also as I noted in my prepared remarks, I think we did so with the notion that in relatively short order that demand would be restored and we wanted people to be able to come back to work or has that occurred et cetera. So I think we were fairly.
Cautious in a in how we reduced labor hours et cetera.
As your question alluded to one of the early things that we did was try and reduce the amount of premium labor.
That includes things like overtime, the use of temporary nurses the use of traveling nurses and those were significantly reduced in the second quarter and I think.
Contribute to a lot of the labor reduction in the quarter.
As we looked at the back half of the year. The biggest challenge I think is in predicting.
And in planning for what the level of volumes will be and again these co bit surges and the ebbs and flows make it a little bit more difficult than predicting and preparing for it sort of a normal.
Hospital season, which is in of itself tends to fluctuate some.
So that's a challenge, but we'll continue to deal with that I think our operators are doing a really remarkable job in the face of these challenges.
And then finally as when you ask about stretch potential stress points I really think it's in the Labor Force I don't think it's possible to overstate how difficult. This environment is for folks working in on the front lines in hospitals conditions support staff et cetera, it's an incredibly stressful environment.
They are being asked to do a great many things.
They're responding in my mind magnificently, but the longer this goes on.
The more challenges that creates a in terms of their ability to continue to to work in that stressful environment.
You know.
Employees have been exposed to the virus, maybe time to recoup rate and quarantine and all those things so.
So that probably is the single biggest stress point that we worry about.
In terms of a continuation of the virus.
Because the last question was pretty broad and my follow up a lot more targeted and behavioral demand as a pretty robust relative to two cobi can you give us any breakout of geographical differences as you've seen across your portfolio well maybe more importantly, what specialties are you seeing elevated demand and where are you seeing lower demand. Thanks much.
Yeah, we talk I think a little bit about this in Q1, I think our residential businesses.
Has was less impacted by the cobot crisis, that's why I think in large part our length of stay appears to be longer.
Residential business carries a much longer length of stay.
Cute business, the acute behavioral business, which tends to rely more on.
Emergency room referrals et cetera has been more impacted.
The.
The addiction treatment business, particularly legacy foundation addiction treatment business, which involved and depended on a lot of travel for treatment.
And as you might imagine that and that sort of aspect.
Their business was diminished significantly so you know that came under some pressure.
But generally as I sort of I think you answered it my last question or my last response.
We are seeing demand for behavioral services across all diagnoses.
To the fairly robust and I think it's because as I said before I think if youre.
Predisposed to having a chronic behavioral illness, whatever it might be schizophrenia.
Severe depression.
Addiction illness, and Youre under the kind of stress that most people are under in this environment.
The likelihood that youre going to suffer some sort of traumatic episode or require incremental care et cetera. I think is much greater and I think we're seeing a lot of evidence of that.
Great. Thanks, so much.
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Again to asking question. Please press Star then the number one on your telephone keypad again that is star line.
Your next question is from the line, if Kevin Fischbeck with the Bank of America.
Great. Thanks, So I guess.
Obviously the rates were quite strong.
Because we are high acuity volume staying in an alert the volume was delayed I mean, how should we think about modeling that I guess, the pent up demand in theory is probably going to be lower acuity. So that would mean that when ones come back maybe rates should be lower or is there any way to think about what impact.
That should have on margins when we have this pent up demand is it more about that or is it more about this revenue growth, which is going to determine the you know the margin expectations.
So I mean, you didn't specifically say, Kevin but I assume this is mostly an acute care question because rates are pricing on the behavioral side look what I would consider to be pretty normal or historically normative.
Yes so.
As your question sort of I think presumes you know the the revenue per adjusted admission on the acute side of the business was historically strong in the quarter. It's a reflection that again as I mentioned in my prepared remarks.
The high acuity of our patients, which I think is a combination of a couple of things one is.
The cobot patients themselves that we are seeking seeing are quite SEC many of them.
Secularly, a lets everybody reads, the elderly and those with chronic underlying conditions.
Tend to have a longer length of stay they tend to have a lot of complications.
And I think thats being reflected in the revenue numbers and the pricing numbers that you're seeing I think the other issue as we as I sort of talked about in my commentary value. Our visit is the less acutely ill patients are tend to be sort of staying away from the hospital in grade or not.
Burgers, and therefore, they're not sort of creating that balance in pricing that that has existed normally.
In terms of how to model that it's difficult to do I think it's one of the reasons why were reluctant to give any sort of precise guidance as we move forward because I think it very much depends on.
The level and the amount of koby patients, we see the kind of covert patients. We see are they going to be sort of the older cohort and more elderly that we saw in the first wave kind of younger cohort that we saw in second wave I'll stick are they going to be.
How comfortable are people going to be to come back to hospitals in emergency rooms for what I would describe as a little bit more normal care.
All these things are difficult to predict.
I I would think that over time, our acute care pricing will return to more normal levels as the Coca crisis, either et cetera, but exactly how quickly that occurs.
And and over what period of time again difficult to predict or without knowing sort of what the trajectory into virus is going to me.
Okay, Great and then I guess you know on the.
On kind of that dynamic if we'd have a situation where for the next few quarters I'm kind of core volumes. If you will or card 90, 95% and coated volumes are five or 10% to that your your occupancy overall is kind of normal.
Can you get normal margins on a payer mix patient mix like that or does it need to be really more kind of.
Core volumes, if you will.
Yeah look I think that.
We were headed in June.
To an experiment or however, you want to think about it or a month I think in our own mines that we felt was going to closely resemble again, it's not the greatest term, but I'll call. It a normal month.
Volumes will return into something close to pre told that level. Then I think if we had finished June without the second wave.
Cobra cases.
That would have been the experience we would it would at least probably have exited the market something close to pretty coated levels and I think that would've been a good test and and then my own sensors that we would have gotten back to something approaching that pretty co that kind of margin profile, we didnt get a chance to really experienced that because of it.
Second wave so it's difficult for me to say that with grade.
Or precise certainty, but my sense is a you know if we can get most of our volumes patient days admissions.
On the acute side elective procedures and surgeries on the behavioral side patient days back to something approaching pre corporate levels. There's no real reason why we shouldn't get close to pre coven margins there some.
Out of incremental expense associated with.
Treating co brand Coca suspected patients, but I don't think it's really what's moving the needle what's moving the needle in terms of that margin shortfall.
Again is is that the sort of a notion of cobot cases, pushing out we're squeezing out to a degree.
Non cobot cases, which happened in great numbers early on in the March April time frame and a much smaller numbers in May June timeframe.
Okay. Thanks.
Your next question is from the line of Grant has her with JP Morgan.
Hey, Steve maybe as a follow up.
Yes.
You mentioned the length of stay in the mix into the residential business, but but have you also continued to see a a relaxing.
Manage their policies in terms of controlling length of stay and when do you think that sort of normalize.
Yeah, I think probably the biggest impact has been the shift in business and as I said, you know the residential business tends to have historically, a much longer length of stay than the acute business. So.
You know were having the volume declines focused on the acute side of the business I think just naturally has created this.
Greater the growth in length of stay, but you're right I mean, I think we see in some of our other payer categories length of stay as crept up a little bit and it's hard to say whether that is reflective of a somewhat more acutely ill population or relaxing.
On the part of managed care companies of some of their utilization review procedures in the crisis.
Okay.
I think ultimately the payers will behave the way they always behave which as you know trying to manage as efficiently and effectively as they can.
Their medical spend so.
I don't think that whatever benefit that is I don't think it's that great to us.
I don't think is sustainable over a long period in time.
But again.
I think what's driving the increase length of stays probably other factors.
More than that and relaxing on the part of the payers, who you know if you follow you know I because I know everybody in this call does there our earnings et cetera. They are quite good. So so they've been pretty successful at controlling their medical utilization.
Whether that actively or just naturally in this coven crisis.
That's helpful. And then I guess, just set a high level I'd be interested in sort of your updated views of.
I'm sort of Tele health as it relates to the behavioral health strategy and how coal good.
Has sort of obviously changed the environment as it relates so album and how you're thinking about.
Utilizing that moving forward.
I think from our perspective.
The biggest impact from Tele health in this last few months has been to provide an alternative access point or portal into the system, particularly for patients who were anxious about entering the system in a more traditional way going to occur.
Carry our community mental health center or kids, who were not in school whatever whatever it might and then.
And what Tele health did.
Wasnt able power facilities and our clinicians to access.
Patient population.
In another way and assess them, if they needed assessment and direct them to the sort of share that they need it.
Or in some cases to provide.
You know and outpatient therapy session to occasionally needed outpatient therapy, but again was reluctant to receive that therapy and then in person setting so.
I don't think.
You know tele health really replaced in any right way, our core business of inpatient care, but what it did and I think what what we've done very effectively in a short period of time is create a much more robust tele health infrastructure that gives a potential patient population.
And more optionality about how to enter the system how to be assessed how to receive outpatient treatment in a broader way than they had four or five or six months ago.
Got it thanks.
Your next question is from the line of AJ Rice with credit Suisse.
[noise] everybody.
Just.
A couple of quick questions, if I could ask on the 477 million.
Oh that you're highlighting is Medicare accelerated payments in deferred government stimulus.
Is there any way to does Aggregators say, how much as each of those and the parts. It's the stimulus grant been deferred when do you expect to recognize that what's the gating factor on that.
Yes, so the 375, which I alluded to and in the script A.J. is the Medicare accelerated payments.
Those are just what they say they are.
They were meant to be prepayments for Medicare patients they begin to get repaid we believe.
I think as early as August and then repaid over some time there is some conversation in Congress about altering the payment terms et cetera. The other issue, which we talked about in Q1 is there we did not receive all the Medicare accelerated payments that we had applied for and we believe in a appropriately approved.
For us so it's conceivable that there is more of those to calm the other roughly $100 million are stimulus funds that we've received but have not recorded into income yet because we could not a test today. The fact that we had either incremental coal that expenses for law.
Cost revenues as a result of co that that would justify those amounts.
We have some time to do that you know in other words, if it's as this.
Crisis continues we incur more incremental expenses or lose more revenue, we maybe able to justify some more of that.
It's also possible that that some of that will ultimately be returned we're being very sort of prudent about how we treat these things and are only recognizing the fund that we believe can be.
Clearly justified in terms of the criteria that CMS as set forth.
Okay, Alright, and my other question was in this.
I understand it has all been put on hold but.
Small you made a brought a new management and the behavioral business and I know there was some discussions about essential initiatives looking to re contracting in managed care somewhat maybe use and the leverage of the market Street and even the national straight you have to try to get some had been better advantages that you had.
Historically, there was also discussed and about better use of data is is that moving forward and how much of that have you.
Don or did it all gets mostly got put on hold because of the cobot crisis.
So I think the answer is a little bit of both.
You know that Peterson started with the company back in September and I think you know in that September to March timeframe.
Created a number of initiatives, including some of what you talked about which is sort of.
Entering into conversations with a number of large payers about different ways of sort of approaching the business in a way that would create sort of a win win for both the payer and provider.
I think as your question sort of alluded to however, a lot of those conversations a lot of those initiatives were.
Put on pause.
Beginning into the mid March with the Coca crisis, and while I think we continue to have some conversations with our payers in that regard.
The focus has primarily over the last several months behind just sort of blocking and tackling.
Running facilities.
Very is very difficult sort of coven environment. So the hope obviously is that we will see.
Any easing of this these kobin cases at some point in the next few quarters and those conversations and initiatives can be restored.
But but I think they have largely been put on hold over the last three or four month.
Yes, maybe just.
Other aspects of the behavioral business.
And I'm, sorry, I got a little light. So I may have missed as we've talked about it already don't worry about it but.
You've obviously got the schools close which are a referral source for you a lot of the acute care guys are reporting BDR volumes are down you see some pressure in your behavioral business, but.
Well done.
Maybe better than you might expect given those other two variables is there any way to us sort of gave an assessment of is this crisis, resulting in more demand for the service on underlying basis.
Those other two started to come back you might end up coming out the other end.
On the demand environment or do you have any view on that.
Yes look I I will share my view, and you know and I'll caveat it by saying I'm not sure that it's entirely supported by objective evidence but.
As I think about an environment, where emergency room visits across the country are down 25, or 30% and schools are closed and travel is severely restricted and still unable to say that.
Sort of pre the second wave Kobe.
Our behavioral volumes were back to something pretty close to pre cobot levels.
I think and I did say this to somebody earlier I think that's a reflection of the fact that the underlying demand.
For behavioral services is rather robust because those are some pretty significant headwinds.
Now some of that is a credit to our operators in our facilities, who I think have worked very hard over the last three or four months to work around those headwinds and to reach patients who were not in.
Entering the system through acute care emergency rooms, and reach adolescents, who were not necessarily in school and they've done a good job of that but I think you know the mere fact that volumes have climbed back to the level that they had is a reflection that they provide you would think would be as strong pre pre covenant post.
So that and and I think theres, a theres a legitimate argument to be made and you know in both intellectually of intuitively I believe.
The notion that behavioral demand has increased in this crisis is not hard to speculate and I think we've seen that and I think we'll continue to see grow.
As the co good patients are stabilized and our Delaware.
Okay, alright, thanks, a lot.
Yeah, no further questions.
Okay, well, we thank everybody for their time and hope that everybody stay safe and look forward to speaking with everybody next quarter.
This concludes good job Steve.
Thank you for your participation you may now disconnect.
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