Q4 2024 Universal Health Services Inc Earnings Call
Good day and thank you for standing by. Welcome to the fourth quarter 2024 Universal Health Services earnings conference call.
At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message device when your hand is raised.
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised today's conference is being recorded I want to like him to come over to your speaker today Steve Filton executive vice president and CFO. Please go ahead
Speaker Change: Thank you, and good morning. Marc Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the fourth quarter ended December 31, 2024.
Speaker Change: 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.
Speaker Change: For anyone not familiar with the risks and uncertainties inherent in these forward looking statements, I recommend a careful reading of the section on risk factors and forward looking statements on risk factors in our Form 10-K for the year ended December 31, 2024.
Speaker Change: We'd like to highlight certain developments and business trends before opening the call up to questions.
Speaker Change: As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $4.96 for the fourth quarter of 2024.
Speaker Change: During the fourth quarter of 2024, on a same facility basis, adjusted admissions to our acute care hospitals increased 2.2% over fourth quarter of prior year.
Speaker Change: Same facility net revenues in our acute care hospital segment increased by 8.7% during the fourth quarter of 2024 as compared to last year's fourth quarter.
Speaker Change: driven primarily by a 5.3 percent increase in net revenue per adjusted admission.
Meanwhile...
Operating expenses continue to be well managed.
which declined from a peak of 153 million.
Speaker Change: for the first quarter of 2022 was $60 million in the fourth quarter of 2024, remaining consistent with the previous two quarters.
Speaker Change: For the full year of 2024, our strong acute care revenues combined with effective expense controls resulted in a 13% increase in EBITDA, even after excluding the growth in Medicaid supplemental payments.
Speaker Change: During the fourth quarter, same facility revenues at our behavioral health hospitals increased by 11.1 percent, driven primarily by an 8.7 percent increase in revenue per adjusted patient day.
Speaker Change: excluding the year-over-year growth in Medicaid supplemental payments, the same facility revenue increased with 7.4 percent.
Speaker Change: Included in our operating results during the fourth quarter of 2024 were aggregate net incremental reimbursements of approximately 50 million dollars recorded in connection with various state supplemental Medicaid programs.
Speaker Change: including $31 million of additional net reimbursements from the Nevada State Directed Payment Program covering the six-month period of July 1, 2024 through December 31, 2024. These net reimbursements were more than
Speaker Change: The supplemental program projections included in our earnings guidance for the full year of 2024 as revised on July 24th, 2024.
Speaker Change: As a result of unfavorable trends experienced during the past several years during the fourth quarter of 2024, we recorded a $35 million increase to our reserves for self-insured professional and general liability claims.
Speaker Change: Our operating results for the full year of 2024 included a $79 million increase to our self-insured professional and liability reserves.
Speaker Change: Our cash generated from operating activities was $658 million during the fourth quarter of 2024, as compared to $452 million during the same quarter in 2023.
Speaker Change: and $2.067 billion during the full year of 2024 as compared to $1.268 billion during 2023.
Speaker Change: We spent $944 million on capital expenditures during 2024, which was consistent with our original forecast for the year.
Speaker Change: In our acute division, we opened West Henderson Hospital in Las Vegas late in 2024 and plan to open Cedar Hill Medical Center in Washington, D.C. in the next few months. We forecast that these facilities will be EBITDA positive in 2025 on a combined basis.
Speaker Change: In both of our segments, we continue to invest in expansion of our outpatient presence and the broadening of our continuum of care.
Speaker Change: For the full year of 2024, we acquired $599 million of our own shares pursuant to our share repurchase program.
Speaker Change: Since January 1 of 2019, we have repurchased more than 29.2 million shares, representing approximately 32% of our shares outstanding as of that date.
Speaker Change: As of December 31, 2024, we had $1.17 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility.
Speaker Change: The core operating assumptions underlying our 2025 operating results forecast, which was provided in last night's release, largely reflect the historical trends in the respective businesses with EBITDA growth in the mid-single digits.
Speaker Change: We expect continued improvement in salary and wages and general cost trends that will remain largely stable in 2025.
Speaker Change: As noted in our 10-K file yesterday, our 2025 operating results forecast excludes any supplemental Medicaid revenues in Tennessee and the District of Columbia, pending CMS's approval of those programs.
As the 10-K schedule reflects...
Our 2020 forecast, 2025 forecast.
Speaker Change: Assumes Total Consolidated Medicaid Supplemental Payments Will Decrease Slightly As Compared To 2024 We Believe Demand For Our Behavioral Services Remains Solid And Our Same Facility Adjusted Patient Day Growth In 2025
Speaker Change: We've accelerated technology investments in our behavioral hospitals to improve patient care, including electronic health record implementations and expanded use of patient monitoring automation.
Speaker Change: We acknowledge that the current political environment has created a level of uncertainty.
especially as it relates to ongoing Medicaid reimbursement.
Speaker Change: Our 2025 forecast is based on current Medicaid reimbursement projections in connection with various programs that could be subject to change.
Speaker Change: In our acute business segment, we are pleased that 80% of our hospitals currently have an A or B week for our rating.
We are now pleased to answer your questions.
Speaker Change: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, you may resume with yourself from the queue. Please press star one one again. We'll pause for a moment while we compile our Q&A roster.
Speaker Change: Our first question comes from Andrew Mock with Mark Lays. Your line is open.
Andrew Mock: Hi, good morning. The 2025 EBITDA guidance is up 5 to 11 percent, which is higher than typical growth rates, despite state supplemental payments forecasted to be down year over year. So I'd love to hear a little bit more color on what's driving the higher underlying growth in 2025. Thanks.
Speaker Change: You know, just the core growth, core EBITDA growth that Marc talked about in the two segments, I think is being driven by a return, as he described, to sort of historical norms, solid volume growth.
Speaker Change: pretty robust pricing, and I think, you know, very effective expense control.
And, you know, I think we don't have the pressures.
Speaker Change: on our operating expenses that were such a drag during the COVID years, the wage inflation.
the very high use of premium pay.
Speaker Change: not necessarily related to COVID, but on the acute side, the professional fee expense pressures that we faced in 2023, etc. So I think, you know, as our commentary reflected in our prepared comments, that we're expecting a much more sort of stable operating environment.
Speaker Change: outside of potentially the reimbursement changes that are being discussed at a pretty high level.
Speaker Change: In addition to that, as I think our comments indicated, we incurred a significant amount of incremental malpractice expense in 2024 that we are hoping will not recur in 2025, and so that's another source of upside in the earnings.
Speaker Change: and I know you're really talking about operating earnings, but from an EPS perspective, we then get a boost from a reduction in interest rates or interest expense, as well as a continued reduction in our share count.
Speaker Change: Great, and then maybe just a follow-up. The guidance range I think is 127 million wide, which is higher than previous years despite better operations and visibility. So why is the range of outcomes here wider than usual and, you know, where are the puts and takes within that range? Thanks.
Speaker Change: The items that are sort of beyond our control, you know, in terms of government reimbursement and potential changes in that regard, you know, we try to provide some level of caution and conservatism in the guidance. And I think part of that is the wider range that we've provided.
Thank you. Bye.
Great, thank you.
One moment for our next question.
Speaker Change: Our next question comes from Ben Hendricks with RBC Capital Markets. Your line is open.
Ben Hendricks: Great, thank you very much. Just wanted to go back to the slight decrease in DPP that you're foreseeing for next year. Is there any way to parse out how much of that is just overall conservatism versus foreseeable changes in specific programs?
Ben Hendricks: I think the main reason for the decline is, as we've disclosed in each quarter, you know, during 2024, we've recognized some VPP payments that were related to prior periods.
Ben Hendricks: And I think that's the main reason for the decline, is that some of the DTP payments and DTP revenues that we recognized in 2024 really related to prior periods. There may be some programs that had small declines next year, but I think that's the main reason driving the decline.
Bye.
Speaker Change: Thanks. And then just to follow up on the malpractice reserves, just how are you thinking overall about adequacy at this point? You know, are we at a point where there is a reasonable cushion or are there trends that you're seeing now that could increase the probability of another adjustment this year? Thanks.
Speaker Change: Yeah, so I think it's worth noting that in establishing our malpractice reserves...
We use a third-party actuary who evaluates.
Speaker Change: our claims history, pending claims, industry trends, et cetera. You know, it's a relatively comprehensive analysis.
Speaker Change: Historically we've tried to set and establish our reserves sort of at the midpoint of the range that our third party actually provides to us.
Speaker Change: Given some of the volatility in that area and some of the pressure...
Speaker Change: We tried this year to move a little bit towards the higher end of the range. So we are hoping that there is an element of conservative and built into those.
Speaker Change: those reserves and that, you know, there won't be a need for another uptick in 2025. Obviously, we can't be assured of that, but we feel like we've taken a pretty prudent position here.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from Anne Hines with Mizuho. Your line is open.
Speaker Change: Hi, good morning. Thank you. Can we talk about behavioral things to our patient days? I remember thinking and maybe I'm remembering incorrectly that you thought you would be exiting 2024 at about 2%
Speaker Change: which I believe was below 2%. So what was the driver of that? And I think you said in guidance you assume it's going to accelerate to 2.5 to 3%. Can you just tell us what the drivers of that acceleration is?
Speaker Change: Yeah, so, and in fact, Dan, I think for the first two-thirds of the quarter, October-November, we were tracking sort of in that two and a half percent range and, you know, felt pretty good about things.
Speaker Change: You know, I remember and honestly, probably my last public appearance was at your conference in early December, and I remember telling people that I thought we were doing well, except, you know, it was always hard to predict what would happen in the back half of December.
Speaker Change: with the holidays. That's always sort of unpredictable. And in fact, we did see a fairly dramatic decline in our patient day volumes in behavioral in the back half of December.
Speaker Change: I think having the Christmas and New Year's holidays right in the middle of the week on a Wednesday
Speaker Change: really sort of made those last two weeks, particularly for that child and adolescent population, you know, a much softer result than we were anticipating and quite frankly we've experienced historically.
volumes tended to sort of rebound in early January.
Speaker Change: are not, you know, generally used to or equipped for winter weather, you know, we've seen.
Speaker Change: school closures on a pretty large scale in places like Virginia and Tennessee and Kentucky and Mississippi, places that don't, you know, generally close schools in the wintertime. But again, I think we feel that those are transient sorts of dynamics.
Speaker Change: and that for the full year, you know, getting to that 2.5%, 3% patient day growth, you know, should not be sort of a heroic metric to achieve.
Speaker Change: Great, and then staying on the behavioral theme, Medicaid rates have been good for Universal in the industry. Can you remind us what they actually were in 2024 and what you expect in 2025?
Yeah, I mean, so...
Speaker Change: What's built into our guidance for 2025 is, I would say, same-story behavioral revenue growth in the, you know, six, seven, eight percent range. And again, I think that's sort of two and a half to three percent volume and three to four percent price.
Speaker Change: To be fair, that 3% to 4% price is exclusive of any changes in supplemental payments. That's just what I would describe as core pricing. Our core pricing, and I think that's sort of the crux of your question, has generally been better than that over the last several years.
Speaker Change: and we'll continue to press our payers and hope to do better than that. So if there's an element of conservatism in, you know, in our behavioral projections, it's probably on the pricing side of the equation.
Great, thank you.
One moment for our next question.
Speaker Change: Our next question comes from Justin Lake with Wolf Research. Your line is open.
Justin Lake: Thanks, good morning. I wanted to move over to the policy stuff. Specifically, it looks like the bigger ticket items like
Justin Lake: Caps are off the table on Medicaid. Some discussion that maybe provider taxes would be a place they would pivot to.
Speaker Change: Sophisticated on this stuff. What are you hearing there in terms of the, you know, the appetite to look at provider taxes as an area of savings within this legislation?
Justin Lake: Yeah, so, Justin, I would say, and I think you know this, I mean, I think the administration has really made no sort of definitive public statements about provider taxes.
Speaker Change: The point that we've made, and I think our peer companies have made, is there appears to be wide support.
Speaker Change: a large number of states, you know, including states of all political stripes, and so...
Speaker Change: You know, I think one of the things that we're learning or observing from this debate within Congress over the budget bill is that...
Speaker Change: There is a fair amount of support, again, I think throughout the country for Medicaid programs and protecting Medicaid programs.
Speaker Change: There hasn't been a whole lot of discussion specifically about direct-to-payment programs, but we believe that there's a significant amount of political support at the state level for those programs in a great many states.
Speaker Change: And I just want to add to what Steve just said there because we're clearly monitoring this very closely Talking you know off the record with many of the folks not just in Washington But in the states, and I think that's a key point the the folks in Congress are hearing from the governor's offices
in many of these states.
Speaker Change: and like Steve said, it's a bipartisan effort. It's not just the Democratic states, but it's many of the large Republican-led states as well. So, that tends to suggest that the pushback is significant and I think we're in a better position than sometimes what we see on the news.
The
Speaker Change: I know you've got, you know, some dollars potentially coming in D.C. and Tennessee. You know, you guys do a great job of giving color on that, you know, in your 10K. Looks like you're not projecting that. Anything to read into that for 2025? Like, any change in your level of confidence that this stuff comes through at the end of the debt?
So, you know, we believe that our 2025 forecast.
Speaker Change: reflects our historical practices when it comes to DPP, and that is...
Speaker Change: Once a program has been approved and is in place, even though all these programs have to be renewed and re-approved annually, we presume that programs that have been approved historically will continue to be approved and may remain in our lives.
Speaker Change: The two programs you referenced, Tennessee and Washington, D.C., are new programs.
Speaker Change: that have only been partially approved. So for Prince of Tennessee, the actual program has been approved and the dollars have been approved for the back half of 2024.
Speaker Change: but it still requires CMS approval of the 1115 Medicaid waiver, and so until full approval is granted, we haven't included any of those Tennessee dollars. The D.C. approval is pending in its entirety, and we haven't included any of those dollars either in Q4 or in our 2025 guidance.
In both cases, the state or the district hospital associations
tell us and tell their constituents that they've
Speaker Change: not heard anything from CMS suggesting that the programs are problematic in any way in their structure. They expect them to be approved.
Speaker Change: but yeah, I mean, I will tell you the expectation of the hospital associations themselves is that approvals are pending and have just sort of been slowed by the transition of administrations, we'll see. But again, nothing to be read into how we've handled it other than in our minds, consistent with the way we've handled these DPP programs from the beginning.
Thanks. Appreciate it.
One moment for our next question.
Peto Chickering: Our next question comes from Peto Chickering with Deutsche Bank. Your line is open.
Peto Chickering: And today, you know, you are using all of your fee cash flow to do share repurchases. At what point do you start borrowing to maintain new leverage ratios and using those borrowings to increase your share repurchases?
Speaker Change: I think we have historically operated at a leverage level, generally in sort of the high twos, approaching three. We're certainly comfortable at a level like that.
Speaker Change: and I would think that you know that you know where we would generally target things in the future. I think you know our guidance for the year presumes that
Speaker Change: We'll use the bulk of our free cash flow for share repurchase.
Speaker Change: The possibility that we could lever up and use, you know, even more than that, I think is, you know, certainly a real possibility.
Speaker Change: and not something we've decided today. You know, but, you know, again, in our guidance, I think we were reasonably conservative in thinking that, you know, our share repurchase levels would be around what they've been the last several years in that sort of $600 to $800 million range.
Okay, but, so, you know, like intellectually, you know...
Speaker Change: No, I think that's fair. And I think that, you know, if you look at our historical practices, there certainly have been times where we have done that, for sure.
Speaker Change: Okay, fair enough. And then on behavioral, you know, he has closed three hospitals this quarter, you know, how does it impact, you know, you know, like your EBITDA when you...
Speaker Change: Close those facilities, you know, the coming other facilities. Do you look at for portfolio trimmings or in 2025 and, you know, with such a larger, you know, supply demand a balance in behavioral, I guess, you know, why is there a need to close any of these facilities? Thank you.
Speaker Change: Yeah I think if someone wanted to take the time and for instance take a look at our portfolio behavioral facilities let's say ten years ago and where we are today you know I think that you would find that
Speaker Change: portfolio rationalization is sort of an ongoing part of, you know, our behavioral strategy.
Speaker Change: and that the portfolio of hospitals we have today is different than it was 10 years ago.
Speaker Change: We've done any number of things. It's a large portfolio, and generally, you know, an individual hospital is not material in the portfolio, so we don't necessarily disclose or discuss in detail when we do these things. But it's really that aspect of it. And, you know, when you ask...
You know sort of what
Speaker Change: What's the rationale for that or what causes that while we acknowledge or we would agree with your overall comment that I think behavioral demand has been strong during this period. Obviously, demand for particular services in a particular area, particular reimbursement dynamics, all those things can change in the interim.
and, you know, we do react to those things.
Speaker Change: to getting, you know, sort of more towards the bell curve of performance. And if they don't, you know, we look for, you know, potential exit strategies, which, again, could be closure, could be sale, could be consolidation, could be retooling. All those things I think are always on the table.
Thanks so much, guys, and nice job.
Speaker Change: Our next question comes from Joanne Nagachuk with Bank of America. Your line is open.
Joanne Nagachuk: Hi, good morning. Thanks so much for taking the questions. So just first, because I don't know if they're admitted, but yeah, thanks for talking about your assumptions for your behavioral segment growth for 2025. But what do you assume for acute revenue growth, volumes versus pricing?
Speaker Change: Yeah, so I think the assumptions for the acute division are...
Speaker Change: Also, you know, mid-single-digit revenue growth, probably a little bit more modest, you know, maybe in the 5%, 6% range. And I would say it's split pretty evenly between price and volume, so, you know, 2.5%, 3% adjusted admission growth, 2.5%, 3% pricing growth.
And again, I think in both segments.
Speaker Change: in this environment where expenses have, you know, moderated wage inflation is moderated, the use of premium pay is moderated, position expenses are moderated, that, you know, mid-single-digit revenue growth in both divisions in our mind should be sufficient to allow us to grow EBITDA and expand margins.
Speaker Change: Thanks for that. And I guess on wages, because I think the nationwide data on wage growth for nursing kind of showed some acceleration in the late 2024. Are you seeing that or is it just a function of some comp issue there?
Speaker Change: Joanne, I'm sorry, when you said that the national data is showing what? I didn't hear what you said. Increase, an increase in wages. Wages, yeah. Wages, like, acceleration slightly. Not in material, obviously, but, like, just...
Speaker Change: kind of versus, you know, the earlier in 24 and then like somehow the couple of these last months in 24 kind of showed a little bit higher global viewership. I don't know if you see any of that. I mean, it sounds like you're thinking about, you know, kind of.
Speaker Change: Moderation and Wage Inflation for 2025, right? I just want to ask if there was anything that happened in late 2024 that, you know, kind of might have changed that view a little bit.
Speaker Change: Yeah, so again, you know, clearly we've seen a moderation in wage inflation.
Speaker Change: coming out of the pandemic over the last couple of years and I would sort of characterize the wage environment as fairly stable. You know I apologize I didn't hear you the first time.
But I think, you know, like you said, those
Speaker Change: The National Survey sort of suggests some incremental pressure on wages. I don't think we're really seeing that. It doesn't mean that we won't. But it doesn't feel like there's that sort of comprehensive pressure and real significant pressure on wages that we were seeing a couple years ago. It feels like the wage environment and basically the supply-demand environment for labor has stabilized pretty significantly.
And as we lessen our dependence on temporary labor,
continue to go down.
Speaker Change: You assume $25 versus $24, so two items there, right? Can you quantify how much was prior period that you recorded in 24?
Speaker Change: And also, because you also said there are some programs that you expect to decline. So is it based in those states, particularly those programs are based on enrollment and that's what's happening. Some of these states are going to have a lower VPP dollars available to them because it's linked to enrollment. Thank you.
Speaker Change: Yeah, so, you know, I think if you go back and you look at our transcripts from the first three quarters, you know, in each quarter, we called out how much prior period there might have been, and it strikes me that it was a roughly sort of 15, $20 million a quarter.
Speaker Change: So you can extrapolate that, and it's maybe $60, $80 million of non-recurring or out-of-period items that we had in 2024.
Speaker Change: And as I said to kind of a previous question, I think that's the main driver. There may be some individual programs that are showing sort of slight declines next year, but for the most part.
once programs have been established.
Speaker Change: are historical sort of experiences they stay at or, you know, if anything, they sort of grow.
So again, I don't think that...
Speaker Change: The slight decline in DDP for next year that we're forecasting is mostly driven by the out-of-period stuff we had in 2024, rather than any real declines in the programs in 2025.
Thanks for that clarification. Appreciate it. Thank you.
One moment for our next question.
Speaker Change: Our next question comes from Stephen Vaxer with Wells Fargo. Your line is open.
Speaker Change: Hi, thanks. Just two quick ones. I was hoping at first, just in case, you know, I might have missed it, but sizing the full-year amount that the medical malpractice expense came in above your initial plan and how much of that you assume.
normalizes and becomes a tailwind to the year-over-year epidog growth.
Speaker Change: And then just another follow up on the DPP discussion. I understand fully you're not including, you know, 2025 amounts for
Speaker Change: Tennessee or for Washington DC at this point, you know, pending approval. But how do we think about, you know, what percentage of this, you know, DPP contribution
Speaker Change: that's in the guidance still for this year is tied to programs that do need to be renewed at some point this year. So might only have partial year coverage, you know, kind of as it exists today. Thank you.
Speaker Change: So as far as malpractice goes, you know, what we said in our prepared remarks was we had $79 million of additional malpractice reserves that we added recorded, you know, above and beyond what we had in our original guidance.
Speaker Change: and for the most part I think you know we don't believe that those expenses recur and so that you know contributes to some of the growth that we have
Speaker Change: in 2025, you know, we think we've been reasonably conservative to be fair. That's a volatile area that can change and does change. But we feel like we've been fairly prudent and fairly conservative in general.
Speaker Change: As far as your DPP question, I think as the previous questioner indicated, we have a significant amount of disclosure.
Speaker Change: and I refer everyone, I know we filed the 10K last night, so I'm sure people have not had a chance to review it in detail, but we literally go through each program, indicate what's been approved, what's not been approved.
Speaker Change: I mean, my guesstimate, you know, is that probably half of the DPP monies in our forecast roughly have been approved for next year already, and probably half have, you know, approval still pending.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from Sarah James with Cantor Fitzgerald. Your line is open.
Sarah James: Thank you. I wanted to go back to your strategy around the behavioral portfolio. Can you talk a little bit about areas that you're looking to expand? Are you guys looking at CTC or methadone clinics? Are you looking at more outpatient or is it really still focused on inpatient?
Sarah James: Yeah, I mean, I think we've said in previous calls, Sarah, and I think this is true really of both segments, but just specific to the behavioral business, I think we're looking to build out our continuum of care. And I think either Mark or I mentioned that in our prepared remarks.
which I think in behavioral specifically means...
Sarah James: building out the outpatient continuum and I think that's reflective of historically building out the outpatient continuum generally meant on our campuses and sort of related to our inpatient programs.
So patients who were discharged as inpatients.
Sarah James: often require continued follow-up care and often receive that care in our intensive outpatient or partial hospitalization programs.
Speaker Change: I think we've started to develop more of a presence in freestanding outpatient facilities around the country. We acknowledge that some people who are receiving outpatient care don't necessarily feel comfortable receiving it on the campus of an inpatient hospital or affiliated with an inpatient hospital, and so we're finding that there is demand for freestanding outpatient care separate and apart from our hospitals.
Speaker Change: We continue to build out our outpatient capabilities as it relates to both active military and retired military. We have a real specialization in that. We have...
Speaker Change: And again, I think we've talked about this in previous calls to establish a little bit more of a presence in the opioid disorder space. I think we are tending to do so, again, more as sort of part of a broader continuum of care rather than just sort of flat out.
Speaker Change: medically assisted treatment facilities that are just dispensing medication, you know, I think we feel like given our presence, you know, in such a broad continuum, you know, our
Speaker Change: real ability to provide a competitive or, you know, clinical advantage is being able to provide patients with sort of a whole continuum of care, not just medically assisted treatment, whether that's methadone or Suboxone or whatever.
Speaker Change: Marc Miller, M.D.: But you know outpatient treatment, etc inpatient treatment if that's required, etc. And so to the degree that we're entering or or in expanding our presence in that opioid space. I think it'll be in that context of integrating with our broader continuum of care.
Speaker Change: Great, and can you give us an idea of timeline to materiality of that, so what does the pipeline look like or how fast do you expect?
this business is to grow.
Speaker Change: Yeah, I mean, so again, I would make the point that
Speaker Change: you know, could result in probably, you know, 10 or so or a dozen or so additional facilities each year. The OUD space requires a bit more of a development pipeline. So I think a little bit harder to project that. But again, the point that I make there is I think that's likely to be, you know, integrated with some of our existing continuum.
Thank you. One moment for our next question.
A.J. Rice: Our next question comes from A.J. Rice with UBS. Your line is open.
Hi, everybody.
Speaker Change: I appreciate, Steve, that you guys are really the only one that's made comments about
Speaker Change: What it might mean if the exchange enhanced subsidies were to go away in 2026. I think you put about a 50 million dollar headwind on that.
Speaker Change: Since you're the only one that's really done that, can you just flesh out some of the key assumptions you've got in coming up with that number and how much variability you think there might be around that, or is that, you know, you have a pretty good target on that?
Speaker Change: Exchange Subsidies were to go away, which I don't believe is a certainty, in any event at the moment. And I made the point when I...
Speaker Change: When we floated that estimate that it was very much a guesstimate. It's really based on some pretty high level assumptions about 5% of our acute admissions are exchange.
covered patients right now.
Speaker Change: We assumed that about half of those folks would lose their coverage.
Speaker Change: If the subsidies went away now again, there's a lot of nuances that go along with that Some might be able to get other coverage from might qualify for Medicaid
Speaker Change: in certain states, etc., but we assumed about half those folks would lose their coverage.
Speaker Change: We would lose the elected business that those folks were bringing to our hospitals now.
Speaker Change: and we presume they would still come to our hospitals for their emergency coverage and obviously we wouldn't be reimbursed for that. And so that's kind of the basis of the assumptions that we made. The other point I think that we made is...
Speaker Change: This is, I think, largely an acute care dynamic. We don't separately track the number of exchange patients we have on the behavioral side in large part because we don't think it's quite as significant.
Speaker Change: And I think that's historically been because so many of these exchange products have very high co-pays and deductibles that are often not relevant to providing coverage in a behavioral hospital where they're likely to incur a much smaller bill than they would in acute hospitals.
Speaker Change: Okay. All right. Thanks for that. I just want to ask.
Speaker Change: Maybe two aspects of the guidance. I want to see how they're if they're reflected in there. I think you've got some insurance revenue
Speaker Change: step up in 25. Can you just comment on that and...
Speaker Change: Is that a top-line dynamic that doesn't affect the operating income, and so on? And then the second thing I was going to ask about in the guidance...
Speaker Change: As you open West Henderson in Las Vegas late last year, you've got, I believe, a D.C. hospital that you're opening this spring. You think those are going to have much impact on consolidated revenue in EBITDA, and how about on the same store numbers, because those are...
your existing facilities enough to impact the same sewer trends.
Speaker Change: Yeah, so as far as your first question about insurance revenue, a number of people, I think, you know, sort of noted that the
Speaker Change: Revenue guidance that we issued last night is sort of above the mid-single digits that I've talked about on this call. I think your question addresses that. There's probably an assumption of about a $200 million increase in the revenues at our insurance subsidiaries, so that affects that top line. As we've sort of discussed historically, our insurance subsidiary tends to operate at something pretty close to break-even, so it's reflected on the revenue line, but not really.
in a significant way.
Speaker Change: As far as your second question about the two hospital openings, we mentioned in our prepared remarks that we expect that the combination of Wes Henderson in Vegas and Peter Dillard in Austin will be a good combination.
will be either got positive.
Speaker Change: And we'll note, and this will be a cosmetic thing, that as we look at SaneStore...
admissions and same-store revenues and even same-store earnings.
Speaker Change: That will be a little bit, I think, distorting in our next year's numbers because both of those facilities are opening in markets where we have an existing presence.
Speaker Change: And so there'll probably be some cannibalization of our existing business. So I think it will make our same store numbers look a little bit depressed, particularly admission numbers. But I think overall...
Okay, all right. Thanks a lot.
One moment for our next question.
Speaker Change: Our next question comes from Michael Hawwood-Baird. Your line is open.
Speaker Change: All right, thank you. Let me click two quick ones to start. Just to confirm on DPP for Tennessee and DC, is the total current, I guess, payment upside $169 million across those two? And what do you typically recognize in terms of the flow through down into earnings on DPP?
Speaker Change: Yeah, so, Michael, I don't have R10K right in front of us, but that number sounds...
Speaker Change: San Antonio Tribe, Financial Planning & Management Corporation San Antonio Tribe, Financial Planning & Management Corporation San Antonio Tribe, Financial Planning & management Corporation San Antonio Tribe, Financial Planning & management Corporation We'll be looking for additional questions thanks that you put in for us. I want to move on to our next, we had several questions on and we're hoping this can assist with an update that would pitch some of our targeted messages that are available locally and around the station within San Antonio on the Canton Express. The biggest complaint that we had was using satellite was this. It's good to know Blackhand prayers has a lot of the program where you can easily connect to people in our area of the Barrio and so we note
Speaker Change: All of our DPP numbers disclosed are net numbers, that is, net of the provider tax.
Speaker Change: So we assume those numbers generally drop to the bottom line. Obviously, we make the point all the time.
that those reimbursements are really meant to provide for
Speaker Change: frankly, what's been inadequate Medicaid reimbursement for many years. So, the immediate impact is a significant boost to our earnings, but it's really making up in our minds for deficient earnings in the past.
Speaker Change: Got it. Thank you. And then maybe a quick one and then.
Speaker Change: Another longer one for flu season, you know, I don't haven't heard you mention it We're seeing one the strongest in recent history any impact on one cue and then my real question would be Just the return to historical margins. You're there on behavioral a lot quicker than I think everyone expected What's like acute margins is really the next?
Speaker Change: you know, phase and the embedded margin improvement seems quite powerful.
Speaker Change: I guess at this kind of pace of margin improvement over the past year, would it be fair to say you're you might only be about a year or two away from getting back to those pre-COVID levels and then what is that?
Speaker Change: have looked like? What needs to happen operationally for that to materialize? Is it more like a return to normative patient mix levels or other efforts initiatives in flight? Any comments here would be great. Thank you.
Speaker Change: So, as to your question about the flu season, I think what we found is...
earlier than usual for us in 2024.
Speaker Change: in 2023 started later in 2024, although seemed to be more intense once it got going. Overall, I think when we look at our respiratory cases for the fourth quarter, not altogether different in 2024 than they were in 2023.
Speaker Change: I think generally we always have the view that a busy flu season, or frankly not a busy flu season, tends not to have a really significant impact on earnings. Flu and respiratory cases tend to not be the most profitable cases that we have.
Speaker Change: Overall, I think when we look back on annual results, we tend not to, I think, cite a busy flu season or a non-busy flu season as something that moves the needle in a significant way, although we acknowledge that volumes have been impacted, particularly will be impacted in Q1.
Speaker Change: by the busy flu season. As far as your margin question goes, you know, I think, you know, mainly directed towards the acute hospitals. We've mentioned before, I think, that there are some...
things like the significant increase like 150 basis point increase
in position expenses that we experienced mostly in 2023.
the continued shift of
profitable procedural and surgical business from inpatient to outpatient.
Speaker Change: But generally, you know, our margins have been improving in that business. And I think we'll continue to improve, like you said, over the next couple of years, whether or not during that period we can get all the way back to pre-COVID margins. I'm not sure, or I'm not certain about that.
Speaker Change: I think to your point, we've gotten there on the behavioral side. I think we'll continue to grow those. And so as a result, I think we will get back to consolidated pre-COVID margins over the course of the next couple of years.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from Benjamin Rossi with JP Morgan. Your line is open.
Speaker Change: Is that more opportunistic usage to manage throughput during 4Q? And then with acute volumes coming down, you know, moderating a bit for 2025, where do you see premium pay leveling out in this coming year?
those jobs.
Speaker Change: And, you know, some of those nurses have returned to full-time work in our hospital.
Speaker Change: will certainly try and attract more, but I do think there has been kind of that structural shift, and there are just more nurses who are wanting to and willing to work as temporary and traveling nurses. So, I think realistically, you know, we made the comment in you know, in our prepared remarks that we've run at about that $60 million a quarter premium pay for the last three quarters.
Speaker Change: You know, might we be able to tweak that a little bit lower? Sure, but I don't see, you know, really significant savings from driving that number a whole lot lower than where it is today.
Speaker Change: Great, thanks for the cover there. And then as a follow-up, you know I know it's early here but...
Speaker Change: Had some conversation on tariffs and, you know, proposed reciprocal tariffs. Just curious how you're thinking about the potential impact of supply spend and maybe where your fixed pricing stands for your 2025 supply spend or where you have any other pricing buffers within your supply contracts. Thanks.
Speaker Change: Yeah, so the challenge about making any sort of, you know, terribly meaningful comments about the impact of tariffs on our results is twofold. One is
Speaker Change: really trying to figure out what the tariffs are going to be, what countries, what the rates of the tariffs are going to be. As you know, they've changed quite a bit.
Speaker Change: just in the four or five weeks of the new administration.
Speaker Change: The good news, I think, which you sort of alluded to in your question, is that a great many of our supply contracts are multi-year contracts.
Speaker Change: that essentially have pricing protections so that the risk of tariffs or the risk of increased costs really fall on the manufacturer while those contracts are in place.
Speaker Change: So, I think our sense, and we certainly didn't really provide for any significant impact on our supply expense in 2025 from the tariffs, and I think that's generally our point of view.
Speaker Change: It's entirely possible that that changes depending on these dynamics and, as you suggested, retaliatory tariffs and that sort of thing, but we'd have to see how that plays out in sort of the real world before being able to quantify this in any more meaningful way.
Understood. Appreciate the comments here.
One moment for our next question.
Speaker Change: Our next question comes from Scott Fidel with Stevens. Your line is open.
Scott Fidel: Hi, thanks, good morning. First question, can you give us the split when looking at the net supplemental payments for 2024, the $1.016 billion, just what the split is between
Scott Fidel: Acute and BH from that and then similarly with the projection for 25 you know whether that that split seems similar or if there's any directional change around that.
Scott Fidel: Yeah, I mean, honestly, I don't have it right in front of me, Scott. I think they're split relatively evenly between the two segments, but I can look back with you after to be more precise about that. And no, I don't think this will change as much in 2025, again, as we've sort of talked about before. I think the 2025 assumption is that most of the programs kind of continue at their current level.
Scott Fidel: Okay, got it. And then I just want to follow up. I know A.J. had asked a bit about the increase in the insurance.
Scott Fidel: revenue. You know, we were just looking at the CMS data this week. Looks like your MA plan actually had some healthy growth, so that seems to be a driver of that.
Scott Fidel: Probably not where I would see that getting to 200 million though, so maybe if you could just walk us through You know clearly it does look like the MA piece is a driver of that, but maybe just sort of walk us through from a product perspective of You know what's building up to that 200 million
So our
Scott Fidel: Subscriber population is split pretty evenly between MA patients and commercial patients. I think most of the growth next year is in the MA population but we do have both MA patients and commercial patients so you know we're just you know again it's a relatively small plan.
Scott Fidel: but as we continue to gain more experience and have, you know, established a track record in the various markets where the plan operates, you know, we're able to attract more patients, etc.
Scott Fidel: you know, the $200 million I think is reflective of the amount of, you know, new subscribers that we have.
Speaker Change: Got it. If I could just one quick question to a last one. Just around accruals that you have in the balance sheet, legal accruals for behavioral litigation, just any updates on sort of where you ended the year on that and sort of, you know, how that may have sort of evolved in terms of any assumptions there. Thanks.
Speaker Change: Yeah, so again, I mean, in the legal section of our 10K, you know, we, you know, describe the status of the two large malpractice cases and malpractice verdicts that we had in 2024. You know, I suggest, you know, people can can read through those.
Speaker Change: We don't have specific reserves established for those cases. They're both going through an appeal process and significant. Obviously, as I said earlier, when our third-party actuary goes through there.
exercise, they are taking into account
Speaker Change: All that, I think, has been taken into account in the actuarial calculations.
Okay, thank you. One moment for our next question.
Speaker Change: Our next question comes from Ryan Langston with TD Cowen. Your line is open.
Speaker Change: and I guess, how does, if at all, the fourth quarter inform the 2025 guidance?
Speaker Change: Yeah, I mean, I think we have been saying for a number of quarters now that the labor supply demand dynamic within behavioral has clearly improved from, you know, the really significant pressures that we experienced during the pandemic.
Speaker Change: And so, you know, I think you're seeing a combination of things that are really sort of contributing to that strong performance. I think number one, you know, productivity has been improving, you know, where we've got the right number of people for the right number of patients to care for patients.
Speaker Change: safely and providing top-quality care. But, you know, we've also seen a moderation in the use of premium pay and outside...
Speaker Change: temporary labor, and we've seen a moderation in wage inflation and all those things I think are contributing to the strong sort of productivity and efficiency performance that you've noted.
Speaker Change: Got it. And then just piggybacking on the leverage in the share repo, just kind of where the shares are trading and kind of what's going on in the market, like is there a potential that the repos for 2025 are maybe more front-loaded than maybe they have been in the sort of last couple of years? Thanks.
Yeah, I mean obviously...
Speaker Change: kind of more programmatic and rateable rather than really trying to time market changes, et cetera. I don't think we view ourselves.
Speaker Change: as you know particularly good at market timing. What we do believe and what we try and take advantage of is
Speaker Change: You know, the prospects of the business. We have a lot of confidence in the business.
Speaker Change: and we're willing to invest in, if you will, buying back our own EBITDA, what we think are pretty attractive multiples. And I think that's the case now. And honestly, I think it's been the case and probably will be the case for some time. So I wouldn't commit to any particular sort of trajectory for this year.
Speaker Change: But, as we have been for the past several years, I'm sure we will continue to be an active repurchaser.
Thank you. One moment for our next question.
For more information visit www.FEMA.gov
Speaker Change: Our next question comes from Jamie Purce with Goldman Sachs. Your line is open.
Speaker Change: Hey, good morning, guys. Jamie, could I just interrupt? This is going to have to be our last question. We have another commitment after this.
Speaker Change: Sure, thanks for sneaking me in. I guess just on commercial payers, what are you seeing in terms of payer activity and denials, prior authorization to midnight rule implementation, etc., and just sustainability of rate growth particularly in the behavioral business? It's been very strong.
For more information, visit www.FEMA.gov
Speaker Change: The scarcity of supply of beds and care in the behavioral space.
and as a consequence, you know, we've been able to...
Speaker Change: negotiate higher rates for many of our payers, payers who you know really you know are
Speaker Change: Struggling to find a place for their subscribers to be treated etc. I don't know that that dynamic has changed a great deal There's not a ton more, you know
Speaker Change: So I think the pricing environment for behavioral remains strong. As far as sort of payer behavior, I don't know that we would sort of suggest that there's been a significant change. I think...
Speaker Change: You know, this is a sort of a day-to-day issue with us. We find payer behavior.
Speaker Change: broadly challenging and you know it's kind of a daily struggle with us.
Marc Miller, MD, MPH, FAO, Co-Founder & Chief Investment Officer
Speaker Change: You know, payers all of a sudden becoming, you know, much more lax in their utilization review and denial management, etc. So, you know, it would be great if that dynamic were to change in our industry, but it doesn't seem to be something that's likely to change in the near term.
Speaker Change: All right, great. I'll leave it there in the interest of time. Thanks, Steve. Thank you.
Speaker Change: So, Operator, I think that's going to have to be the end of it for us. We'd like to thank everybody for their participation and look forward to talking with everybody after our first quarter results. Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect and have a wonderful day.