Q2 2025 Universal Health Services Inc Earnings Call
Operator: Q2 2025 Universal Health Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.
Operator: To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star-one-one again.
Operator: Please be advised that today's conference is being recorded.
Steve Filton: I would now like to hand the conference over to your speaker today, Steve Filton, Executive Vice President and CFO. Please begin. Thank you and good morning.
Steve Filton: Marc Miller is also joining us this morning. We both welcome you to this review of Universal Health Services results for the second quarter and to June 30, 2025. 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.
Good day, and thank you for standing by. Welcome to the Q2 2025, Universal Health Services earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask the question during the session. You will need to press star 1. 1 on your telephone, you will inherit an automated message. Advising that your hand is raised to withdraw your question. Please press star 1 1 again, please be advised. That today's conference is being recorded, I would now like to hand the conference over to your speaker today. Steve filton, Executive, Vice President and CFO please again.
Thank you and good morning Mark Miller is Al joining us this morning. We both welcome you to this review of Universal Health Services involved for the second quarter and a June 30th 2025.
Steve Filton: For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of this section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended March 31, 2025. We'd like to highlight just a couple of developments in business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $5.43 for the second quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule included with the press release, our adjusted net income attributable to UHS for diluted share was $5.35 for the quarter ended June 30, 2025.
During the conference call, we'll be using words such as believes expects, anticipates estimates and similar words that represent forecast projections and forward-looking statements.
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 in our Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended March 31, 2020.
We'd like to highlight just a couple of developments in business Trends before, opening the call up to questions.
Let's discuss and our press release last night, the company reported net income.
UHS for diluted share of 5.43 cents for the second quarter of 2025.
Steve Filton: During the second quarter of 2025, on a same facility basis, adjusted admissions to our acute care hospitals increased 2.0% over the second quarter of the prior year, and surgical volumes were down slightly. Still, same facility net revenues in our acute care hospital segment increased by 5.7% during the second quarter of 2025 as compared to last year's second quarter after excluding the impact of our insurance subsidiary. We note that West Henderson Hospital, which opened in late 2024, has had a certain cannibalization impact on the division's same facility volumes and revenues. Meanwhile, operating expenses continue to be well managed.
After adjusting for the impact of the items reflected on the supplemental schedule included with the press release, our adjusted net income attributable to UHS for diluted share was $5.35 for the quarter ended June 30, 2025.
during the second quarter of 2025 on the same facility basis, adjusted admissions to our acute care hospitals, increased 2.0% over the second quarter of the prior year and surgical volumes were down slightly
Still same facility, net revenues in our acute care hospital segment. Increased by 5.7% during the second quarter of 2025 as compared to last year's second quarter, after excluding the impact of our insurance subsidiary,
we know that West Henderson hospital which opened in late 2024 has had a certain cannibalization impact on the division. Same facility volumes and revenues.
Steve Filton: Other operating expenses on the same facility basis increased 3.1% over last year's second quarter, again, after excluding the impact of our insurance subsidiary. So the second quarter of 2025, our solid acute care revenues combined with effective expense controls resulted in a 10% increase in same facility event time. During the second quarter of 2025, excluding the impact of the Tennessee Medicaid Directed Payment Program, same facility net revenues at our behavioral health hospitals increased by 5.4%, driven by a 4.2% increase in revenue per adjusted day. Adjusted patient days were up 1.2% compared to the prior year's second quarter.
Meanwhile, operating expenses continue to be well managed.
Last year, in the second quarter, again, after excluding the impact of our insurance subsidiary,
For the second quarter of 2025 our solid acute care. Revenues. Combined with effective expense controls resulted in a 10% increase in same facility, even though.
During the second quarter of 2025, excluding the impact of the Tennessee Medicaid directed payment program. Same facility net revenues and our Behavioral Health hospitals, increased by 5.4% driven by a 4.2% increase in Revenue per adjusted day.
Steve Filton: Our cash generated from operating activities decreased by $167 million to $909 million during the first six months of 2025, as compared to $1.076 billion during the same period in 2024. We expect to collect the $58 million of Pennessee Direct Payment Program receivables in the third quarter. The new hospital in Las Vegas and the District of Columbia contributed $35 million to their In the first half of 2025, we spent $505 million on capital expenditures, 25% of which related to the two new slash replacement facilities in California and Florida, both set to open in the spring of 2026.
Adjusted patient days were up 1.2% compared to the prior Year's second quarter.
Our cash generated from operating activities decreased by 167 million to 909 million.
The first 6 months of 2025 as compared to 1.076 billion during the same period in 2024.
We expect to collect the 58 million of Tennessee, direct payment program receivables in the third quarter.
The new hospitals in Las Vegas and the District of Columbia contributed 35 million to the receivable increase.
Steve Filton: During the first half of 2025, we also acquired 1.9 million of our own shares at a total cost of approximately $332 million. Since 2019, we have repurchased approximately 34% of the company's outstanding share. As of June 30, 2025, we had approximately $1 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility.
In the first half of 2025, we spent 505 million dollars on Capital expenditures 25% of which related to the 2 new slash replacement facilities in California and Florida. Both set to open in the spring of 2026.
During the first half of 2025, we also acquired 1.9 million of our own shares at a total cost of approximately $332 million.
Since 2009, we have repurchased approximately 34% of the company's outstanding shares.
Steve Filton: The recently enacted One Beautiful Bill Act includes several significant changes in the Medicaid program, including changes to state-directed payment programs and provider taxes. Beginning with the 2028 state fiscal years, and primarily phased in over a five-year period through 2032, these program changes will limit both the level of payment and the amount of provider tax assessment that states are permitted to utilize to finance the non-federal share of their respective Medicaid supplemental payments. The legislation provides for different limits depending on whether states have previously expanded their Medicaid eligible population as permitted under the Affordable Care Act. We cannot predict, among other things, if this legislation will ultimately be implemented as enacted or if certain states may attempt to implement countermeasures to mitigate its impact.
As of June 30th 2025, we had approximately 1 billion dollars of aggregate available. Borrowing capacity, pursuant to our 1.3 billion revolving credit facility.
The recently enacted 1 beautiful bill act includes several significant changes in the Medicaid Program including changes to State directed payment programs and provider taxes.
Beginning with the 2028 State, fiscal years and primarily phased in over a 5-year period through 2032.
These program changes will limit both the level of payment and the amount of Provider tax assessment that states are permitted to utilize to finance. The non-federal share of their respective. Medicaid supplemental payments.
The legislation provides for different limits. Depending on whether states have previously, expanded their Medicaid eligible, eligible population as permitted under the Affordable Care Act,
Steve Filton: Our current projected 2025 full-year net benefit from previously approved state Medicaid supplemental programs is approximately $1.2 billion. At this time, assuming no changes to our Medicaid revenues or other changes to related state or federal programs, we estimate that commencing with the 2028 state fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro-rata basis by approximately $360 to $400 million in 2032. Given the various uncertainties, including the evolving state-by-state interpretations and computations related to the legislation, our forecasted estimates are subject to change potentially by material analysis. Our future operating results, potentially starting in 2026, may also be impacted by other factors which are more difficult to predict, such as the impact of Medicaid work requirements, which may decrease Medicaid enrollment, and factors that could unfavorably impact insurance exchange enrollment, such as the scheduled expiration of insurance exchange subsidies.
We cannot predict, among other things, whether this legislation will ultimately be implemented as is, or if certain states may attempt to implement countermeasures to mitigate its impact.
Our current projected 2025 full year, net benefit from previously approved State Medicaid. Supplemental programs is approximately 1.2 billion dollars,
At this time assuming no changes to our Medicaid revenues or other changes to related state or federal programs. We estimate that commencing with the 2028 State fiscal years are aggregate. Net benefit will be reduced on an annually increasing and relatively Pro databases by approximately 360 to 400 million dollars in 2032.
Given the various uncertainties, including the evolving state-by-state interpretations, and computations related to the legislation are forecasted, estimates are subject to change potentially buy material amounts.
Marc Miller: I'll now turn the call over to Marc Miller, President and CEO, for closing. Thanks, Steve. So based primarily on the increased DPP reimbursement.
Our future, operating results potentially starting in 2026 may also be impacted by other factors, which are more difficult to predict such as the impact of Medicaid work requirements, which may decrease Medicaid, enrollment and factors. That could unfavorably Impact Insurance Exchange enrollments such as the scheduled expiration of Insurance Exchange subsidies.
I'll now turn the call over to Mark Miller president and CEO for closing comments.
Marc Miller: We are increasing our midpoint of our 2025 EPS guidance by 7% to $20.50 per diluted share, up from $19.20 per diluted share previously. Medicaid supplemental programs in Washington, D.C., and other potential programs that are not yet fully approved are not included in our revised We remain pleased with the performance of West Henderson Hospital, which produced a positive EVA die in the second quarter. At the same time, we acknowledge the significant drag created by the recently opened Cedar Hill Regional Medical Center in Washington, D.C. Timing of hospital certification and other startup issues proved a bit more challenging than we anticipated, but demand, especially for emergency services, has been very encouraging.
Thanks, Steve. So, based primarily on the increase in DPP reimbursement.
We are increasing our midpoint of our 2025 EPS guidance by 7% to $20.50 per diluted, share up from 19.20 cents, per diluted share previously.
Medicaid supplemental programs in Washington, D.C., and other potential programs that are not yet fully approved are not included in our revised guidance.
Performance of West Henderson hospital, which produced a positive evida in the second quarter.
At the same time, we acknowledge the significant drag created by the recently opened Cedar Hill Regional Medical Center in Washington DC.
Marc Miller: Although recovery to expected results will continue into the back half of this.
The timing of hospital certification and other startup issues proved to be a bit more challenging than we anticipated. However, demand, especially for emergency services, has been very encouraging.
Marc Miller: We remain confident in the positive long term prospects for the facility that prompted our development partnership with the District of Columbia.
Although recovery to expected results will continue into the back half of this year. We remain confident in the positive long-term prospects for the facility.
Marc Miller: DeNovo growth continues in our behavioral We recently opened a 96-bed. Behavioral Hospital in Grand Rapids, Michigan. which is a joint venture with Trinity Health Michigan. and a 41-bed substance use disorder and dual diagnosis treatment. in Mount Pleasant, South Carolina.
That prompted our development partnership with the District of Columbia.
Denovo, growth continues in our Behavior.
You recently opened a 90.
Behavioral hospital in grand. Grand Grand, Rapids. Michigan.
Which is a joint venture with Trinity Health Michigan.
Marc Miller: In addition, we are developing a 144-bed behavioral health hospital in Bethlehem, Pennsylvania, which is a joint venture with the Lehigh Valley Health Network. and is expected to open later this year. as well as a 120-bed behavioral health hospital in Independence, Missouri, which is expected to open in late 2026.
And a 41 bed substance use disorder and dual diagnosis Treatment Center in Mount Pleasant South Carolina.
In addition, we are developing a 144 bed Behavioral Health hospital, and Bethlehem Pennsylvania.
Which is a joint venture with the Lehigh Valley Health Network.
And is expected to open later this year.
Marc Miller: In addition, we are also continuing to grow our Signet Behavioral Health Network in the UK, which has added six new facilities and 137 beds so far this At this time, we're pleased to answer your questions.
as well as a 120, bed Behavioral Health Hospital in Independence, Missouri, which is expected to open in late 2026,
In addition, we are also continuing to grow our Signet Behavioral Health Network in the UK.
Which has added 6 new facilities and 137 beds. So far this year.
Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again, and please stand by while we compile our Q&A roster.
At this time, we're pleased to answer your questions.
Philip Chickering: And our first question will be coming from Peto Chickering of Doche Bank. Your line is open. Hey, good morning, guys. And thanks for taking my questions. I just want to circle back on I think you said $360 to $400 million of net impact in 2032 with a current law in place. I want to make sure that those numbers make sense.
Certainly, as a reminder to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please, press star 1 1 again and please stand by while we compile our Q&A roster.
And our first question will be coming from PTO churring of DOI Bank, your line is open.
Marc Miller: And if we're talking about, you know, so we're losing sort of, you know, sort of $380 million, sort of EBITDA that, you know, over that over that time period, you know, just curious, you know, what your views are to offset that with core ops, and how you view that impacting your core growth rate with those headwinds. Yeah, so, you know, obviously, those reductions don't begin, as we know, materially until 2028. So, you know, we certainly have time to think about strategically, how we might alter our business approach, particularly in the behavioral business where You know, we can alter the structure of our programs, you know, not necessarily cater to as many Medicaid-centric programs as, you know, et cetera.
Hey uh, good morning guys. And thanks for taking my questions. Just just want to Circle back on. I think you said 360 to 400 million dollars of net impact in 2032 with a current law in place. Uh, I just want to make sure that those numbers make sense, and if you're talking about
Yes, we're losing sort of, you know, sort of 380 million dollars or evaa that, you know, over the over that time, period, you know, just curious, you know what? Your views are to offset that with core Ops and how you view that impacting, your sort of core growth rate with those side ones.
Yeah, so, you know, Peto, obviously those reductions don't begin as we know materially until 2028. Um, so, you know we we certainly have time to think about strategically how we might alter our um,
business approach, particularly in the behavioral business where, um,
Marc Miller: You know, additionally, obviously, there could be, as, you know, we noted in the remarks, new DPP programs approved during that time. And finally, well, maybe not finally, but I think it's also possible, as we noted in our remarks, that some of the changes are not, you know, ultimately implemented. We believe, or some have speculated, that Congress particularly extended these cuts for a period of time to give it some room to come back and tweak if they had to. But if the cuts remain in place and are enacted as the bill lays out, we certainly feel like there are things that we can do both from, again, shifting revenues, sources of revenues, particularly in the behavioral division, cost-cutting initiatives, et cetera.
You know, we can and alter the structure of our programs, you know, not necessarily cater to, as many Medicaid Centric programs, as you know, Etc. Um, you know, additionally, uh, obviously there could be uh, as, as you know, we noted in in the remarks, um, new, uh, DPP programs approved during that time. Uh, and and and finally, you know, well not maybe not finally but I think it's also possible. Uh, as we noted in our remarks that some of the changes are not, you know, ultimately implemented. Um, you know, we we believe we're some have speculated that, uh, Congress, you know, particularly extend to these cuts for a period of time to give it some room, uh, to come back and tweak if if they had to. But if the cuts remain in place and and are enacted as as the bill, uh, lays out
Marc Miller: And, you know, I'll remind you, I know some of our peers have made the same point five years ago when the pandemic hit and did so with very little notice. We specifically, and we as an industry, pivoted fairly quickly and fairly dramatically in terms of headcount reductions, capital spending reductions, et cetera, and a whole host of initiatives to react to what at the time was an extremely dramatic and largely unexpected reduction in revenues. So, you know, again, I think we have great confidence in our ability to shift and be flexible, especially with several years of notice and preparation that we'll have this time around.
Marc Miller: Let me just add on. Let me, Peter, let me add on. So Steve laid out in his prepared remarks, you know, the worst case. and which we obviously, you know, want to be transparent and that's what the numbers are. I don't expect that that's what will happen in a number of ways. So Steve mentioned a couple of things that will pivot and will make moves that are necessary. In talking with all of the folks down in D.C., representatives from many of the states that we cover, they are starting to recognize, even right now, what they passed simply can't be left as is because the effect on some of the healthcare programs in their states, and not just at a place like UHS, but these not-for-profit hospitals in their states could be detrimental.
Especially with several years of notice and preparation that, we'll, we'll have this time around.
Let me just add on. Let me, let me add on to this.
so Steve laid out in in his prepared remarks, you know, the worst case scenario
And which we obviously, you know, want to be transparent; and that's what the numbers are today.
I don't expect.
That that's what will happen um, in a number of ways. So Steve mentioned, a couple of things that will pivot and we'll make moves that are necessary.
Marc Miller: So they're already talking about what needs to be done to make sure that programs aren't closing, shifts aren't taken, things like that. So I fully expect that this is a floor that is a, well, it is what it is today, but I expect this will get better. We anticipate that there will be changes made because we think they have to be. So while I think this is a worst case scenario, again, I'll point out, he mentioned 2028, Steve did, and 2032. We're gonna do a lot to make sure that we don't hit these numbers that we just talked about.
In talking with all of the folks down in DC. Um, representatives from many of the states that we cover, they are starting to recognize even right now. What they passed simply can't be left as is because we affect on some of the health care programs in their state and not just at a place like UHS, but these non-for-profit hospitals in their states. Could be detrimental. So, they're already talking about what needs to be done to make sure that programs aren't closing. Shifts aren't taken things like that, so I fully expect that this is a floor. That is a um, uh, well, it is what it is today, but but I expect this will get better. Uh, we anticipate that there will be changes made because we think they have to be so while, I think this is a worst case scenario. Again, I'll point out he meant
Operator: So I just wanted to give a little context. Right. Thanks so much, Ben.
Operator: This is for a volunteer looking at the behavioral.
In 2028, Steve did and in 2032, we're going to do a lot to make sure that we don't hit these numbers that we just talked about. So, I just wanted to give a little context and perspective to that.
Marc Miller: Can you sort of talk about the split between the hospital patient days and behavioral versus outpatient? Sort of what you saw this quarter, what you assume the back half the year and kind of how you're going to be improving the outpatient side of behavioral.
Marc Miller: Thanks. Yeah. So, you know, in the table towards the back of the press release, you know, we disclosed year-over-year growth in ADC, and then, of course, in the body of the press release, we disclosed adjusted patient days. Adjusted patient days have grown faster in the second quarter than unadjusted patient days, indicating that outpatient's growing faster than inpatient, which was not the case in Q1. We talked about that at some length in the first quarter. We talked about our focus on outpatient growth, and I think as we think about getting closer to the 2.5 to 3% adjusted patient day target that we've been talking about for some time, I think we believe that growth in outpatient is a significant opportunity for us.
Right. Uh uh thanks so much then Mr. A follow up here. Looking at the behavioral can you sort of talk about the split between the hospital patient days and behavioral versus outpatient for what you saw this quarter, what you see with the back half of the year and kind of how you're going to be improving. Uh the outpatient side behavioral, thanks so much.
Marc Miller: A number of the insurance companies, as they've been talking about their increase in medical loss ratios, have pointed to the increase in spending on behavioral care. And while they don't provide this level of detail, we believe that a significant chunk of that increase is in outpatient. And we are determined to get a larger share of that, I'll call it outpatient pie, as we go forward. So focus on outpatient. We've talked about this, I think, in our last couple of conference calls, is a significant focus of ours made some progress in Q2 and anticipate making further progress in the back half of the year and, quite frankly, years to come after that.
Yeah. So, you know, in the table towards the back of the, um, press release. You know, we disclose, uh, year-over-year growth in ADC. And then, of course, in in the body of the press release. We disclose adjusted patient days, adjusted, patient days and grown faster in the second quarter than, um, than, um, unadjusted patient days, indicating that outpatients growing faster than than inpatient, which was not the case in q1. Uh, we talked about that at some length in in in the first quarter. Um, we talked about our focus on on outpatient growth and I think as we think about getting closer to the 2 and a half to 3%, adjusted patient day Target that we've been talking about. For some time I think we believe that uh, that growth and outpatient is a significant opportunity for us.
Operator: Thank you. And one moment for our next question.
A number of the insurance companies as they've been talking about their increasing medical loss. Ratios have pointed to the increase in spending on behavioral care. And while they don't provide this level of detail, we believe that a significant chunk of that increase is in the outpatient. And, you know, we are determined to get a larger share of that, I'll call it outpatient pi as we go forward. So so focus on outpatient when I we've talked about this. I think in our last couple of conference calls is a significant focus of all ours. Made some progress in Q2, uh, and anticipate making further progress in the back half of the year and quite frankly years to come after that.
Andrew Mok: Our next question will be coming from Andrew Mop of Barclays. Your line is open, Andrew. Hi, good morning. Question on Cedar Hill. You called out $25 million of startup losses in the quarter. Can you update us on the latest accreditation status of that hospital? What's baked into guidance for the back half of the year? And how are you thinking about the ramp to mature profitability now?
Thank you. And 1 moment for our next question.
Our next question will be coming from Andrew Maca Barkley. Your line is open. Andrew.
Marc Miller: Thanks. Yeah, so again, I think our mistake when it comes to Cedar Hill was we were too optimistic about how quickly we'd obtain Medicare certification. And, you know, just as a little bit of background for people who may not fully understand, until a hospital gets what's called deemed status or Medicare certification, they're not able to bill for or collect from Medicare. And a number of commercial payers generally follow that, and honestly, and usually Medicaid follows that. In the case of Cedar Hill specifically, we've already gotten the District of Columbia to agree to pay us back to when they deemed us to be ready for the joint commission survey, which results in Medicare certification.
Hi, good morning. Question on Cedar Hill you called out 25 million dollars of startup losses. In the quarter. Can you update us on the, uh, latest accreditation status of that hospital? What's baked into guidance for the back half of the year and how are you thinking about the ramp to mature profitability now? Thanks.
Yeah, so again, I think our mistake when it comes to Cedar Hill was we were too optimistic about how quickly we'd obtain Medicare certification. And, you know, just as a little bit background for people who may not fully understand, um, until our Hospital gets what's called deemed status, or Medicare certification, uh, there there
Marc Miller: So, we have been getting paid for Medicare, for Medicaid rather. But awaiting the joint commission survey, we believe it is imminent, could occur this week, could hopefully occur next week. Once we get that certification, then that becomes the effective date that we're able to bill. It'll take us obviously some time to, you know, get the bills out and collect, but that becomes the effective date. The delicate balance that a facility goes through sort of in these early times is we're not necessarily trying to promote all the surgical, elective, procedural business that we might otherwise because we're not, you know, necessarily getting paid for it.
Marc Miller: So, most of the activity at the facility right now is emergency room activity, which as I think Mark noted in his comments, has been quite busy and encouraging that there is great demand for the hospital in this location. But once we get our certification, we'll begin to build up more surgical and procedural volume and round out services that are being offered. So we have a $25 million loss or EBITDA drag in Q2. Embedded in our guidance in the back half of the year is another $25 million drag for the back half of the year. So some improvement, but recognizing that there'll be a ramp up once we get our certification.
This is imminent, um, could occur this week could, you know, we hopefully our next week. Um, once we get that certification, uh, then that becomes the effective date that we're able to build. Uh, it'll take us some time to to, you know, get the bills out and collect but that becomes the effective date. The the delicate balance that a facility goes through. So that in these Early times is uh, we're not necessarily, uh, trying to promote all the surgical, elective procedural business that we might otherwise because we're not, you know, necessarily getting paid for it. So most of the activity at the facility right now is emergency room activity, which um is I think Mark noted in his comments has been quite busy and and encouraging that. There is great demand for the hospital in this uh, location. Um, but once we get our certification, we'll begin to build up um, more Surgical and procedural volume, uh, and, and round out the services that are being offered by the hospital. So, we have to
Marc Miller: And then I think the general sense is that by the time we get to 2026, the facility will be back on a course of ramping up to kind of divisional-wide profitability after 12 or 18 months of additional operation. Great. And maybe just a quick follow-up on that. Like, outside of the discrete items related to state-directed payments and Cedar Hill, the EBITDA guidance looks largely unchanged. One, do I have that right? And two, what are the offsetting positives allowing you to keep the underlying EBITDA intact despite the soft behavioral quarter? Thanks. Yeah, so I think if you, you know, go through the math, there's roughly $185 million of new DPP revenues in that $1.2 billion that I alluded to earlier from our last disclosure, you know, last quarter.
25 million dollar loss or either Dodge Dragon, Q2 embedded in our guidance, in the back half of the year, is another 25 million drag for the back half of the year, so some improvement. Um, but but, you know, recognizing that there will be a ramp up, uh, once we get our certification and then I think, you know, the general sense is that by the time we get to 2026, the facility will be back on a course of ramping up to kind of divisional wide. Uh, profitability after 12 or 18,
Months of additional operations.
Great. And maybe just a quick follow-up on that. Like outside of the discrete items related to State directed payments and Cedar Hill. The ebit dog. Guidance looks largely unchanged. Um 1, do I have that right? And 2 what are the offsetting positives allowing you to keep the underlying Evita uh intact despite the soft behavioral quarter? Thanks.
Marc Miller: Offsetting that is, you know, roughly, you know, $50 million in the Cedar Hill drag, the $25 in the second quarter and the $25 in the back half of the year, and then a bit more of a drag in terms of scaling back our behavioral projections for the back half of the year, largely because we are falling short of that volume target that was originally embedded in our guidance. I mean, that's, that's, those are basically the significant pieces of the guidance revision. Great, thank you.
Yeah, so I I think if you, you know, go through the math, um, there's roughly 185 million dollars of new DPP, uh, revenues in at 1.2 billion that I alluded to earlier from our last, uh, disclosure, you know, last quarter, um, offsetting that is, you know, roughly, um, you know, 50 million in the Cedar Hill, drag the 25 and the second quarter and the 25 in the back, half of the year and then a bit more of a drag, um, in terms of, um, scaling back or behavioral projections for the back, half of the Year largely, because we are falling short of that, um, volume Target that was originally embedded in our guidance. I mean, that's that's those are basically the significant pieces of the guidance revision.
Operator: In one moment for our next question.
Great. Thank you.
Jason Kasolra: Our next question will be coming from Jason Kasolra of Guggenheim. Your line is open. Great, thanks. Good morning. Maybe just a piggyback on the outpatient behavioral commentary. I mean, you were talking about getting a bigger share of the outpatient pie. I guess, how would you see that unfolding? Is this more de novo build-out? You've got less than two times leverage ratio currently. You've talked about a number of de novo bills and JVs in your prepared remarks. Just hoping you can give us any color on a pathway to grabbing more outpatient.
And 1 moment for our next question.
Our next question will be coming from Jason cassa of Guggenheim, your line is open.
Marc Miller: Yeah, we've talked about this, I think, in some detail in the last couple of calls, but happy to sort of revisit the issue. You know, generally, we generate outpatient reviews and behavioral in two very broad ways. One is step down business, we refer to as step down business. These are patients who are inpatients in our facilities, but when they are discharged, they require further less intense care. And we'll go into programs that we either describe as intensive outpatient or partial hospitalization. And often, you know, those programs are offered by us on our campus, etc. And as you might expect, we control or are able to refer many of those patients to our own programs, although many of them also leave and go elsewhere.
Uh, great thanks, good morning. Um, maybe just a piggyback on the outpatient behavioral. Um commentary. I mean you were talking about getting a bigger share of the outpatient pie. I guess, how would you see that unfolding? Is this more denovo? Buildout you've got less than 2 times leverage ratio? Currently, um, you've talked about a number of of denovo, builds and JVS and in your prepared remarks, I guess. So, just hoping you can give us any color on a pathway to grabbing more outpatient, share. Thanks.
Yeah, and we've talked about this, um, I think it in some detail in the last couple of calls, but but happy to uh, to sort of revisit the issue, you know, generally we generate um outpatient revenues and behavioral in 2, very broad ways. Um, 1 is step down business. We refer to as step down business, these are patients who are inpatients and our facilities, um, but when they are discharged, they require further less intense care. And, um, we'll go into programs that we either described as intensive outpatient or partial hospitalization, um, and, and often, you know, those programs are offered by us on our campus uh Etc. And as you might expect, we control
Marc Miller: And, you know, we're focused on keeping as many of those patients in our programs, both because we think clinically that's most effective for them. There's a lot of continuity with our medical professionals, etc. So that's something that we can do immediately and just do a better job of controlling that patient flow. But the other aspect of outpatient review and behavioral is what we describe as step in business. These are patients who enter the behavioral system in an outpatient program. Very often, it's a freestanding outpatient program not located on the campus of an acute behavioral hospital.
Marc Miller: We have found that there is a large number of patients who are often not comfortable with their first sort of experience in behavioral care being on the campus of an acute behavioral hospital. And so we are establishing a larger footprint in freestanding behavioral hospitals that are located generally not on the campuses of our existing hospitals. Those hospitals, the capital investment in those outpatient facilities is not great. They're generally leased facilities in a storefront or that sort of setting. Maybe there's a million dollars of capital on average in each of those. The bigger issue is just really staffing them with the therapists and creating a flow of patients.
Often, it's a freestanding outpatient program, not located on the campus of an acute behavioral hospital. We have found that there is a large number of patients who are often not comfortable with their first sort of experience in Behavioral Care being on the campus of a.
acute behavioral hospital.
Marc Miller: So we intend to open 10 to 15 of those new outpatient facilities a year over the next several years and increase our presence both in the step-in business and do a better job in the step-down business. Okay, got it. Thanks. Helpful.
And so, we are establishing a larger footprint in, um, in freestanding behavioral hospitals that are located. Uh, you know, generally um, not on on that the campuses of our existing hospitals, those hospitals, the, you know, the capital, uh, investment in those. Um, outpatient facilities Is Not Great. Uh, they're generally, you know, least facilities in a storefront or that sort of setting, uh, you know, maybe there's a, you know, a million dollars of capital on on average in each of those. Um, you know, the bigger issue is just really um, Staffing them with the therapists uh, and and creating, you know, a flow of patients. So uh, you know, we intend to open, um, 10 to 15 of those, you know, new, uh, outpatient facilities a year over the next several years and increase our presence. Both in the step in business and do a better job in this step down business.
Marc Miller: And maybe just as a follow up, for the acute care business, can you talk about volume growth trends across payer cohorts in the quarter? And what type of volume growth you saw against, you know, for commercial, Medicare, Medicaid, exchange? And if payer mix was a benefit in the quarter, would you expect that, you know, where your payer mix kind of came in this quarter, would you expect that to persist, at least through the remainder of this year? Or are there puts and takes there? Any color would be helpful. Thanks.
Marc Miller: Yeah, you know, what I would first say is that, you know, we said in our or I said in our prepared remarks that acute care revenue exclusive or of our insurance subsidiary grew by 5.7% year over year in the second quarter. That's pretty much spot on with what our guidance presumed. And we talked about 5, 6, 7% acute care revenue growth, so 6% at the midpoint. We're kind of running right there, I think, without the cannibalization of our same facility revenues that we're getting from West Henderson. We'd be right there, maybe in the low sixes.
Okay, got it. Thanks, helpful. Um, and maybe just as a follow-up for the acute care business, can you talk about volume growth trends across payer cohorts in the quarter and what type of volume growth you saw against, you know, for commercial, Medicare, Medicaid, and exchange? Um, and if payer mix was a benefit in the quarter, would you expect that, you know, where your payer mix kind of came in this quarter? Would you expect that to persist at least through the remainder of this year? Or are there puts and takes there? Just any color would be helpful. Thanks.
Marc Miller: So we're, we're, I think, kind of right where we thought in the second quarter. I think we were skewed a little bit more to pricing than to volume, but generally spot on to your point. I think the pricing benefit in Q2 was a bit payer mix driven, as I think, you know, a number of our peers have commented as well. We saw a little bit less Medicaid volume and a little bit more commercial exchange volume in particular. And I think that drove somewhat more favorable pricing. But again, I'll make the point that we probably were a little less bullish about how some of the, we considered, you know, sort of extraordinary acute care revenue growth numbers that we and others have been putting up over the last several years would start to moderate.
Yeah. You know what I would first say is um that you know we we said in our when I said in our prepared remarks that acute care Revenue, exclusive or or Insurance City, I grew by 5.7% year, year-over-year in the second quarter. That's pretty much spot on with what our guidance presumed, you know, we talked about 567%, if you get Revenue growth, so 6% of the midpoint we're kind of running right there. I think, without the cannibalization, uh, of our same facility revenues that we're getting from West Henderson. We'd be, you know, right there maybe in the low sixes. Uh, so we're we're I think you know kind of right where we thought in the second quarter. I think we were skewed a little bit more to pricing than to volume. Uh, but you know, generally, uh, spot on uh, to your point, I think the pricing then if it in Q2 was a bit higher makes driven. Um, as I think, you know, a number of our peers have come
Marc Miller: I think that's been true in the first half of this year. And so, in our minds, the acute business is sort of growing, you know, very much in line with our expectations. Okay, great. Thank you.
Method as well. We saw a little bit less, Medicaid volume, uh, and a little bit more commercial exchange volume in particular. And I think that drove somewhat, uh, more favorable pricing. But again, I'll make the point that, um, we probably were a little, um, less bullish about how some of the we considered, you know, sort of extraordinary, acute care, Revenue, growth numbers, that we and others have been putting up over the last several years, would start to moderate. Um I think that's been true uh in the first half of this year. And so uh in our minds, the acute businesses sort of growing, um you know, very much in line with our expectations
Okay, great. Thank you.
Benjamin Rossi: And our next question will be coming from Benjamin Rossi of J.P. Morgan. Your line is open. Hey, good morning. Thanks for taking the question here. So behavioral pricing continued to outperform during the quarter and growing just under 7% for the first half of the year versus your original growth range that you previously outlined. Is there any way to frame the breakdown here between rates, acuity, and contribution from incremental and supplemental payments? And then what does your BACF guidance say? progress towards your now revised goals on the value.
Thank you.
And our next question will be coming from Benjamin Rossi of JP Morgan. Your line is open.
Hey, good morning. Thanks for taking the question here. So, behavioral pricing continued to outperform during the quarter, growing just under 7% for the first half of the year versus your original growth range that you previously outlined in the 4% to 5% range.
Steve Filton: So, in our prepared remarks, I said that excluding the Tennessee impact, and we exclude Tennessee because I think that's an incremental benefit in the quarter. We don't exclude the other $43 million of DPP in the quarter because if you go back to the second quarter of last year, there was a $35 million unexpected benefit in the Washington and Idaho, and so those two, in our minds, offset. But excluding the Tennessee directed payment, we say the revenue's increased by 5.4%, and that's basically broken down between a 4.2% increase in pricing and a 1.2% increase in adjusted patient days.
Is there any way to frame the breakdown here between rates Acuity and contribution from incremental, submental payments? And then what does your back cap guidance, contemplate regarding growth as you progress towards your now revised goals on the volume side.
Steve Filton: As you know, I mean, we said in our guidance that pricing, you know, we assumed would be in that 4% to 5% range. We've generally been outpacing that. The second quarter moderated a little bit, but I would say that 4% to 5% is what we believe the sustainable pricing growth in behavioral is, at least for the intermediate term, and the 1.2% volume growth is what we think or where we think is the opportunity to improve, particularly, again, on the outpatient side. I appreciate the color.
In adjusted patient days. Um as you know I mean we said in our guidance that a pricing, you know we we assumed would be in that 4 to 5% range. We've generally been outpacing that the second quarter moderated a little bit but I would say that 4 to 5% is what we believe the uh sustainable pricing growth in behavioralism, in least for the intermediate term and the 1.2% volume growth is what we think, uh, or where we think is the opportunity to improve particularly again on the outpatient side of things.
Steve Filton: Just as a follow-up, taking a look at your average length of stay in acute, seeing that down both annually and on a sequential basis. Walk us through some of the drivers of that deceleration and maybe where you see room to bring that down further. And then, have you seen any variation in length of stay trends across your payer class? Medicaid, Medicare. really among your exchange. Yeah, I mean, obviously, length of stay peaked during the pandemic when it was driven much higher by the, you know, high acuity of COVID patients in particular, and it's been coming down steadily since then.
Great. Appreciate the color. Just as a, a follow up, taking a look at your average length of stay in acute.
Seeing that down, both annually and on a nice sequential basis, just walk us through some of the drivers of that deceleration and maybe where you see room to bring that down further. And then have you seen any variation in length of stay trends across your payer classes between Medicaid, Medicare, and commercial, particularly among your exchange populations?
Steve Filton: I think we believe that there still is some room for length of stay to be further reduced. I think probably the biggest challenge we have in reducing length of stay further is placement of patients into subacute facilities that could be skilled nursing facilities, nursing homes, home health programs. Often, there is a sort of a scarcity or a lack of availability in those programs. I don't know that it really varies, you know, by payer. I think sometimes it's an obstacle for us because the payers don't have all of the subacute providers in a geography in their networks, and that can be challenging.
Yeah, I mean obviously length of stay peaked during the pandemic. When it was driven, uh, Much Higher by the, you know, High Acuity of Co patients and in particular, and it's been coming down steadily since then. Um, I think we believe that there still is some room for Lancaster to be further reduced. I think probably the biggest challenge we have in reducing length of stay. Further is placement of patients into Subacute facilities. Um,
Steve Filton: But yeah, I mean, I think we continue to believe that length of stay has some room, I'm not going to say, you know, material amount, but some incremental room to improve from where it currently is. Great, appreciate it.
That could be skilled, nursing facilities, nursing homes, home health programs. Um, often there is a, um, sort of a scarcity or, um, a lack of availability in those programs. I don't know that it really varies. Um, you know, by payer, I think sometimes it's an obstacle for us because the, the payers don't have all of the, uh, Subacute providers in a geography in their networks and that can be challenging. Um,
But yeah, I mean I think we can continue to believe that length of stay has some room. I'm not going to say, you know, material amount but some incremental room to improve from where it currently is.
Great, appreciate the comments.
Craig Hettenbach: And our next question will be coming from Craig Hettenbach of Morgan Stanley. Your line is open. Yes, thank you. Just following up on behavioral, and I know there's been kind of back and forth with the payers on kind of price and access. I'm just curious, on just a longer term basis, do you think some of that normalizes in terms of the contribution between volume and price, or how are you thinking about that? So I think what we've consistently said is that the way we think about the long term model of that of the behavioral business is that I'll call 7% at the midpoint is the reasonably expected revenue growth rate, and that would be made up of 4% to 5% price and 2.5% to 3% volume.
And our next question will be coming from Craig. Hatenback of Morgan Stanley, your line is open. Craig
Yes, thank you. Just following up on behavioral and I know there's been kind of back and forth with the payers on kind of price and access. I'm just curious on just a longer term basis. Do do you think some of that normalizes in terms of the contribution between volume and price, or, or how are you thinking about that?
Marc Miller: We've generally been hitting those price targets, and frankly, in most periods, exceeding the price targets. It's the volume that has been the bugaboo for us. We've improved, as I said, from the first quarter and expect improvement in the back half of the year, but again, I'll call it that 6.5%, 7% revenue growth. viewed a little bit more to pricing than to volume, as sort of being the model that, you know, we're expecting in the behavioral business for, I'll call it the intermediate future.
Yeah. So I think what we've consistently said um, is that the way we think about the long-term model of that of the behavioral business is that 678% I'll call 7% at the midpoint is the um reasonably expected, you know, Revenue growth rate. Um the and that would be made up of you know, 4 to 5% uh you know price and you know, 2 and a half 3% you know volume. Um and we've generally been hitting those price targets and and frankly in most periods exceeding, the price targets. It's the volume that has been um, the, the Bugaboo for us. Uh, We've improved as I said from the first quarter and expect Improvement in the back half of the year, um, but again, I'll call it that
6 and a half 7%. Um, Revenue growth.
Marc Miller: Got it. And appreciate all the color and detail on the one big, beautiful bill in terms of impact. When I think about potential offsets, how are you thinking about just kind of leveraging technology and AI? Kind of where are things today and how could that kind of ramp as a potential offset in the coming years? Sure. I mean, obviously, it is always our goal to be as efficient and productive as possible. And to the degree that technology, whether that's AI or other kinds of technology, can help us do that, we're certainly open to that.
Skewed, a little bit more to pricing than the volume as sort of being the model that, you know, we're expecting in in the behavioral business for, I'll call it the intermediate uh, future.
Got it and and appreciate all the color and detail on the 1, big beautiful bill in terms of impact when I think about potential offsets, how are you thinking about just kind of leveraging technology and AI kind of where are things today and and how could that kind of ramp um as a potential offset in in the coming years?
Marc Miller: You know, we can, you know, the AI discussion, I think, you know, could be a whole separate discussion in a separate call. But I'll just briefly say that, you know, we're experimenting with uses of AI in things like revenue cycle, where certain tasks like denial management and denial appeals, et cetera, we know that the payers for some time have been using AI to generate things like denials and patient status changes, et cetera. And I think, you know, we're developing sort of countermeasures to that using AI more productively, et cetera, than I think, you know, humans can actually do that.
Marc Miller: From a clinical perspective, you know, one of the early experiments we've done is using AI to follow up with patients on their post-discharge instructions. So, you know, an AI-generated entity will call a patient and make sure that they've followed up with the appropriate doctor appointments, and they've filled their prescriptions, and they're following their diet, you know, whatever the post-discharge instructions are. And we have found in the early stages that that's been very well-received and efficient. And, again, it frees up a clinical person, you know, generally a nurse, who would otherwise be making that call. So, yeah, I mean, I think that AI and technology tools in general are certainly one way that we envision becoming more productive over the next several years.
We know that the payers for some time have been using AI to generate things like denials and patient status changes Etc. And I think you know we're developing so the countermeasures to that using AI um more productively Etc than than I think. You know, humans can actually do that um uh from a clinical perspective, you know, 1 of the early uh experiments. We've done is using AI to follow up with patients on their post discharge instructions. So you know, an AI generated entity will call a patient and make sure that they followed up with the appropriate doctor appointments, and they filled their prescriptions and they're following their diet, you know, whatever the the post discharge instructions are and, um, we have found in in the early stages that that's very, uh, been very uh, well received and efficient, and again it frees up uh, a clinical person, you know, generally a nurse who would otherwise be making that call? So, yeah, I mean, I think that, um, Ai and Technology Tools in general,
Operator: helpful. Thank you. And one moment for our next question.
Are certainly 1 way that we envision becoming more productive over the next several years.
Helpful. Thank you.
A.J. Rice: Our next question will be coming from A.J. Rice of UBS. Your line is open. Thanks. Hi, everybody. Maybe a couple questions. First on, obviously, the managed care space has been quite disrupted the last few years and culminating this year.
And 1 moment for our next question. Our next question, will be coming from AJ rice of UBS. Your line is open AJ.
Uh, thanks. Hi everybody. Um,
Marc Miller: Just wondering if you see that impacting Discussions with the MCOs at all on either Medicare Bench, commercial, whatever And I'd ask that both from the behavioral perspective and the commercial perspective You know, where are you at? Is rate updates consistent terms that you're seeing being asked for? the percent of AJ, I mean, I think, you know, our experience has been, and it's been alluded to in some previous questions, on the behavioral side, we've gotten pretty strong managed care increases over the last seven years, largely, I think, because the payers, you know, are struggling with access to behavioral facilities.
Maybe a couple questions first on uh obviously the Managed Care space has been quite disrupted. Um the last few years and culminating this year. Um just wondering if you see that impacting
Discussions with the MCOs at all on either Medicare Advantage, commercial, whatever. I'd ask that both from the behavioral perspective and the commercial perspective, you know, where are you at? And is the right updates, consistent terms that you're seeing being asked for, the percent of business getting done for this year or next year and the following year?
Marc Miller: I think there's a scarcity, particularly of inpatient behavioral beds, that payers are challenged by. Where I think, you know, we probably feel the impact of the managed care industry's challenges the most is in sort of the day-to-day, you know, revenue cycle interactions we have with payers. appeal to patient status changes, that sort of thing. We've invested, I think, a lot. We've had some pretty significant third-party consulting reviews of our revenue cycle practices to allow us to improve people, process technology, so that, you know, we're trying to, you know, be able to counter the payers in sort of the aggressive behavior we have found in those areas.
AJ, I mean I think you know, our experience has been um, in the end I think it's been alluded to in some previous questions on the behavioral side, we've gotten pretty strong Managed Care increases over the last several years. Largely I think because the payers, you know, find are struggling with access to behavioral facilities. I think there's a scarcity, particularly of invasion behavioral deaths that payers are are challenged by, um, where I think, you know, we probably feel the impact of the Managed Care Industries, uh, challenges. The most is in sort of the day-to-day, you know, Revenue side.
Marc Miller: I don't know that it's incrementally more, you know, materially different than it has been, but it's certainly been this way for some time. Okay.
Echo interactions. We have with payers, um, you know, we can we, we, I don't know that we've seen an enormous increase in the level of denials or patient status changes. But if you talk to anybody who works in, you know, our revenue cycle, and even the behavioral or acute, uh, they'll, they'll just described to you, what is sort of a daily slog, uh, of having to, you know, counter aggressive behavior on the part of payers, um, all the time and and denials and denial, appeals, and appeals and patient status changes, that sort of thing. We've invested, I think a lot. Uh, we've had some pretty significant third-party Consulting reviews of our revenue cycle practices, uh, to allow us to improve people process technology. Um, so that, you know, we're we're trying to, um, you know, be able to counter the um, the payers in in sort of the, the aggressive behavior we have found in those areas. Um,
Marc Miller: Maybe just also ask you about labor. Any updated thoughts on both lines of business? to things like wage rates, use of contract laws. et cetera.
I don't know that it's incrementally uh, more, you know, materially different than it has been but it's certainly been this way for some time now.
Okay, um, maybe just also ask you about Labor. Um,
Marc Miller: And I know particularly with behavioral, your biggest challenge you talk about and try or get to your growth targets there has seemed to be getting the staffing any update or thought on that. Yeah, so I mean, I think from a labor or wage inflation perspective, obviously, wage inflation has decelerated significantly from its peaks during the pandemic. Maybe decelerated is not the right choice of words, but it's accelerating at a much lower rate than it had been during the during the height of the pandemic. I think we find that in both of our segments, I think we find the use of temporary traveling nurses to be lower again in both segments.
Any updated thoughts on both lines of business with respect to things like wage rates, contracts, labor, turnover, etc.? And I know, particularly with behavioral, your...
Uh, biggest challenge, you talk about and trying to get back to your, or get to your growth targets, there has seemed to be getting the Staffing any uh um, updater thought on that.
Yeah. So I I mean I think from a Labor uh or wages inflation perspective obviously wage inflation has uh decelerated significantly from its Peaks during the pandemic. Um, maybe to celebrate, it is not the right choice of words, but it is accelerating at a much lower rate than it had been during the, um, during the high of the pandemic. I think we find that in both of our
Marc Miller: But you are correct that we continue in the behavioral business in certain geographies and certain markets to be hampered or for at least our volumes to be hampered by our inability to hire all the staff that we need and it's not, it's often nurses but sometimes that could be therapists. Therapists I mentioned earlier could be or hiring a therapist could be an obstacle to building out outpatient. But it also could even be the non-professional people, the people we call mental health technicians. So we've done a great deal in the last several years to improve our recruiting, but also, and I think almost probably more importantly, the recruits to improve our retention to make sure that when we hire people, they feel properly trained, we feel that they're properly trained to maximize the safety and quality of care to our patients, but also to, you know, for them to feel comfortable in delivering that care and that they're wanting to stay at the facility for longer periods of time, et cetera, and longer tenure.
To the um, hampered or or for at least, our volumes to be hampered by our inability to hire all the staff that we need. And it's not, it's often nurses, but sometimes that could be therapists. Um, therapists I mentioned earlier could be or hiring a therapist to be an obstacle to building out outpatient. Um, but it also can even be the non-professional people to be
Marc Miller: and the resulting long-attended employees. So we continue to invest in that. And it remains a challenge. It's still a tight labor market. And again, I do think while it is not the pervasive issue that it was at the height of the pandemic, you staffing, you know, scarcity, it continues to be an issue in some markets in some jobs.
A.J. Rice: Okay, maybe just if I can squeeze one more in there on the your DPP comments. I know a lot of states, or there are some states scrambling to still get credit on. The window shuts, and Washington, D.C. was a big one for you that was still pending. Any update there? And then with respect to your long-term impact of the big, beautiful bill, you said $380 million exposure. Any way to break that down between acute and behavioral exposure? Yeah, so the 380 is about, or the midpoint of the range that we gave, which is 380, is about 60% behavioral and 40% acute.
So we've done a great deal in the last several years to improve our recruiting. Um, but also and I think almost probably more important. There's a recruit the recruiter body retention to make sure that when we hire people, they feel properly trained. We feel that they're properly trained, um, to maximize the safety and and uh, quality of the care to our patients. But also to, you know, for them to feel comfortable in delivering that care. Um, and so that they're they're wanting to stay at the facility for longer periods of time, Etc and longer ten years and result in longer attended employees. So we continue to invest in that. I mean, it it remains a challenge. It's a, it's still, a tight labor market. And again, I do think while it is not the pervasive issue that it was at the height of the pandemic. You Staffing, you know, scarcity, it continues to be an issue in some markets, in some geographies.
Okay. Maybe just if I can squeeze 1 more in there. Um,
On your DPP comments, you had.
Uh, I know a lot of states or, or there are some states scrambling, to still get credit under the, uh, the beautiful bill, before the window shuts in Washington, DC was a big 1 for you. That was still pending any update there. And then uh, with respect to your long-term impact of the uh, big beautiful bill. You said 380 million, uh, uh, exposure. Any way to break that down between acute and behavioral exposure.
yeah, so the the 380
Marc Miller: As far as your other question about other programs, the D.C. program has been pending approval for a number of months now. We don't necessarily have any inside information. We do get sort of periodic updates from the district itself, where the district provides it to the hospital association, and we get through them. And they say they continue to have ongoing conversations with CMS, which I think is fairly typical, meaning CMS asks them questions. They ask for data. They provide it. They sometimes reach out to us, the hospitals, for help in providing that data. We've provided data.
It is about the midpoint of the range that we gave, which is 380, is about 60% behavioral and 40% acute.
Marc Miller: The district continues to believe that the program that they've submitted meets the criteria of CMS in other programs that have been previously approved, and they continue to expect the program to be approved, although they don't really estimate a timeframe. There are other states that we understand have either submitted preprints or intend to. I think it's worth noting that the bill doesn't preclude new programs. It just suggests that any new programs after the passage of the bill are subject to the caps in the bill, whether they're the provider tax caps or the reimbursement caps. But it's entirely possible that there are states who can still submit new programs even now that the bill has been passed.
Um, as far as your other question about other programs, um, the DC program has been pending approval for a number of months now, you know, we don't necessarily have any inside information. We do get sort of, um, periodic updates from the district, uh, itself or the district provides it to the hospital Association and then we get through them. Um, and they say, they continue to have ongoing conversations with CMS, which I think is fairly typical, meaning CMS, adds some questions they ask for data, they provide it, they sometimes reach out to us the hospitals for health and providing that data. We've provided data, um, the district continues to believe that the program that they've submitted meets for
Operator: Okay, all right, thanks so much.
The criteria of CMS in in other programs that have been previously approved and they continue to expect uh the program to be approved. Although, you know, they they don't really estimate a time frame. Um, there are other states that we understand that either submitted preprints or or or, you know, intend to. I think it's worth noting that um, the bill doesn't preclude new programs. It just uh, suggest that any any new programs after the passage of the bill are subject to the caps and the bill, whether they're the provider tax Caps or the reimbursement caps, um, but it's entirely possible that there are states, who, who can still submit, you know, new programs. Even now that the bill has been tested
Matthew Gillmor: And our next question will be coming from Matthew Gillmor of KeyBank. Your line is open, Matthew. Hey, thanks. Steve, you made a comment about Wes Henderson cannibalizing some of the same-store growth on the acute side. Are you able to quantify what that impact would be or just give us some sense for the drag on the same-store? Yeah, hard to do in an absolute precise way, Matthew, but I think the way we look at it is we look at the zip codes that Wes Anderson is getting patients from and sort of try and triangulate and say, you know, these are the likely zip codes that prior to Wes Anderson opening would have gone to either Henderson Hospital or one of our other hospitals.
Okay. All right. Thanks so much.
and our next question, will be
Matthew Gilmour of KeyBank your line is open. Matthew
Hey, hey thanks. Um, Steve you made a comment about West Henderson cannibalizing, some of the same store growth on the acute side. Are you able to quantify what that impact would be? Or just give us some sense for the, uh, for the drag on the same store?
Steve Filton: You know, we think that that impact is maybe 50, 60 basis points from a just admission perspective and kind of a similar impact on revenues. You know, again, best guess, you know, that's not a perfect or, you know, completely precise estimate, but that's our best guess.
Yeah, hard to do in an absolute precise way, Matthew. But I think the way we look at it is we look at the zip codes that Wes Anderson is getting patients from and sort of try to triangulate and say, you know, these are the likely zip codes that, prior to Wes Anderson opening, would have gone to either Henderson Hospital or one of our other hospitals. You know, we think that that is.
Steve Filton: And then following up on some of the expense management discussion, I wanted to see if there was anything to report with respect to professional fees and physician expenses. I think you had most recently said that you were expecting that to be up five percent and it was stable, but just curious about any progress there or sort of incremental pressures with certain. Yeah, I mean, I think that, you know, you as you described it, in our guidance, we assume that after fairly dramatic increases in those physician expenses in the last couple of years, that our assumption in 2025 was that they would increase by, you know, roughly the overall inflation rate, you know, five or 6%, something like that.
Impact is maybe 50 60 basis points. Uh from a adjusted Mission perspective and kind of a similar impact on on revenues. Um you know so again best guess you know, that's not a perfect or you know, completely precise estimate but that's that's our best guess.
But just curious. So, there's any, you know, progress there or sort of incremental pressures with certain specialties.
Steve Filton: And I think that's been the case. You know, we continue to feel pressure from, you know, different physician groups around the country, I think, you know, a number of our peers have suggested that after the initial pressures over the last several years have come from ER doctors and anesthesiologists, more recently, we're seeing more radiologists asking for increased subsidies, something that quite frankly, we hadn't seen in years. We've seen that same dynamic, although we've been able to continue to operate within that sort of, you know, 5% growth dynamic, that's not really changed. Got it, thank you.
Yeah, I mean I think that you know, you as you described it uh in our guidance, we assume that after fairly dramatic increases in in those position expenses, in the last couple of years that are assumption in 2025, was that they would increase by, you know, roughly the overall inflation rate, you know, 5 or 6% something like that. And I think that's been the case. Um, you know, we continue to feel pressure from, you know, different, uh, position groups around the country. I think, you know, number of our peers have suggested that after the initial pressures, over the last several years have come from, ER, doctors and anesthesiologists more recently, we're seeing more Radiologists asking for increased subsidy something that quite frankly, we hadn't seen in years. We've seen that same Dynamic although, um, we've been able to continue to operate, um, within that sort of, you know, 5% growth Dynamic, it has not really changed.
Sarah James: And our next question will be coming from Sarah James of Cantor Fitzgerald. Sarah, your line is open. Thank you. You've talked a lot about the opportunity for growth and outpatient behavioral, given what that implies for mix is two and a half to 3% adjusted admission for behavioral volume, still the right long term target, or the right target for 25, given the year to date performance. And can you speak to how inpatient behavioral specifically has been doing year to date versus direct? Yeah, I mean, so I think obviously, what we're seeing, I think, in behavioral is payers trying to shift more patients from the inpatient setting to the outpatient setting.
Got it. Thank you.
And our next question will be coming from Sarah James of Canter fits Joe, Sarah, your line is open.
Thank you. You've talked a lot about the opportunity for growth and
patient behavioral, uh, given what that implies for mix is 2 and a half to 3%, adjusted admission for Behavioral volume still.
Turn Target for the right. Target for 25 giving Year date performance. And can you seek to how impatient behavioral specifically has been uh, due year to date for S expectations?
Marc Miller: Obviously, that's a dynamic that we, you know, certainly not new. We've seen it in the acute space for you know, decade or two already. It's not new to the behavioral space either, but I think, you know, there's more of an emphasis on it. And to be fair, I think, you know, our business has been an inpatient centric business.
Yeah, I mean, so I think there is obviously, um, what we're seeing. I think in behavioral is payers, uh, trying to shift more patients from the inpatient setting to the outpatient setting. Um, obviously, that's a dynamic that we've, you know, not certainly not new. We've seen it in the acute space for.
Marc Miller: For most of its history, we have always had an outpatient presence, but I don't know that our, you know, focus has been as intense as it is currently, in part to take advantage of that shift. So I think that one of the reasons why it has been difficult for us to reach that to an 1.5 to 3% target that has been elusive, and we certainly acknowledge it's been elusive, is that there's been a shift to outpatient, and we've been not necessarily capturing what I would describe as our fair share of that outpatient business. Our focus has clearly changed.
You know, a decade or 2 already. Um it's not new to the behavioral space either, but I think, you know, there's more of an emphasis on it and to be fair, I think you know, well our business has been an inpatient Centric business, for most of its history. We have always had an outpatient presence but I don't know that our you know Focus has been as intense as as it is currently in part to take advantage of that shift. So I think that 1 of the reasons why it has been difficult for us to reach that 2 and a half to 3% Target that has been Elusive and we certainly acknowledge it's been elusive is that there's been a shift to outpatient and we've been not necessarily capturing
Marc Miller: You know, like I said, we've seen sequential improvement from Q1 to Q2, both in overall adjusted patient days, but specifically in outpatient. I think we believe we'll continue to see improvement over the balance of the year, and do believe that over the long term, that 2.5 to 3% adjusted patient day growth target is a reasonable target for this business, that the demand is there.
Marc Miller: We just have to be able to service it in the right setting with the right staff, etc.
What I would describe as our fair share of that outpatient business. Um, our focus is clearly changed. Uh, you know, like I said, we've seen sequential improvement from q1 to Q2 both in overall adjust adjusted patient days. But specifically, in outpatient think we believe will continue to see improvement over the balance of the year and do believe that over the long term that 2 and a half to 3%, adjusted patient. Day growth Target is a reasonable Target for this business. That the demand is there. We just have to be able to service it in the right setting uh with the right staff Etc.
Ryan Langston: And our next question will be coming from Ryan Langston of TD Cohen. Your line is open, Ryan. Great, thanks.
Thank you.
Marc Miller: Appreciate your commentary on the West Henderson Hospital, but maybe can you just more broadly give us an update how Nevada and the Las Vegas markets are doing in terms of volume, trends, payer mix, any other data you're able to share? Yeah, I mean, I think we've seen a little bit of slowdown in our Nevada volumes. There's been, I think, you know, a great deal written in recent months about the overall Nevada economy and Las Vegas economy slowing down a bit. You know, we're seeing some impact from that. But as I said, you know, even if you exclude the cannibalization from West Henderson or just exclude West Henderson's ER volumes, like our overall ER volumes are up slightly, you know, not by a great deal.
Our next question will be coming from Ryan. Langston of TD Cohen. Your line is open Ryan.
Great, thanks. I appreciate your commentary on the West Henderson Hospital. But maybe you can just more broadly give us an update on how Nevada and the Las Vegas markets are doing in terms of volume trends, payer mix, and any other data you're able to share.
Yeah, I mean, I think we've seen a little bit of slowdown in uh, our our Nevada volumes. Um, there's been I think, you know, a great deal written. Um in recent months about the overall robot economy and the Las Vegas economy is slowing down a bit. Um you know, we're seeing some impact from that. Um but as I said, you know um even if you exclude uh the can
Marc Miller: But yeah, I mean, you know, Vegas's performance was still very solid. And while West Henderson's performance is extremely positive, we are seeing a little bit of pressure from some of the economic softness in the Okay, great.
Steve Filton: Just one follow up. You know, net leverage continues to come down, even with the increases at least year-over-year in share repos and capital spending. I guess, can you remind us how we should think about capital deployment strategy? And if we should maybe just expect this to continue to come down through the back half of the year? Thanks. Yeah, so in our initial 2025 guidance, you know, we got into a share repurchase number in the $600 to $700 million range. And that was really the free cash flow that we were anticipating in that original guidance. Obviously, the revised guidance presumes a higher level of free cash flow.
Ization from West Henderson or or or just exclude West Henderson's, you know, Ur volumes, uh, like our overall, uh, ER volumes are up um, slightly, you know, not not by a great deal. Um, but, uh, but, but yeah, I mean, um, you know, Vegas is performance while still very solid and while West Henderson's performance is extremely positive, we are seeing a little bit of pressure from some of the economic softness in the market.
Can you remind us how we should think about capital deployment strategy? And should we maybe just expect this to continue to come down through the back half of the year? Thanks.
Steve Filton: And I think it's reasonable to assume that that incremental free cash flow will likely be dedicated to an elevated level of share repurchase. It's possible that, you know, as we evaluate what we think to be, you know, a pretty compelling share price at the moment, you know, that we'll decide to be even more aggressive from a share repurchase perspective. But, you know, again, at a minimum, I think it's at least safe to assume that as our free cash flow increases, that incremental amount will be dedicated to additional share repurchase. Thank you.
Yeah. So, in our initial 2025 guidance, we projected a share repurchase number in the $6.7 billion range, which was really based on the free cash flow that we were anticipating in that original guidance. Obviously, the revised guidance presumes a higher level of free cash flow, and I think it's reasonable to assume that this incremental free cash flow will likely be dedicated to an elevated level of share repurchase.
It's possible that, you know, as we evaluate, um, what we think to be uh, you know, a pretty compelling, uh, share price at the moment. Uh, you know, that we'll we'll decide to be even, um, more aggressive from a share, we purchase perspective. Um, but uh, you know again at a minimum I I think it's it's at least safe to assume that as a free cash flow increases. Uh, that incremental uh, amount will be dedicated to uh, additional shareholders.
Operator: And one moment for our next question.
Michael Ha: Our next question comes from Michael Ha of Baird. Your line is open, Michael. Thank you. Sort of a follow-up to Peter's question. So it sounds like you're very confident in finding the offsets of the DPP headwinds after 2032. We just wanted to fully, clearly confirm that we should be thinking about behavioral health, long-term margin targets as unchanged. All that recent strength in behavioral margins pricing should remain resilient, durable, even in the face of this gradual headwind. And basically, do you still believe over time you can get back to those sort of high 20s margins from a decade ago?
And 1 moment for our next question.
Our next question comes from Michael Ha. Your line is open, mic.
Marc Miller: And I know there's no immediate rush, but curious if you have any early sense on timeline when you look at the mitigation plan with all the offset leverage fully fleshed out.
Marc Miller: Yeah, I mean, you know, obviously, Michael, I think, you know, people are asking, you know, very specific questions about, you know, a period that doesn't begin for three years and doesn't end until eight years from now. Difficult to project. I think, you know, what we've tried to express in our commentary is that, particularly on the behavioral side, which is really, I think, the thrust of your question, we do have the ability to shift programming. And, you know, to shift sort of targeted, you know, patient programs in certain places, in certain geographies, where maybe we're seeing, you know, the DPP impacts the greatest.
Thank you. Sort of a follow up the question. Uh so it sounds like you're very confident in finding the offsets of the DPP headwinds out to 2032. I just wanted to fully clearly confirm that we should be thinking about Behavioral Health long-term margin targets as unchanged, all that recent strength and behavioral margins pricing should remain resilient durable even in the face of this gradual headwind and and basically do you still believe over time, you can get back to those sort of high 20s margins from a decade ago. And I know there's no immediate rush but curious, if you have any early cents on timeline, when you look to have the mitigation plan with all the offset levers full fully flushed out,
Yeah, I mean, I, you know, obviously Michael, I think, you know, people are asking, you know, very specific questions about, um, you know, a period that doesn't begin for 3 years and doesn't end until 8 years from now. Uh, difficult to project. I think, you know what we've tried to express in our commentary is that um, particularly on the behavioral side which is really I think the rest of your question, um, we do have the ability to shift programming um and you know to shift sort of targeted, you know, patient programs um in certain places and certain geographies. Um,
Marc Miller: And, you know, but we have plenty of time to do that. And frankly, you know, one of the challenges we have is to, you know, do the timing right. You know, so in other words, we're not seeing those reductions for several years. It doesn't make sense for us to all of a sudden exit Medicaid-centric programs when Medicaid reimbursement over the next several years will remain at current levels. So we're going to have to time that out right, etc. But, yeah, I mean, I think what we tried to express, and I think what our peers have tried to express, is that, I think, as for-profit providers especially, we have proven, you know, in a number of instances, I think most recently, with the challenges of the pandemic, to be quite nimble and flexible and willing and able to adjust our business, you know, for some pretty significant challenges.
Marc Miller: And that, you know, we're confident with the time period that we have to prepare that we'll be able to do that in this case as well.
Where maybe we're seeing, you know, the DPP impacts the greatest um and and you know but we have plenty of time to do that and frankly um, you know, 1 of the challenges we have is to you know, do the timing right? You know. So in other words we're not seeing those reductions for several years. It doesn't make sense for us to all of a sudden exit, Medicaid Centric programs. When Medicaid reimbursement, over the next several years, will remain at current levels. So we're going to have to time that outright Etc. But, um, yeah, I mean, I think what we try to express and I think what our peers have tried to express is that, I think, as for-profit providers, especially we have proven, um, you know, in a number of instances. I think most recently with the challenges of the pandemic, to be quite Nimble, and flexible, and, and willing, and able to adjust our business. Um, you know, for for some pretty significant challenges. Uh, and that, you know, we're confident with the time, uh,
Marc Miller: Got it. Thank you. And just a follow-up question. Sorry, another policy one. But as it relates to work requirements in 27, just given the outsized procedural disenrollment that we've seen from redeterminations, but with work requirements, I know MCOs are very focused on it. But from a provider perspective, if lives were to drop off and they're ineligible for subsidized marketplace coverage, that prevents an offsetting catchment to the extent that actually ends up driving up the uninsured and provider bad debt over the coming years. I'm just curious. I love how you're thinking about the potential ripple effects of Medicaid work requirements on the UHS.
Period that we have to prepare that we'll be able to do that in this case as well.
Got it. Thank you and just a follow-up question. Sorry another policy 1. Uh, but as it relates to work requirements in 27, uh, just given the outside procedural disenrollment that we've seen from redetermination, but with work requirements. I know. Mrs. Are very focused on it, but from a provider perspective, it's lives where to drop off and they're ineligible for subsidized, Marketplace coverage that prevent
Marc Miller: And are there any things that you guys can do as a provider to maybe even help sort of bridge that gap or that practically engage your own Medicaid patients to sort of improve member retention? Thank you. Yeah, so, again, you know, I don't know that, you know, there's lots of different estimates about how many patients, you know, might be removed from the Medicaid rolls as a result of work requirements, and quite frankly, who those patients are, you know, obviously, the bill and, you know, the narrative around the bill was that, you know, they were largely eliminating young, healthy, particularly male patients.
Vention offsetting catch is that they've sent that actually ends up driving up the uninsured and provider bad debt over the coming years. I'm just curious, high level, how you're thinking about the potential ripple effects of Medicaid work requirements onto UHS, and are there any things that you guys can do as a provider to maybe even help sort of bridge that gap for bad debt? Practically engage your own Medicaid patients to sort of improve member retention. Thank you.
Yeah. So
Marc Miller: I mean, there are ways that we can effectively manage that business or manage that business more effectively, and we'll certainly focus on that, but for the most part, we have to take the patients that come to us. Again, I'll make the point that on the behavioral side, we have more optionality in the patients that we're able to take, and if patients, you know, generally don't have insurance, they usually find their way to other settings rather than our hospitals. You can just tell that from our uncompensated care load in the behavioral segment, which is dramatically less than it is in the acute segment.
Roles, uh, as a result of work requirements. And quite frankly who those patients are, um, you know, obviously the the bill and, and, you know, the narrative around the bill was that, you know, they were largely eliminating young healthy particularly male patients, um, if that's really the group that, you know, and I'm not enough of a mitigate expert to, to speak to this fluently, but if that's really the group being eliminated, I don't know that that's a group that has utilized our services at, you know, in in great, you know numbers. Um, you know, to be fair on the acute side, most of our Medicaid business uh, comes through the emergency rooms as as most of our uninsured business does and there's not a great deal. We can do. I mean, there are ways that we can effectively manage that business uh, or manage that business more effectively and we'll certainly focus on that. But for the most part we have to take the patients that come to us again. I'll make the point that on the behavioral side. Um, we have more optionality in the patients that we're able to take and and
Marc Miller: So, you know, in terms of referral sources, in terms of the programs that we stress, et cetera, we have the ability to. be flexible in terms of targeting patient groups, et cetera, that are more preferable from our perspective. And certainly, we'll do that as this plays out. But as we look at it on a forward-looking basis, it's difficult to predict with precision how many of these patients there are going to be and what the characteristics of that patient population is going to look like.
And if patients, you know, generally don't have insurance. Uh, they usually find their way to other settings, uh, rather than, than our hospitals, you can just tell that from our, uh, on compensated care load in the behavioral segments, which is dramatically less than it is in the, in the acute segments. So, um, you know, in terms of referral sources, in terms of the programs that we stress Etc. Uh, we have the ability to, um,
Be flexible in in terms of, you know, targeting you know patient groups, Etc. That uh, are are more preferable from our perspective. And and certainly we'll we'll do that as as this plays out. But as as we look at it, you know um a lot of forward-looking basis it's it's difficult to predict with Precision. How many of these patients they're going to be um and and what the characteristics of that patient, populations will look like
Kevin Fischbeck: And our next question will be coming from Kevin Fischbeck of Bank of America. Kevin, your line is open. Great, thanks. I just want to try to get a little more color on the weakness in the behavioral business. You know, because it sounds like you're saying you're not getting your fair share. So is there is there competition out there? Is that what's driving the weakness in volumes? Or is it still more of the staffing and and other issues that have historically kind of been the issue there. Yeah, so what I tried to say earlier, Kevin, is, you know, in terms of the step-down patients, the patients that we discharge, we do capture a good share of those, but there are still a good number of those patients who go elsewhere, and we probably can be more effective in the control of those patients, in large part, because I think we believe that the care they'll receive and the continuity of care that they'll receive at our facility is greater than they will elsewhere.
Okay, and our next question will be coming from Kevin fishbach.
Of Bank of America. Kevin, your line is open.
Great, thanks. I just want to try to get a little more color on the, the weakness in the behavioral business. Um, you know, because it it sounds like you're saying you're not getting your fair share. So is there, is there a competition out there? Is that what's driving the weakness in volumes or is it still more of the
Staffing and and and other issues that have historically, kind of
been the issue there.
Marc Miller: But, yeah, I mean, on what we describe as the step-in business, more of the freestanding business, yes, there are a lot of other entities out there of all sorts, large, small, et cetera, that offer those services, and we just have not, you know, historically really competed aggressively in that space, and, you know, we'll do some more in the future. We do have advantages. We have relationships with payers. We have relationships with referral sources. Long-standing relationships that some of these newer and smaller providers just don't have. But staffing and therapists are an issue as well in these settings.
Yeah, so what I tried to say earlier, Kevin, is, you know, in terms of the step-down payments, the patients whom we discharge, we do capture a good share of those. But there are still a good number of those patients who go elsewhere, um, and we probably can be more effective in the control of those patients. Um, in large part because I think we believe that the care they'll receive and the continuity of care that they'll receive in our facility is greater than they will elsewhere.
Marc Miller: You know, a lot of therapists, you know, have been working, you know, more remotely in more recent years, et cetera, and so competition for therapists is also intense.
Marc Miller: So there's not a single reason that I think our outpatient has not grown as much as we think it should, but I think more important, you know, most importantly, our focus on this is going to enable us to grow, you know, at a faster pace in the coming periods than we have in the last few periods. Yeah, I guess maybe if you could just expand on that, because I guess like, you know, staffing and things are things that you kind of should have had, I guess, had a view on as to where you would be at this point this year.
But, yeah, I mean, I believe described. As the step in business more of the freestanding business. Yes, there, there are a lot of other, um, um, entities out there of, of All Sorts large small, uh, Etc, that offer those services and we just have not, you know, historically really competed aggressively in that space. Um, and, and, you know, we'll do some more in the future. We do have advantages, we have relationships with payers, we have relationships with referral sources long-standing relationships that some of these newer, uh, and smaller providers just don't have um, but Staffing. And and and and therapists are an issue as well in in these settings. You know, a lot of therapists, um, uh, you know, have been working, you know, more remotely in in more recent years. Etc. And so competition for therapists is also intense. So there's not a single reason that, uh, I think our outpatient has not grown as much as we think it should, um, but I think more
More important. You know, most importantly, our Focus uh, on this is is going to enable us to to grow, you know, at a faster Pace in the coming periods than we have in the last few periods.
Marc Miller: So we think about the guidance reduction itself and kind of what you thought coming into the year now, what you think volumes will look like. Is it that it has incrementally been harder to staff or something's gone on there, or has it been a competition or maybe slower progress in some of the initiatives that you were thinking about doing?
Marc Miller: And then to that and whatever the answer is, what, if anything, are you doing differently for 2026 to try and get that back to two to three? Sure. I feel like it's a little bit redundant. I think we've addressed this. Yeah, I think it's all those things. I think we're building and creating more capacity, which we didn't have, so that's new capacity. We're focused on our sort of discharge and referral processes for patients who are being discharged from our facilities. We're trying to focus more on recruitment and retention effectiveness, doing all those things. That are challenging, but it did improve quarter over quarter and we expect we'll improve further in the back half.
Yeah, I guess maybe. If you could just expand on that because I guess like, you know, Staffing and things are things that you kind of should have had, I guess, had a view on as to where you would be at this point this year. So we think about the guidance reduction itself and kind of what you thought coming into the year. Now, what you think volumes will look like is it that it has incrementally been harder to staff or or something going on there or has it been the competition or or, or maybe slower progress and some of the initiatives that you were thinking about doing and then
To to that and whatever the answer is. Um what if anything? Are you doing differently for 2026? Try and get that back to to the 3? Thanks.
Sure. And
Operator: All right, thanks.
Joshua Raskin: And our next question will be coming from Joshua Raskin of Nephron Research. Your line is open. Hi, thanks. I know you talked about this a little bit, Steve, but I'm just curious on the, you know, sort of AI and, you know, the technology that you're using the RCM side. Are those internal investments? Or are you using external vendors more, more often now? And then, is that impacting sort of the coding and patient acuity sort of like the, you know, is that is that why we're seeing on the pricing or the revenue per admit side? For more information visit www.ISGlobal.org Yeah, so I think it's a combination, Josh.
I think it's all those things, I think, you know, we're we're building and creating more capacity, uh, which we didn't have. So that's new capacity. Um, we're focused on our, um, you know, sort of discharge and referral processes for patients who were, you know, being, um, discharged from our facilities, we're trying to focus more on Recruitment and Retention, Effectiveness, uh, doing all those things. Um, and you know, that that Arch challenging. But you know did improve quarter over quarter and we expect will improve uh, further in the back, half of the year.
Thanks.
And our next question will be coming from Joshua Raskin.
Of nephron research, your line is open.
Hi thanks. Um I I know you talked about this a little bit Steve but I'm just curious on the, you know, sort of AI and you know, the the technology that you're using in the RCM side, are those internal Investments or are you using external vendors more? Uh, more often now and then is that impacting sort of the coding and patient Acuity sort of like the, you know, is that is that why we're seeing it on the pricing or the revenue per admit side?
Marc Miller: I mean, we've publicly disclosed our investment in Hippocratic AI, which is a company dedicated to the development of AI applications in healthcare. We also have relied on some vendors, you talked about coding, we've used AI, an AI vendor, or a vendor that uses AI technology for coding in our emergency rooms. And I don't know that that's resulted in necessarily increased or elevated coding, but I think it's resulted in increased efficiency, you know, taking a relatively routine task, and allowing it to be, you know, taken care of in a more efficient way. So it's a combination, I think, you know, we've used some outside vendors, we're also, you know, investing and working closely with a company that's developing new AI technology, we're doing some things on our own.
Marc Miller: So I think it's a combination of us trying to take advantage. And quite frankly, you know, some of the technology, some of the new technologies, and we've talked about this, I think, a little bit before, like patient rounding technology, which is not necessarily AI, but it's sort of like an Apple Watch kind of technology where patients wear that sort of device, and we're able to track them and their location more closely, and how often they're checked on and those sort of things. All those things, I think, result in greater efficiency and also, honestly, you know, greater patient safety and quality of care.
Yeah, so I think it's a combination. Uh, Josh. I mean, we've, uh, publicly disclosed our investment in, uh, Hippocratic AI, which is a company dedicated to the development of AI applications in in healthcare. Um, we also have relied on some vendors, you talked about, um, coding. We've used AI, uh, and AI vendor or vendor that uses AI technology for coding in our emergency rooms. And I don't know that that's resulted in um, necessarily increase or elevated coding, but I think it's, it's resulted in increased efficiency, um, you know, taking a relatively routine tasks and and allowing it to be, um, you know, taken care of, in a more efficient way. Um, so it's a combination. I think you, you know, we've used some outside vendors. We're also, you know, investing and working closely with a company that's developing new AI technology. We're doing some things on our own. So, so I think it's a combination of us, trying to
Take advantage and and and quite frankly, you know, some of the technology and some of the new technologies and we've talked about this. I think a little bit before like patient rounding technology, uh, which is not necessarily AI but it's sort of like an Apple Watch, kind of Technology where patients wear that sort of device and we're able to uh track them. And there they are location more closely and how often they're checked on and those sort of things all those things, I think, um,
Marc Miller: Yeah, perfect. And then just last quick one. I know we talked about this last quarter as well, but tariffs, any updated thoughts on potential impact from tariffs?
Result in greater frequency and also, honestly, you know, greater patient safety and quality of care.
Yeah, perfect. And then just last quick one. Um, I know we talked about this last quarter as well, but tariffs, any updated thoughts on potential impacts and tariffs?
Not really, we haven't seen, um, you know, any sort of material impact from tariffs, uh, and and have not necessarily sort of been told by our, uh, GPO or even buy, you know, any significant vendors that uh, significant increase in Supply expense are on the horizon. So, you know, obviously the tariffs, the negotiations that the highest levels, you know, continue and, you know, we'll have to see how that all sorts out, but it has had little impact on our business today.
Operator: And operator, we're going to have to make this our last question. We have another commitment at the top of the hour. Certainly.
Thank you.
Raj Kumar: Our last question will be coming from Raj Kumar of Stevens. Your line is open, Raj. Excuse me, and just one from the policy perspective, just kind of thinking about the proposed. Maybe kind of walk us through the puts and takes. and then kind of maybe what your what your view is on the overall rate code perspective over the next few years as that, you know, policy. Yeah, it's difficult to say. I mean, I think what you're referring to is, you know, sort of a number of the site neutrality proposals, and they differ. And, you know, the devil is always in the details.
And, and operator, we're going to have to make this our last question. We have another commitment at the top of the hour.
Certainly our last question will be coming from Raj, Kumar of Stevens. Your line is open. Raj.
Hey, thank you. Excuse me. And I just 1 from the policy perspective. Just kind of thinking about the proposed elimination of the inpatient, uh, only list. Um, maybe kind of walk us through the puts and takes, uh, for UHS and then kind of maybe what you're, what your view is on the potential impacts from an inpatient. Admissions growth perspective, and overall rate growth perspective, over the next few years. As that, you know, policy gets potentially, uh, phased in
Yeah, it's difficult to say, I mean, I think what you're referring to is, you know, sort of a number of the site neutrality. Um,
Marc Miller: You know, the industry, broadly, writ large, you know, is lobbying hard and making the point that it's been subject to some pretty significant cuts, many of which we've already discussed at some length. So we'll see. I mean, I think it's difficult for us to sort of project what the impact is until we know, you know, what the details of a specific bill would be.
Proposals and, and they differ, and, you know, the, the the devil is always in the details. Um, you know, the industry, uh, broadly written law. I, you know, his, his lobbying hard and making the point that it's been subject to some pretty significant Cuts many of which we've already discussed that at some length. Um, so we'll see, I mean, I think it's difficult for us to to sort of project what the impact is, until we know uh, you know what the details of the specific bill would be
Marc Miller: So I'd like to thank everybody for their time and I look forward to speaking with everybody again next quarter.
All right. Thank you.
Operator: Okay, this concludes today's conference call. Thank you for participating. You may now disconnect.
So I'd like to thank everybody for their time and uh, look forward to speaking with everybody. Again, next quarter.
Connect.
Operator: Thank you for watching!