Earnings call transcript: Universal Health Services beats Q2 2025 EPS forecast

Universal Health Services (UHS), a prominent player in the Healthcare Providers & Services industry with a market capitalization of $10.4 billion, reported its second-quarter 2025 earnings, surpassing expectations with an adjusted earnings per share (EPS) of $5.35, compared to the forecasted $4.93. This represents an 8.52% surprise. Revenue also exceeded projections, reaching 4.28 billion dollars against an anticipated 4.24 billion dollars. Following the announcement, UHS shares rose by 4.4% to 154.95 dollars, reflecting positive investor sentiment. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, suggesting potential upside opportunity.

Key Takeaways

• UHS exceeded both EPS and revenue forecasts for Q2 2025.
• The company increased its 2025 EPS guidance significantly.
• New behavioral health facilities and AI technology integration are key growth drivers.
• Stock price increased by 4.4% following earnings announcement.

Company Performance

Universal Health Services demonstrated robust performance in Q2 2025, with notable growth in its acute care and behavioral health segments. Same facility acute care hospital net revenues rose by 5.7%, and EBITDA increased by 10%, indicating strong operational efficiency. With trailing twelve-month EBITDA of $2.34 billion and an attractive EV/EBITDA ratio of 6.57x, the company shows strong fundamentals. The company is expanding its footprint with new facilities and leveraging technology to enhance service delivery. InvestingPro data reveals 10+ additional insights about UHS’s financial health and growth potential.

Financial Highlights

• Revenue: 4.28 billion dollars, up from the forecast of 4.24 billion dollars.
• Earnings per share: 5.35 dollars, surpassing the expected 4.93 dollars.
• Net income per diluted share: 5.43 dollars.
• Cash from operating activities decreased significantly to 9 million dollars from 1.076 billion dollars in 2024.

Earnings vs. Forecast

Universal Health Services reported an EPS of 5.35 dollars, beating the forecast of 4.93 dollars by 8.52%. Revenue also surpassed expectations, reaching 4.28 billion dollars compared to the projected 4.24 billion dollars. This strong performance marks a positive deviation from previous quarters, highlighting effective cost management and strategic growth initiatives.

Market Reaction

Following the earnings release, UHS shares rose by 4.4% to 154.95 dollars, reflecting investor confidence in the company’s growth trajectory. The stock’s performance is notable against its 52-week low of 152.33 dollars, signaling a recovery trend. Analyst targets range from $185 to $280, suggesting significant upside potential, while the company maintains an impressive P/E ratio of 8.9x. The positive market reaction underscores the impact of exceeding financial forecasts and providing optimistic guidance. For comprehensive analysis and detailed valuation metrics, investors can access the full UHS Research Report on InvestingPro, part of their coverage of 1,400+ US stocks.

Outlook & Guidance

UHS has revised its 2025 EPS guidance upwards to 20.50 dollars from the previous 19.20 dollars, indicating strong future earnings potential. The company is focused on expanding its outpatient behavioral health services and integrating AI technologies to drive efficiency and growth. Despite potential Medicaid reimbursement reductions, UHS remains committed to maintaining its competitive edge.

Executive Commentary

Steve Fulton, CFO, emphasized the company’s adaptability and strategic focus: "Our focus has clearly changed... we believe we’ll continue to see improvement over the balance of the year." He also highlighted the company’s commitment to capturing a larger share of the outpatient market, stating, "We are determined to get a larger share of that outpatient pie as we go forward."

Risks and Challenges

• Potential Medicaid reimbursement reductions of 360 to 400 million dollars by 2032 could impact profitability.
• Labor market challenges continue to pose staffing difficulties.
• Startup challenges at Cedar Hill Regional Medical Center may affect operational efficiency.
• Payer interactions in revenue cycle remain a concern.
• Slight decline in surgical volumes could impact acute care revenue.

Q&A

During the earnings call, analysts probed UHS executives on strategies to mitigate potential Medicaid reimbursement reductions and the impact of Medicaid work requirements. The company outlined its focus on outpatient behavioral health growth and AI implementation to enhance operational efficiency, addressing key concerns and highlighting strategic initiatives.

Full transcript - Universal Health Services (UHS) Q2 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Q2 twenty twenty five Universal Health Services Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

You will then hear an automated message advising that your hand is raised. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Fulton, Executive Vice President and CFO. Please begin.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Thank you, and good morning. Mark Miller is also joining us this morning. We both welcome you to this review of Universal Health Services results for the second quarter ended 06/30/2025. 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. 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 and risk factors in our Form 10 ks for the year ended 12/31/2024, and our Form 10 Q for the quarter ended 03/31/2025.

We’d like to highlight just a couple of developments and 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 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 per diluted share was $5.35 for the quarter ended 06/30/2025. During the 2025, on a same facility basis, adjusted admissions to our acute care hospitals increased 2% 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 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 twenty twenty four, has had a certain cannibalization impact on the division’s same facility volumes and revenues. Meanwhile, operating expenses continued to be well managed. 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. For the 2025, our solid acute care revenues combined with effective expense controls resulted in a 10% increase in same facility EBITDA. During the 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. Our cash generated from operating activities decreased by $167,000,000 to $9.00 $9,000,000 during the 2025 as compared to $1,076,000,000 during the same period in 2024. We expect to collect the $58,000,000 of Tennessee Direct Payment Program receivables in the third quarter. The new hospitals in Las Vegas and the District Of Columbia contributed $35,000,000 to the receivable increase. In the 2025, we spent $5.00 $5,000,000 on capital expenditures, 25% of which related to the two newreplacement facilities in California and Florida, both set to open in the 2026.

During the 2025, we also acquired one point nine million of our own shares at a total cost of approximately $332,000,000 Since 2019, we have repurchased approximately 34% of the company’s outstanding shares. As of 06/30/2025, we had approximately $1,000,000,000 of aggregate available borrowing capacity pursuant to our $1,300,000,000 revolving credit facility. 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 twenty twenty eight state fiscal years and primarily phased in over a five year period through 02/1932, 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, that this legislation will ultimately be implemented as enacted or if certain states may attempt to implement countermeasures to mitigate its impact. Our current projected twenty twenty five full year net benefit from previously approved state Medicaid supplemental programs is approximately $1,200,000,000 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 twenty twenty eight state fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro rata basis by approximately $360,000,000 to $400,000,000 in 02/1932. 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 amounts. 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. I’ll now turn

Unidentified Speaker, Universal Health Services: the call over to Mark Miller, President and CEO, for closing comments.

Mark Miller, President and CEO, Universal Health Services: Thanks, Steve. So based primarily on the increased DPP reimbursement, we are increasing our midpoint of our 2025 EPS guidance by 7% to $20.5 per diluted share, up from $19.2 per diluted share previously. Medicaid supplemental programs in Washington DC and other potential programs that are not yet fully approved are not included in our revised guidance. We remain pleased with the performance of West Henderson Hospital, which produced a positive EBITDA 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. 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 that prompted our development partnership with the District of Columbia. De novo growth continues in our behavioral segment. 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 center in Mount Pleasant, South Carolina.

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 twenty twenty six. 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 year. At this time, we’re pleased to answer your questions.

Unidentified Speaker, Universal Health Services: Certainly.

Conference Operator: And our first question will be coming from Pito Chickering of Deutsche Bank. Your line is open.

Pito Chickering, Analyst, Deutsche Bank: Hey, good morning guys and thanks for taking my questions. Just want to circle back on, I

Steve Fulton, Executive Vice President and CFO, Universal Health Services: think you said $360,000,000

Pito Chickering, Analyst, Deutsche Bank: to $400,000,000 of net impact in 2032 with a current law in place. I just want make sure that those numbers make sense and if you’re sort of talking about sort of losing sort of $380,000,000 sort of EBITDA over that time period, just curious what your views are to offset that with core ops and how you view that impacting your sort of core growth rate with those headwinds?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So, Pito, obviously, those reductions don’t begin, as we know, materially until 2028. So, we certainly have time to think about strategically how we might alter our business approach, particularly in the behavioral business where we can alter the structure of our programs, not necessarily cater to as many Medicaid centric programs, etcetera. Additionally, obviously, there could be, as we noted in the remarks, new DPP programs approved during that time. 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 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 sort of sources of revenues, particularly in the behavioral division, cost cutting initiatives, etcetera. And I’ll remind that 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, etcetera, and a whole host of initiatives to react to what at the time was an extremely dramatic and largely unexpected reduction in revenues. So 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.

Mark Miller, President and CEO, Universal Health Services: Me just add on. Me, Peter, let me add on to this as well. So Steve laid out 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 in a number of ways. So Steve mentioned a couple of things that we’ll pivot, and we’ll make moves that are necessary.

In talking with all of the folks down in DC, 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 health care programs in their states, and not just in a place like UHS, but these not 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 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 02/1932.

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.

Pito Chickering, Analyst, Deutsche Bank: Great. Thanks so much. Then sort of 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? Sort of what you saw this quarter, what you assumed the back half of the year and kind of how you’re going to be improving the outpatient side of behavioral?

Thanks so much.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So in the table towards the back of the press release, 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 is 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. 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, and we’ve talked about this, I think, 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

Conference Operator: Our next question will be coming from Andrew Moff of Barclays. Your line is open, Andrew.

Andrew Moff, Analyst, Barclays: Hi, good morning. Question on Cedar Hill. You called out $25,000,000 of start up 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 profitability now? Yes.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: 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 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.

So we have been getting paid for Medicare for Medicaid, rather. Awaiting the Joint Commission survey, we believe it is imminent, could occur this week, could and we hopefully occur next week. Once we get that certification, then that becomes the effective date that we’re able to bill. It will take us obviously some time to 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 necessarily getting paid for it.

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 by the hospital. So we have a $25,000,000 loss or EBITDA drag in Q2. Embedded in our guidance in the back half of the year is another $25,000,000 drag for the back half of the year. So some improvement, but recognizing that there will be a ramp up once we get our certification.

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 twelve or eighteen months of additional operations.

Andrew Moff, Analyst, Barclays: Great. And maybe just a quick follow-up on that. Like outside of the discrete items related to state directed payments in 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.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So I think if you go through the math, there’s roughly $185,000,000 of new DPP revenues in that $1,200,000,000 that I alluded to earlier from our last disclosure last quarter. Offsetting that is roughly $50,000,000 in the Cedar Hill drag, the 25,000,000 in the second quarter and the 25,000,000 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 those are basically the significant pieces of the guidance revision.

Michael, Analyst, Baird: Great. Thank you.

Conference Operator: And one moment for our next question. Our next question will be coming from Jason Kasolra of Guggenheim. Your line is open.

Jason Kasolra, Analyst, Guggenheim: Thanks. Good morning. Maybe just to 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 2x leverage ratio currently. You’ve talked about a number of de novo bills and JVs in your prepared remarks.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: I guess I’m just hoping you

Jason Kasolra, Analyst, Guggenheim: can give us any color on a pathway to grabbing more outpatient share. Thanks.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. We’ve talked about this, I think, in some detail in the last couple of calls, happy to sort of revisit the issue. Generally, we generate outpatient revenues in behavioral in two very broad ways. One is step down business. We refer to it 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 will go into programs that we either describe as intensive outpatient or partial hospitalization. Often, those programs are offered by us on our campus, etcetera. 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, and 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, etcetera.

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 revenue and behavioral is what we described as step in business. These are patients who enter the behavioral system in an outpatient program. Very often, it’s a freestanding outpatient program, 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 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 $1,000,000 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.

So we intend to open ten fifteen 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.

Jason Kasolra, Analyst, Guggenheim: Okay. Got it. Helpful. 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?

What type of volume growth you saw against for commercial, Medicare, Medicaid, exchange? And if payer mix was a benefit in the quarter, could would you expect that 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.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. What I would first say is that we said in our or I said in our prepared remarks that acute care revenue exclusive 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. We talked about 5%, 6%, 7% Q2 revenue growth of 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 6s. So 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 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 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. 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 very much in line with our expectations.

Jason Kasolra, Analyst, Guggenheim: Okay, great. Thank you.

Conference Operator: Thank you. And our next question will be coming from Benjamin Rossi of JPMorgan. Your line is open.

Benjamin Rossi, Analyst, JPMorgan: 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 in the 4% to 5% range. Is there any way to frame the breakdown here between rates, acuity and contributions from incremental supplemental payments? And then what does your back half guidance contemplate regarding growth as you progress towards your now revised goals on the volume side?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: 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 $43,000,000 of DBP in the quarter because if you go back to the second quarter of last year, there was a $35,000,000 unexpected benefit in the states of Washington and Idaho. And so those two, in our minds, offset. But excluding the Tennessee Directed Payment, we said that revenues 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. As you know, I mean, we said in our guidance that pricing 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 of things.

Benjamin Rossi, Analyst, JPMorgan: Great. Appreciate the color. And 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, could

Kevin Fischbeck, Analyst, Bank of America: you just walk us through some of

Benjamin Rossi, Analyst, JPMorgan: the drivers of that deceleration and maybe where you see room to bring that down further? And are you seeing any variation in length of stay trends across your payer classes between Medicaid, Medicare and commercial, particularly among your exchange populations?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yeah, I mean, of stay peaked during the pandemic when it was driven much higher by the high acuity of COVID patients in particular, and it’s been coming down steadily since then. 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 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, that can be challenging. But yes, I I think we continue to believe that length of stay has some room I’m not going to say material amount but some incremental room to improve from where it currently is.

Benjamin Rossi, Analyst, JPMorgan: Great. Appreciate the comments.

Conference Operator: And our next question will be coming from Craig Hettenbach of Morgan Stanley. Your line is open, Craig.

Steve Fulton, Executive Vice President and CFO, Universal Health Services0: Yes, thank you. Just following up on behavioral, and I know there’s been back and forth with the payers on 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?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So I think what we’ve consistently said, is that the way we think about the long term model of the behavioral business is that 6%, 78%, I’ll call it 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%, 3% volume. 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 skewed a little bit more to pricing than to volume as sort of being the model that we’re expecting in the behavioral business for, I’ll call it, the intermediate future.

Steve Fulton, Executive Vice President and CFO, Universal Health Services0: 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?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: 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, help us do that, we’re certainly open to that. The AI discussion, I think, could be a whole separate discussion in a separate call, but I’ll just briefly say that we’re experimenting with uses of AI and things like revenue cycle, where certain tasks like denial management and denial appeals, etcetera. We know that the payers for some time have been using AI to generate things like denials and patient status changes, etcetera. And I think we’re developing sort of countermeasures to that using AI more productively, etcetera, than I think humans can actually do that.

From a clinical perspective, one of the early experiments we’ve done is using AI to follow-up with patients on their post discharge instructions. So an AI generated entity will call a patient and make sure that they’ve followed up with the appropriate doctor appointments and they filled their prescriptions and they’re following their diet, whatever the post discharge instructions are. And we have found in the early stages that that’s very been very well received and efficient. Again, it frees up a clinical person, generally a nurse, would otherwise be making that call. So yes, 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.

Steve Fulton, Executive Vice President and CFO, Universal Health Services0: Helpful. Thank you.

Conference Operator: And one moment for our next question. Our next question will be coming from AJ Rice of UBS. Your line is open, AJ.

Steve Fulton, Executive Vice President and CFO, Universal Health Services1: 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. Just wondering if you see that impacting discussions with the MCOs at all on either Medicare Advantage, 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 business getting done for this year, next year and the following year?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: AJ, I mean, I think our experience has been and 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 seven years, largely, I think, because the payers are struggling with access to behavioral facilities. I think there’s a scarcity, particularly of inpatient behavioral beds, that payers are challenged by. Where I think we probably feel the impact of the managed care industry’s challenges the most is in sort of the day to day revenue cycle interactions we have with payers. We can 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 our revenue cycle and either behavioral or acute, they’ll just describe to you what is sort of a daily slog of having to counter aggressive behavior on the part of payers all the time and denials and denial appeals and appeals of 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 we’re trying to be able to counter the payers in sort of the aggressive behavior we have found in those areas. I don’t know that it’s incrementally more materially different than it has been, but it’s certainly been this way for some time now.

Steve Fulton, Executive Vice President and CFO, Universal Health Services1: Okay. Maybe just also ask you about labor. Any updated thoughts on both lines of business with respect to things like wage rates, use of contract labor turnover, etcetera? And I know particularly with behavioral, your biggest challenge you talk about in trying to get back to your or get to your growth targets there has seemed to be getting the staffing. Any update or thought on that?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yeah. So I I mean, I think from a labor or wage inflation perspective, obviously, wage inflation has decelerated significantly from its peaks during the pandemic. Maybe decelerating is not the right choice of words, but it’s accelerating at a much lower rate than it had been 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.

But you are correct that we continue in the behavioral business in certain geographies, in 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 can even be the nonprofessional 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 recruit recruit 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 for them to feel comfortable in delivering that care and so that they’re wanting to stay at the facility for longer periods of time, etcetera, and result in longer tenured 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, is staffing, you know, scarcity. It continues to be an issue in some markets in some geographies.

Steve Fulton, Executive Vice President and CFO, Universal Health Services1: Okay. Maybe just if I can squeeze one more in there. On your DPP comments, you had I know a lot of states or or there are some states scrambling to still get credit under the big beautiful bill before the window shuts, and Washington DC 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 380,000,000, exposure.

Any way to break that down between acute and behavioral exposure?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So the $3.80 is about or is at the midpoint of the range that we gave, which is $3.80 is about 60% behavioral and 40% acute. As far as your other question about other programs, the DC 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 questions, they ask for data, they provide it, they sometimes reach out to us, the hospitals for help in providing that data. We provided data. 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 hasn’t been passed.

Steve Fulton, Executive Vice President and CFO, Universal Health Services1: Okay. All right. Thanks so much.

Conference Operator: And our next question will be coming from Matthew Gillmer of KeyBanc. Your line is open, Matthew.

Jason Kasolra, Analyst, Guggenheim: Hey, thanks. 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 drag on the same store?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. 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 West Henderson is getting patients from and sort of triangulate and say, these are the likely ZIP codes that prior to West Henderson opening would have gone to either Henderson Hospital or one of our other hospitals. We think that, that impact is maybe fifty, sixty basis points from an adjusted mission perspective and kind of a similar impact on revenues. So again, best guess, that’s not a perfect or completely precise estimate, but that’s our best guess.

Jason Kasolra, Analyst, Guggenheim: 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 5% and it was stable, but just curious. So, there’s any progress there or sort of incremental pressures for certain specialties.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. I mean, I think that 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 roughly the overall inflation rate, 5% or 6%, something like that. And I think that’s been the case. We continue to feel pressure from different physician groups around the country. I think 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 5% growth dynamic. It has not really changed.

Jason Kasolra, Analyst, Guggenheim: Got it. Thank you.

Conference Operator: And our next question will be coming from Sarah James of Cantor Fitzgerald. Sarah, your line is open.

Unidentified Speaker, Universal Health Services: Thank you. You’ve talked a lot about the opportunity for growth in outpatient behavioral. Given what that implies for mix, is two point five percent

Steve Fulton, Executive Vice President and CFO, Universal Health Services2: to three percent adjusted admission for behavioral volume still the right long term target or the right target for 25 given year to date performance? And can you speak to how inpatient behavioral specifically has been doing year to date versus your expectations?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. I mean, so I think the focus there is, obviously, what we’re seeing, I think, in behavioral is payers trying to shift more patients from the inpatient setting to the outpatient setting. Obviously, that’s a dynamic that we’ve certainly not new. We’ve seen it in the acute space for a decade or two already. It’s not new to the behavioral space either, but I think there’s more of an emphasis on it.

And to be fair, I think 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 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 2.5% 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. 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. We just have to be able to service it in the right setting with the right staff, etcetera.

Unidentified Speaker, Universal Health Services: Thank you.

Conference Operator: And our next question will be coming from Ryan Langston of TD Cowen. Your line is open, Ryan.

Steve Fulton, Executive Vice President and CFO, Universal Health Services0: Great, thanks. Appreciate your commentary

Steve Fulton, Executive Vice President and CFO, Universal Health Services: 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? Yes. I mean, think we’ve seen a little bit of slowdown in our Nevada volumes. There’s been, I think, great deal written in recent months about the overall Nevada economy and Las Vegas economy slowing down a bit. We’re seeing some impact from that.

But as I said, 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, not by a great deal. Yes, I mean, Vegas’ performance, while still very solid and while Wes Henderson’s performance is extremely positive, we are seeing a little bit of pressure from some of the economic softness in the market. Okay, great. And just one follow-up. Net leverage continues to come down even with the increases at least year over year in share repos and capital spending.

I guess, 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? Yes. So in our initial 2025 guidance, we guided to a share repurchase number in the 600 to $700,000,000 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.

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 as we evaluate what we think to be a pretty compelling share price at the moment, that we’ll decide to be even more aggressive from a share repurchase perspective. But 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.

Conference Operator: Thank you. And one moment for our next question. Our next question comes from Michael of Baird. Your line is open, Mike.

Michael, Analyst, Baird: Thank you. Sort of a follow-up to Pito’s question. So it sounds like you’re very confident in finding the offsets for the DPP headwinds after 02/1932. 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 in behavioral margins pricing should remain resilient and 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 I know there’s no immediate rush, but curious if you have any early sense on timeline when you look to have the mitigation plan with all the offset leverage fully fleshed out.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. I mean, obviously, Michael, I think people are asking very specific questions about a period that doesn’t begin for three years and doesn’t end until eight years from now. Difficult to project. I think 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 to shift sort of targeted patient programs in certain places, in certain geographies, where maybe we’re seeing the DPP impacts the greatest. But we have plenty of time to do that.

And frankly, one of the challenges we have is to do the timing right. 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, etcetera. But, yes, I mean, 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 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 for some pretty significant challenges and that 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.

Michael, Analyst, Baird: 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 redetermination, but with work requirements, I know are very focused on it. But from a provider perspective, if lives were to drop off, then they’re ineligible for subsidized marketplace coverage that prevents an offsetting catch admit to the extent 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 that proactively engage your own Medicaid patients to sort of improve member retention? Thank you.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So again, I don’t know that there’s lots of different estimates about how many patients might be removed from the Medicaid roles as a result of work requirements and quite frankly, who those patients are. Obviously, bill and the narrative around the bill was that they were largely eliminating young, particularly male patients. If that’s really the group that and I’m not enough of a Medicaid expert 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 in great numbers. To be fair, on the acute side, most of our Medicaid business comes through the emergency rooms 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 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. If patients 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. So in terms of referral sources, in terms of the programs that we stress, etcetera, we have the ability to be flexible in terms of targeting patient groups, etcetera, that are more preferable from our perspective. 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 look like.

Conference Operator: And our next question will be coming from Kevin Fischbeck of Bank of America. Kevin, your line is open.

Kevin Fischbeck, Analyst, Bank of America: Great, thanks. I just want to try to get a little more color on the weakness in the behavioral business, because it sounds like you’re saying you’re not getting your fair share. So is there competition out there? Is that what’s driving the weakness in volumes? Or is it still more of the staffing and other issues that have historically kind of been the issue there?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So what I tried to say earlier, Kevin, is 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. But yes, 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, etcetera, that offer those services. And we just have not historically really competed aggressively in that space. And we’ll do some more in the future.

We do have advantages. We have relationships with payers. We have relationships with referral sources, longstanding 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. A lot of therapists have been working more remotely in more recent years, etcetera, and so competition for therapists is also intense.

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 most importantly, our focus on this is going to enable us to grow at a faster pace in the coming periods than we have in the last few periods.

Kevin Fischbeck, Analyst, Bank of America: Yes. I guess maybe if you could just expand on that because I guess like 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 something’s gone on there? Or has it been the competition or maybe slower progress in some the initiatives that you were thinking about doing?

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?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Sure. I feel like it’s a little bit redundant. I think we’ve addressed this. Yes, 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 did improve quarter over quarter and we expect will improve further in the back half of the year.

Kevin Fischbeck, Analyst, Bank of America: All right. Thanks.

Conference Operator: And our next question will be coming from Joshua Raskin of Nephron Research. Your line is open.

Steve Fulton, Executive Vice President and CFO, Universal Health Services3: Hi, thanks. I know you talked about this a little bit, Steve, but I’m just curious on the sort of AI and the technology that you’re using in the RCM side. Are those internal investments? Or are you using external vendors more often now? And then is that impacting sort of the coding and patient acuity sort of like the is that why we’re seeing it on the pricing or the revenue per admit side?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes. So I think it’s a combination, Josh. 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. I don’t know that that’s resulted in necessarily increased or elevated coding, but I think it’s resulted in increased efficiency, taking a relatively routine task and allowing it to be taken care of in a more efficient way. So it’s a combination. I think we’ve used some outside vendors. We’re also investing and working closely with a company that’s developing new AI technology.

We’re doing some things on our own. I think it’s a combination of us trying to take advantage. And quite frankly, some of the technology some of the new technology 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, greater patient safety and quality of care.

Steve Fulton, Executive Vice President and CFO, Universal Health Services3: Yes. 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?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Not really. We haven’t seen any sort of material impact from tariffs and have not necessarily sort of been told by our GPO or even by any significant vendors that significant increases in supply expense are on the horizon. Obviously, the tariff negotiations at the highest levels continue, and we’ll have to see how that all sorts out. But it has had little impact on our business to date.

Steve Fulton, Executive Vice President and CFO, Universal Health Services3: Thank you.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: And operator, we’re going to have to make this our last question. We have another commitment at the top of the hour.

Conference Operator: Certainly. Our last question will be coming from Raj Kumar of Stephens. Your line is open, Raj.

Michael, Analyst, Baird: Hey, thanks for squeezing me in. Just one from the policy perspective, just kind of thinking about the proposed elimination of the inpatient only list. Maybe kind of walk us through the puts and takes for UHS and then kind of maybe 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 policy gets potentially phased in?

Steve Fulton, Executive Vice President and CFO, Universal Health Services: Yes, it’s difficult to say. I think what you’re referring to is sort of a number of the site neutrality proposals, and they differ, and the devil is always in the details. The industry broadly, written large, 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 what the details of a specific bill would be.

Steve Fulton, Executive Vice President and CFO, Universal Health Services0: All right. Thank you.

Steve Fulton, Executive Vice President and CFO, Universal Health Services: So I’d like to thank everybody for their time, and I look forward to speaking with everybody again next quarter.

Conference Operator: Okay. This concludes today’s conference call. Thank you for participating. You may now disconnect.

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