Universal Health Services at KeyBanc Forum: Cautious Optimism Amid Challenges

On Tuesday, 18 March 2025, Universal Health Services (NYSE: UHS) presented at the KeyBanc Annual Healthcare Forum 2025. CFO Steve Filton discussed the company’s robust performance in 2024, highlighting strengths in both acute and behavioral health segments. While expressing confidence in the company’s strategic direction, Filton also acknowledged external challenges, particularly concerning Medicaid policies.

Key Takeaways

• UHS reported strong EBITDA growth exceeding 20% in both acute and behavioral segments for 2024.
• The company aims to restore margins to pre-COVID levels, although acute care margins face challenges.
• UHS is expanding outpatient behavioral health services to drive growth.
• Potential Medicaid cuts are expected to be incremental and manageable.
• AI is being explored to enhance revenue cycle processes.

Financial Results

• UHS experienced strong EBITDA growth, surpassing 20% in 2024, driven by acute and behavioral health segments.
• Revenue growth exceeded expenses, returning to a pre-COVID model of financial performance.
• Medicaid supplemental payments contributed to the stronger-than-expected performance.
• The company aims to restore consolidated margins to 2019 levels, though acute care margins may slightly lag due to increased physician expenses.

Operational Updates

• UHS is leveraging a balanced portfolio of acute and behavioral facilities for risk diversification.
• The company is integrating operations across these segments to enhance synergies, particularly in referrals from acute care to behavioral hospitals.
• Expansion plans include adding a dozen outpatient behavioral health facilities annually, targeting 2.5% to 3% adjusted patient day growth.

Future Outlook

• UHS plans to use its integrated care model to improve population health outcomes.
• The company is focused on managing expenses and enhancing revenue cycle processes with AI and data analytics.
• Challenges include potential Medicaid cuts, margin pressures from physician expenses, and the shift from inpatient to outpatient services.

Q&A Highlights

• Filton expressed cautious optimism regarding Medicaid supplemental payments, anticipating incremental cuts over time.
• The pause on DPP program approvals by CMS is expected to be temporary, with existing programs likely to receive reapprovals.

For further details, readers are encouraged to refer to the full transcript of the conference call.

Full transcript - KeyBanc Annual Healthcare Forum 2025:

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Well, hello, thank you for joining us. This is the Universal Health Services presentation. My name is Matthew Gilmore and I lead Healthcare Services Equity Research for KeyBank. Joining me on screen is Steve Filton, the Chief Financial Officer of UHF. UHF is a leading operator of both acute and inpatient behavioral health services.

Steve is the company’s, long tenured CFO. He’s always been very generous with the time of the investment community, and we’re appreciative of him being here today. And and Steve, I I did count it up, but I I think this is something like your two hundred and eightieth public appearance, with the investment community. And that’s not in counting road shows or other sort of meetings. These are sort of publicly broadcast.

So that, that puts you in a league of your own. So we’re all, you know, really appreciative of the time that you spend with,

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): I have the gray hairs to prove it too.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: So this will be just one housekeeping. It’ll be fireside chat format. I’ll be leading the Q and A. There is, an opportunity to ask questions. I think there’s a link in sort of the top right hand side of your screen.

So if you click that and want to submit questions, we’d be happy to get them addressed. So with that, Steve, welcome. Thanks for joining us. Well, I wanted to try to start off these conversations with, you know, with a higher level question. We’ll, you know, we’ll get into the financials and the policy, topics that are certainly top of mind today.

But, you know, Steve, obviously the things that distinguishes the company is that balanced portfolio of acute and behavioral facilities. I think investors, you know, we talk about these businesses almost as if they’re independent. And I thought you might just take a couple minutes to talk about the history of the portfolio, how it came together. And then beyond just the benefits of financial diversification, are there operational benefits to having both these businesses in the markets where you do have both assets? But I thought we might start there and then we’ll get into some of the topics of the day.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, so I mean, there’s a long history here. You know, the company is 45 years old. You know, in the early 80s, it was really just originally an acute care company. In the early eighties, there was this very significant shift that probably few investors today, you know, were around for. But, you know, the the Medicare and Medicaid programs really were shifting from a cost based reimbursement methodology to a, prospective payment system, basically, you know, a diagnosis related, you know, reimbursement system.

And, you know, at the time, this was a kind of a seismic shift, and nobody really knew what it meant and and, you know, how hospitals would sort of survive this and prosper, etcetera. And I think it was at that time that the company really sort of made the decision to sort of diversify itself and get into the behavioral business in a meaningful way, because reimbursement methodology for behavioral at the time was not changing. And it was sort of a a cushion or a protection against, you know, what whatever, sort of the impacts would be from this this, you know, dramatic acute care change in reimbursement. As it turned out, you know, the company weathered that, and I think the industry weathered it just fine. But I think what, you know, really, this sort of risk diversification strategy became sort of embedded in what the company was doing in the sense that reimbursement for these two businesses has tended not to change at the same time over the years.

The current environment may be a little bit different. But the businesses have tended to operate sort of counter cyclically in a variety of ways, and it has proved to be a pretty significant risk diversification strategy. I think other than that, I I do think that for the most part, historically, the businesses have been generally run relatively discreetly and separately. I mean, there are synergies where where we operate in the same markets. A lot of referrals to behavioral hospitals come from acute care emergency rooms.

And so where we operate behavioral hospitals and acute care emergency or acute care hospitals in the same markets, I think there is that synergy. Although quite frankly, we certainly operate in plenty of markets where we’re dealing with third party hospitals and and have, you know, excellent relations with them, etcetera. I think in recent years, there has been a greater level of integration between the two businesses. I think as there has been a broader acknowledgment and recognition that, behavioral care and and acute care, are are, you know, very much interrelated. This idea that if you’re managing the health of a population, which I think there will be more and more of as we, the next few years unfold, that a population that may be chronically ill from an acute care perspective, the diabetes population, chronic COPD population, chronic cardiac population, that they will do better, meaning they will have better outcomes, less cost, etcetera, if their mental health is is positive and and well managed.

And they’re much more likely to be medication compliant and exercise compliant and diet compliant, you know, and and not have, you know, severe depression and and the addiction issues that go with that, etcetera. So, I think we we feel like, and I think we’re just starting to scratch the surface in this regard that being and having a significant presence in these two businesses will really allow us to play, a fairly unique and and and, you know, value added role in sort of a population management dynamic that we’re gonna see more and more of over the next few years.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Got it. That’s really great and sort of interesting way to start the conversation. Why don’t we shift over to sort of more sort of State of the Union and you know, what’s your sort of thinking and feeling as we’re entering 2025, but we’re obviously coming off a really strong period in 2024. And I think, you know, as I was looking at the model, I think you grew EBITDA on both segments by over 20 and you really exceeded, you know, the guidance you had put out there for ’24. But what were some of the drivers behind the stronger performance in ’24?

And as we’re looking into ’25, what are you sort of expecting in terms of revenue growth and EBITDA growth across, the business on a go forward?

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, I mean, so and and we’ve talked about this a little bit on the call and and in recent sort of public commentary. I mean, it’s the the current situation has sort of an odd feel to it in the sense that our underlying business and the metrics and the fundamentals of our underlying businesses in the two segments, you know, feels sort of as predictable, as reliable as it’s felt in a a number of years, maybe maybe five years going back to sort of pre pandemic periods. Obviously, and I’m sure we’ll touch on it at some point. You know, there’s a lot going on around us that’s creating all kinds of angst and uncertainty, you know, sort of, whether, you know, justifiably so or not. But but again, the underlying business, you know, feels good.

And I think, look, we’ve benefited to a degree, you know, some of the the, you know, outperformance we had in 2024 was a result of these Medicaid supplemental payments or the increase in these Medicaid supplemental payments. Although, as we always point out, those payments, I think, are being made in acknowledgment of the fact that, Medicaid reimbursement certainly in the last several years has been inadequate, you know, really to cover our costs and then certainly our increased costs. But I think, you know, more than that, I mean, we return to what seems like a historically normative model for these two businesses. And that model, which, you know, I think has been, you know, in place for years and years and years was, if you could generate same store revenue growth in sort of the mid single, upper single digit range, five, six, seven percent for acute, six, seven, eight percent for behavioral, that generally your expenses, because they were so often skewed towards fixed and semi fixed expenses, were not growing nearly as fast. And that allowed you, if you could generate that mid single digit growth, to increase EBITDA, increase margins.

And 2024, I think, was the first year where that model sort of, you know, took hold again, you know, because what had happened during COVID was, you know, expenses, you know, didn’t operate in that way. There was significant wage inflation. There was significant use of premium pay and recruitment and retention incentives, and just broader inflation and physician expense pressures on the on the acute care side, etcetera, and and some interruption in demand, you know, as a result of COVID. And all those things have, I think, largely stabilized. And, you know, again, I think 2024 was the first year in which, you know, I would sort of describe it as our first truly post COVID year.

And again, the model worked the way it is historically worked with the benefit, you know, in these incremental Medicaid supplemental programs. But, you know, even if you take those out, you know, the models, you know, again, you know, kind of work the the way that that it has in the past. And our expectation is, again, you know, outside of any of these outside pressures that I’m sure we’ll talk about, the model should continue to work that way.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: And then, you know, you you mentioned some of the pressures on the acute side that had stabilized. And I I mean, one of the questions we get from investors and I’ve heard you speak to it before is this idea of getting back to sort of pre COVID margins. And I think you’re pretty much there on behavioral, you still got some ways to go, but, you know, from an externally, when you just look at a model, you can sort of, you can look at the sort of embedded EBITDA opportunity that exists. Theoretically, if you’re able to close that gap, but maybe just add, give us some sense in terms of what are the drivers between, you know, where you are, particularly in the acute margins today versus, where you were pre COVID? And then how are you thinking about narrowing that gap over the next couple years?

What are the key things that need to happen?

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): You know, so what we’ve said, I think fairly consistently is that as a company, we believe we can get our consolidated margins back to pre COVID levels. And I think, you know, in saying pre COVID, I think generally people use that 2019 year as the base sort of case before before COVID, you know, arose in 2020. And I think we further sort of clarified that in order to get back to those consolidated margins, and I think that’s over the course of the next couple years, It would probably result in us getting to behavioral margins as you suggest that we’re either at or above where we were in 2019. And we’re already, I think, largely there with some additional upside to go. And acute care margins that quite frankly are likely to fall a little bit short.

And the reason I think they’re likely to fall a little bit short, we touched on this a little bit is, we’ve seen this increase in physician expense. And in this case, when I say we, I think the industry collectively has seen broadly this increase in physician expense. In our case, we think it’s cost us about a 50 basis points of margin. It’s gonna be very tough to make that up. I think we feel that physician expense has stabilized, but in terms of recouping it, it’s going to be very difficult.

I think there’s also been a structural drag on margins in acute care because of the shift from in to outpatient. And and that has, I think, kinda, you know, been a drag on acute care profitability. Again, difficulties. There’s all kinds of ways, and we’ll try and make up for that in terms of service line changes and cost efficiencies, etcetera. But, you know, broadly, I think that’s always gonna be something that’s gonna make it difficult to get all the way back to pre COVID margins for acute.

So again, 20,000 foot view of it should be able to get to, you know, behavioral margins and above the twenty nineteen levels probably fall a little bit short on on acute, but that should allow us I think in the next couple of years to get back to consolidated margins that are either at or or above pre COVID. And on

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: physician extends, it sounds like that’s kind of stabilized, but they have there been particular areas within those sort of categories that have driven sort of more pressure the last couple years? Any additional comments there would be great.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): So the original pressure, I think, and I think this is pretty consistent with commentary from my peers, was in the area of emergency room doctors and coverage and anesthesiology coverage. And in 2022 and ’23, those were the big increases in expense. And I think those are now largely baked in. And while we’ve been able to sort of have some success around the edges and getting those expenses under control, etcetera. They are kinda where they are, and they’re not gonna generally be reduced.

I think the the area that most providers have sort of suggested recently have been pressure points is sort of radiology. Radiology is not an area that has, you know, really drawn a lot of subsidies historically. I honestly have little I have trouble remembering paying radiology subsidy in the past in in any significant way, but it has arisen. I think our view is we can deal with that and we will deal with it in the context of our overall expense. There is more optionality in radiology, meaning radiologists don’t necessarily have to be on-site.

So you can use, outdoor services, you can use radiologists, foreign radiologists, etcetera, etcetera. There are other options for radiology that quite frankly don’t exist for ER and anesthesiology where people have to be on-site. So, yeah, that’s I think the most recent pressure point, but one that I think we believe is manageable.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: And before we get to, you know, the behavioral side of the business and some of the policy question, I do wanna ask one more on acute on the, just in terms of managed care, the conversations you have with them, the types of rate negotiations, that you’re able to achieve, you know, maybe today versus two to three years ago. And, you know, one of the areas of discussion has been around denial then, you know, I think you’ve sort of described it as sort of normal, but unfortunate. I was curious if you had any higher level thoughts about what the industry can do, to try to smooth this issue out that would, you know, maybe work for both hospitals and payers. I know that’s, you know, if there was an obvious solution of beef, but, if you had any higher level thoughts on that, that’d be great.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah. I mean, so, you know, look, I think you framed it appropriately. There’s sort of this normal, you know, tension. And I think it’s an unfortunate tension between payers and providers because I think there’s an enormous amount of kind of wasted administrative effort and time and dollars spent on, you know, billing and, you know, rebilling and and being denied and and appeals denials and and, you know, there’s, litigation and arbitration, etcetera. And broadly, I do think that from a public policy perspective, if that process, that whole revenue cycle process can be streamlined and eliminate some of that friction, it would be helpful to the industry.

Because I do think there’s a lot of wasted value within the system and again, very high levels. In terms of where we are today and what we can do, you know, I think we’re very focused on, this idea of making sure that our bills go out correctly. And, you know, we’ve talked a little bit about the fact that we’ve been focused on sort of the, you know, proper billing under the two midnight rule for a number of years. We’ve been using an outside consultant for a number of years to try and eliminate, you know, the denials or the level of denials in that area, you know, doing everything we can to make sure that all the authorizations and pre authorizations that we are required to have, you know, before we can bill are in fact in place, etcetera. You know, we’ve been, I think, somewhat more aggressive in our appeals of denials and in seeking, you know, the recourse where we don’t believe we’re being treated fairly in renegotiating our contracts.

So that contract language is helpful to us in those processes, etcetera. So, again, you know, I forget exactly how you framed it. It’s it’s, you know, kinda disappointing or, you know, it’s difficult, but it’s sort of now an accepted part of what we do. It’s been a huge focus of ours. We’ve devoted a lot of resources to improving our revenue cycle technology and and, talent, and perceived practices, etcetera.

But, you know, we kinda are where we are. And it doesn’t feel to us like there’s been enormous changes on the part of the payers and their behavior, at least in recent years. You know, when the pandemic first occurred, we felt like the payers really sort of because there was such a natural decline in utilization and demand, that they sort of really took their foot off the the gas in terms of utilization management, etcetera. But once we got to ’22, ’20 ’3, it felt like they sort of returned to their normal historical practices. And I would say since then, it’s been that sort of daily slog that is, again, I don’t know, you know, all that much value added, but, you know, hasn’t changed a, you know, a terrible amount in the last few years.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Got it. And then, do you have any optimism that sort of AI could be some sort of panacea in that domain are sort of to be determined?

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, I think so. I mean, obviously, I think what AI can do, you know, if used properly is, you know, to help you predict, you know, what claims are likely to, you know, to draw, you know, sort of the, you know, greater scrutiny and to help you ensure that, you know, you’ve done all the things, you know, etcetera, that, you know, to to make sure that the the claims are as clean and as, you know, sort of problem free as possible. Obviously, we do that now in a manual way. I think, you know, there there’s the potential for that to be more automated and for AI to to help do that, you know. And and I think we’ve made some improvements in that regard, but we’ll continue to do so.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Got it. Okay, why don’t we shift over to behavioral for just a couple questions? One of the areas where we’ve been pleasantly surprised is just the pricing that you’ve been able to achieve in that business. And I’ve heard you describe it in terms of you’re able to engage with the payers and there’s a scarcity of beds and, it just it creates a relatively favorable dynamic from your perspective in terms of the payers needing to have the right amount of capacity in market. But I was curious if you could sort of expand on those comments and give us some sense for sort of the sustainability around the pricing metric or if there’s other sort of factors you wanted to tease out, with respect to behavioral pricing.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, no, I think in your question, you pretty accurately described the dynamic and the dynamic that we’ve tried to articulate before. I think it’s worth noting that, you know, we’ve argued for a number of years that Medicaid reimbursement broadly, I think in for hospitals, both acute and behavioral in general, but certainly for behavioral in particular, Medicaid reimbursement has been inadequate. And we have aggressively, you know, worked with our payers over the last several years to increase the historic Medicaid reimbursement that we’re receiving, particularly from our managed Medicaid payers. And I think we’ve had a fair amount of success, and I think we attribute the, the the the fact that we’ve had a fair amount of success to this idea that there’s not a ton of excess capacity in the industry and that if payers are wanting to ensure that they have either beds or outpatient facilities or or whatever, the issue may be to to send their patients, then, you know, we’re in our minds demanding what, you know, is is, at least in our minds, a reasonably, you know, adequate market rate. And and I think, again, you know, we’ve been somewhat successful in that.

And and so our success in, you know, underlying managed Medicare grades or rates in general, the fact that we are getting more Medicaid supplemental payments, etcetera. I I make all these you know, I think these things are not accidental. I think they’re happening because there’s an acknowledgment throughout the industry on the part of both payers and providers that Medicaid reimbursement has historically been inadequate. And while I think Medicaid reimbursement has always been viewed as the worst or even the lowest paying reimbursement compared to Medicare and to commercial, that gap had grown over the years. And while it had you know, that that gap is still there, it it at least has narrowed over the last several years.

As as terms of being in terms of being sustainable, you know, I think to some degree, to the degree that we’re getting, you know, increases that we hadn’t gotten for a number of years, to some degree, you know, the annual benefit of that or the annual impact starts to anniversary and it will start to diminish that year over year impact. I think, you know, with the other argument that we’ve sort of made is, you know, that as capacity starts to expand and we’ve emerged from the pandemic, and I think you’ll see capacity expand more, that the leverage over payers, you know, will will also diminish somewhat. But, you know, I think it’s worth noting that this strength in behavioral pricing has persisted longer than we might have originally imagined. We’ve been talking about expecting kind of a slowing down or deceleration in this behavioral pricing for a while now and it hasn’t really occurred. So we’ve made the point that in our guidance for next year, we’re assuming behavioral pricing grows by 4%, four point five %.

That would still be lower than it’s been in quite a few years. And we’re not at that level yet. So we think if there’s a conservative element in our guidance for next year, that’s probably the biggest one.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Okay. And then one other on behavioral, this is sort of sounded new to me, at at least in some of your comments around the opportunity to open some outpatient behavioral capacity off campus. And I was hoping you could spend a minute talking about that. And, is there any, maybe it’s too early to report anything, but any sort of discernible improvement in volumes when you have those types of assets in the market versus, you know, a market that’s less mature in terms of those types of utilities?

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): So so I I think you’re correct in in noting that there was definitely some, you know, incrementally new commentary there. You know, we’ve always had a presence in outpatient care, in our behavioral business. It is historically been focused on what we sort of call downstream referrals. These are patients who are being generally discharged from our inpatient facilities, but you know, are not they still require some level of care, in some cases, a pretty intensive level of we call it actually intensive outpatient or partial hospitalization. You know, these are people who are continuing to get four or six hours of care a day.

They’re just not staying, you know, overnight at the hospital. And that’s historically been the bulk of our outpatient business. But I think what we’ve seen in recent years is more and more patients, you know, being treated in in outpatient facilities that maybe are not quite as intensive as those. But even if they are, they’re often in locations that are not on the hospital campus. And what we have found is that, patients who are not necessarily being discharged from an inpatient facility, but are sort of new to the system, often feel more comfortable being treated in a setting that’s in a strip mall or, you know, some, you know, location that is not on the campus of an acute of an acute behavioral hospital because they’re they’re sort of, you know, angsty about, you know, being sort of caught up, if you will, in in that dynamic.

And so, you know, we’re we’re trying to build a bigger presence there, but at the same time, I think, trying to increase our presence. I think the outpatient market is growing. You know, we’ve I think, you know, you know, struggle to get our share of that because I think of our inpatient focus. So I think, you know, in the coming years, we’re going to try and do a better job, more efficient job of retaining the outpatient volumes that we in fact control from our inpatient discharges, but also creating a greater freestanding presence. I think on the call, I sort of talked about realistically being able to add a dozen or so of these facilities a year.

You know, again, I don’t think it changes the landscape of our business. But, you know, I think as you think about particularly our adjusted patient days, which includes an outpatient component, etcetera, I think it’s going to help us reach that 2.5%, three % adjusted patient day growth level that we’ve targeted, for some time now. And I think, you know, feel like it’s very achievable in 2025.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: And then Steve, I just wanted to see if you had any comments on sort of recent volume trends on either side of the business. We, you know, we’ve tracked some credit card data that’s proprietary to KeyBank and it sort of showed that January and February seems sort of remarkably stable, even on really, you know, tough comps from, you know, almost two years at this point. But any observations you’d care to share with us in terms of sort of more recent trends?

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, I mean, so the general observations we made about the two businesses, I think on the acute side, everybody acknowledges that, this is a pretty busy flu season. Some of the commentary suggests, you know, it’s the busiest flu season in a long time. I don’t know that that’s been our experience, but definitely an elevated flu season. I think that’s incrementally helpful. I think we’ve always sort of commented on the fact that, we don’t get a huge uplift from, busy flu seasons.

The business itself tends not to be terribly profitable. It also tends to have the impact of crowding out, other, you know, potentially, you know, more profitable procedural or surgical business. And and the point that I always make is, you know, when everybody gets the flu, everybody gets the flu, meaning some of our elective patients who are scheduled and then don’t show up. It means some of our physicians and some of our nurses and we sometimes have to cancel procedures during the flu season, etcetera. So again, I think acute care volumes to your point, they look pretty solid in Q1.

I think some of that is being propped up maybe the wrong word, but they’re being sort of helped by a busy flu season. But I just generally think acute care volumes are tracking pretty solidly in Q1. I think behavioral volumes started in the year, you know, pretty strong. We suggested, I think, specifically in our markets that we ran into some winter weather, for four or five weeks and sort of the January to the February. In places, you know, I make the point that don’t really normally experience winter weather and don’t cope with winter weather very well, places like Virginia and Tennessee and Kentucky and Mississippi.

So, you know, again, we may struggle to get to that 2.5, three percent patient day volume growth level in Q1. I think that’s a transient sort of temporary issue. I think we continue to feel confident we’ll get there for the full year.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Fair enough. Okay, let me finally get to the policy questions, which has been at the forefront of investors’ minds. I guess I wanted to maybe start off with, Medicaid supplementals and we’re obviously sort of waiting to see what will be included in this house reconciliation package. It does seem like there is some focus on these payments. If you had any, you know, I’m sure you wanna provide some context around them, but I’d be happy to hear that.

Really the meat of my question would be around, you know, if there is, you know, the mechanisms they seem to be looking at are sort of reducing the safe harbor threshold from 6% to something lower. Should we just think of that as a would that be a proportional impact? Or is it still state and service line specific that it’s hard to know? Or if there’s some change to on the DPP side, you know, average commercial rate versus Medicare. So I know there’s a lot sort of embedded within that, but any sort of general observations and then, sort of how you’re thinking about, you know, potential changes.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, so, you know, again, I, you know, I’m gonna say pretty much everything that I know, but I think it’s worth sort of recapping that, you know, when, the Republicans passed their, you know, bill in the house, they did so with fairly significant Medicaid cuts embedded in the bill, although they were, you know, completely nonspecific. And there were any number of Republican house members who commented at the time that they only voted for the bill because they were assured by their leadership that there really wouldn’t be these dramatic Medicaid cuts. We also know that, you know, there still has to be a bill that passes in the senate, and and by every measure that we can can tell, the senate is even less enthusiastic about big Medicaid cuts than the house was. But I think it’s not realistic or or it would be naive on our part to think that there are not going to be, you know, some initiatives to reduce Medicaid spending. You tick through a couple on the DPP payments, it could be, you know, reducing the cap from 6% to 5%.

And I think the challenge in sort of analyzing that impact is, you know, to just say that going from six to five is like a 17% reduction, not every program is already at the 6% limit. So, you know, you have to do that analysis program by program. Same thing, you know, if if, you know, instead of capping this at average commercial rate reimbursement, it’s capped at 90% or 85%. You know, you have to go through the math and, you know, the individual programs. You know, I think we’re likely see work requirements and and things like that, which would reduce the number of, you know, Medicaid enrollees.

But for all these things, I think it’s difficult, you know, to to sort of, you know, size or or frame, you know, what the impact would be other than, I think, you know, the the general feedback we get as we talk to our lobbyists and get feedback from the legislators themselves, etcetera, is that there is a lack of consensus for really dramatic draconian cuts. And so I think cuts are 10 are likely to be more incremental, extended over, you know, a long period of time, making them more manageable. You know, certainly, you know, they’re they’re real and and, you know, we would have to adjust to them and we would do so I think in a variety of ways. But I think our expectation is that, whatever cuts are likely to be implemented are likely to again, just be more incremental and more extended over time.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Yeah, that’s fair. And that’s obviously kind of consistent with sort of history too. Let me ask a follow-up or two on the, you know, two of the Medicaid DPP approvals that making the investment community has been watching has been Tennessee and then also the District Of Columbia. You know, we’ve gotten sort of different feedback in terms of what has to happen for those sort of final approvals to occur. Maybe it’s tied to a CMS administrator being put in place, but if you had any sort of update or just, you know, in terms of the process of how these approvals will sort of come through, that’d be great.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah, so I think CMS acknowledges that when the administration changed in January, that they put a pause on new approvals or approvals of new programs, as well as sort of what we would describe as kind of routine reapprovals. All of these DPP programs, even the ones that have been in place for many years or multiple years have to be reapproved every year. Some of them have been, I think, you know, we have very extensive disclosure in our 10 ks about which programs have been reapproved and not. Maybe half have been reapproved, but half are waiting. The CMS, I’ll call them the career bureaucrats, you know, as they communicate, not necessarily to us as providers directly, but with the state health departments and whatnot.

Basically, sort of describe this pause in their minds as relatively routine, awaiting as you suggest for some of these political appointees to get in their seats and their offices. But are still likely to be forthcoming, just a little hard to predict when. And I think that’s sort of where we sit today. Obviously, there’s sort of delay in approvals given the kind of broader concerns that we’ve been discussing, you know, created, I think, a level of angst that wouldn’t normally or or otherwise be there. But, you know, as we talk to the state health departments who are communicating with CMS, you know, their their general sort of, you know, message to us is that they’re still, you know, expecting these reapprovals.

They’re still in Tennessee and DC expecting the new approvals. But although timing is, you know, somewhat, up in the air. I will say, you know, we got one sort of small piece of encouraging news, you know, in the last few days where as we understand from the Nevada Health Department, they’ve been told by CMS that even though the program hasn’t been reapproved, that it’s okay for them to go forward with their payments as if it’s been reapproved. Doesn’t mean that it’s not a guarantee of of approval, etcetera, but it does seem like an odd thing for CMS to suggest if they really didn’t think the approval was ultimately for what kind of.

Matthew Gilmore, Healthcare Services Equity Research Lead, KeyBank: Got it. That’s certainly a great sign. Steve, we’re we’re up against time. I really do appreciate you, spending some time with us and, thank you.

Steve Filton, Chief Financial Officer, Universal Health Services (UHS): Yeah. Thank you, Matt.

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