Universal Health Services at RBC Capital Markets: Strategic Insights and Challenges

On Wednesday, 21 May 2025, Universal Health Services (NYSE:UHS) participated in the RBC Capital Markets Global Healthcare Conference 2025. The discussion, led by CFO Steve Filton, presented a balanced view of the company’s strategic performance and future outlook. While UHS expressed confidence in its acute care segment’s growth, challenges remain in the behavioral segment.

Key Takeaways

• UHS anticipates a 5-7% growth in its acute care segment, driven equally by price and volume.
• Behavioral health pricing trends are strong, potentially offsetting volume shortfalls.
• Capital expenditures in Q1 2025 reached $240 million, focusing on new hospital projects.
• West Henderson Hospital achieved EBITDA positivity in its first full operational quarter.
• Professional fees are expected to rise by 5% in 2025, aligning with inflation.

Financial Results

• UHS targets a same-store growth rate of 5-7% in the acute care segment for Q1 2025, equally split between price and volume.
• The behavioral health segment aims for a 2.5-3% patient day growth for the year.
• Capital expenditures in Q1 2025 totaled $240 million, with significant investment in new hospitals.
• West Henderson Hospital was EBITDA positive in its first full quarter, with combined EBITDA from West Henderson and Cedar Hill hospitals expected to be modestly positive for 2025.

Operational Updates

• The Tennessee program is largely approved, pending the 1115 funding mechanism.
• Approval for the District of Columbia program remains uncertain.
• Nevada’s Q1 cash flow supports maintaining current operational plans.
• Acute segment volumes met long-term targets, with peers reporting similar growth.
• Behavioral segment volumes were flat in Q1 but are expected to increase later in the year.
• Strong pricing trends in behavioral health are compensating for volume softness.
• New hospital openings include Cedar Hill in April 2025 and Palm Beach Gardens, Florida, in spring 2026.

Future Outlook

• UHS aims for a 5-7% same-store revenue growth in the acute care business, balanced between price and volume.
• Behavioral pricing is anticipated to be stronger than initially guided.
• Continued strong demand for behavioral treatment is expected, with efficient service delivery.
• Professional fees are projected to increase by 5% due to inflation.
• Supply costs are under control, with minimal impact from tariffs.
• Capital expenditure will focus on new hospital projects and maintenance.

Q&A Highlights

• The House bill’s potential impact on Medicaid and DPP programs was discussed, with UHS viewing the effects as less severe than initially feared.
• Questions addressed the 1115 Medicaid waiver approval process for Tennessee and DC programs.
• UHS maintained its growth targets for both acute and behavioral segments, emphasizing the interplay between volume and pricing.
• The impact of tariffs on supply costs was analyzed, with UHS indicating stable supply chain dynamics.
• Capital allocation priorities include CapEx for new hospital projects and evaluating the performance of these facilities.

For further insights, readers are encouraged to refer to the full transcript below.

Full transcript - RBC Capital Markets Global Healthcare Conference 2025:

Ben Hendrix, health care services and managed care analyst, RBC: Thank you everyone for joining us today. I’m Ben Hendrix, health care services and managed care analyst here at RBC. Very pleased to have, management from Universal Health Services join us again this year. We’re hosting Steve Filton, chief financial officer. Thank you for joining us today.

Steve Filton, chief financial officer, Universal Health Services: My pleasure.

Ben Hendrix, health care services and managed care analyst, RBC: Yeah. Just wanted to start the conversation with the obligatory policy bring down. We, of course, we have the house bill moving along, and it seems like work requirements are in play for Medicaid policy, but maybe we’re grandfathering in some DPP programs. Just anything you’re seeing that strikes you or changing in your thoughts there?

Steve Filton, chief financial officer, Universal Health Services: No. I I I’m sure our reaction is similar to most investors and observers in the industry, and that is I think that the the negative impacts potentially of the bill are less dramatic and draconian perhaps than than some thought could be. You know, the work requirements, I think we always knew, were were coming. I don’t know. It’s hard to say exactly sort of what the impact will be.

I will say that this idea that the work requirements obviously are targeted at, you know, generally this Medicaid population of younger, healthier males. I’m not sure that that’s the population that makes up the bulk of our hospital utilization. So, you know, again, I’m sure there will be some impact, but I don’t think it’s as sort of obvious in terms of just the the overall numbers. And then I think, you know, the the impact on these direct payment programs, which I think were a very significant focus and concern going into the sort of legislative negotiations are, you know, clearly it appears what the intent of the Republicans in Congress is to really limit the the the growth in these programs, the new programs, the growth in the existing programs, etcetera, which, you know, certainly has an impact, but, again, appears as if it will have little impact on our existing programs and the existing cash flows, which, again, I think is encouraging.

Ben Hendrix, health care services and managed care analyst, RBC: Mhmm. In that vein, when we talk about the DPP programs and and kinda limiting growth, do you believe that there is ample recognition of the importance of these programs as a critical part of Medicaid funding, or do you think there is still will in congress for kinda deeper cuts and kinda curtailment of these kind of back to maybe even kind of pre Trump levels?

Steve Filton, chief financial officer, Universal Health Services: You know, we always had the thought that these programs were very positively embraced by the states that had implemented them, and that included any number of states, you know, certainly in our case, places like Florida and Texas and Mississippi and Idaho, you know, very red states, and and that those state governments, state legislators, governors would lobby hard for for the the need and the sort of effectiveness of these programs, and I think that has had an impact. So to your point, you know, is there still an appetite on on some in congress to to do, you know, anything further? The answer is, yeah, I’m sure there there is for some, but, you know, you see how much the the Republicans are struggling to pass this one bill. It’s hard to imagine that there’s a lot more that gets done beyond this.

Ben Hendrix, health care services and managed care analyst, RBC: Mhmm. Got you. And I know that top of mind right now from a program perspective is Tennessee across a number of of companies in our coverage. And for you as Tennessee and and d District Of Columbia together, I think you’ve quantified that in the one fifty to one seventy range, maybe six to 7% upside to your guidance. In my understanding is the d t or the Tennessee is largely approved for waiting on the the eleven fifteen funding mechanism.

Is that your understanding as well? Any developments from there?

Steve Filton, chief financial officer, Universal Health Services: It it is. And I think most people are of the view that the Tennessee program, even though the eleven fifteen Medicaid waiver is still forthcoming or to be forthcoming, would be grandfathered under sort of any reading of the current bill. The DC program, I think, is more of a question mark, you know, a bit of a toss-up at this point. It’s been submitted to CMS for some time. The District of Columbia, the health department, believes it will get approved, whether it will get approved in time or a time frame that it would be considered grandfathered under the bill, I think an open question, but Tennessee, I think much more likely.

Ben Hendrix, health care services and managed care analyst, RBC: Mhmm. Is there anything specific about the eleven fifteen construct for Tennessee that’s making it take a little longer than others in your mind?

Steve Filton, chief financial officer, Universal Health Services: Nobody seems to think so, and and I think, you know, the general view is that if CMS had any real problems with the program itself, they wouldn’t have approved it knowing that they had an issue with the eleven fifteen waiver. And so I think the the notion is it’s just part of the pipeline of approvals that CMS has to get through.

Ben Hendrix, health care services and managed care analyst, RBC: And then with the grandfathering, I mean, we did see cash flow from Nevada, I believe, in the first quarter. Anything in there that that strikes or gives you more or less comfort in the bill over existing plans like Nevada being maintained at their current levels?

Steve Filton, chief financial officer, Universal Health Services: No. I mean, we were encouraged, a, you know, by the the you know, it’s it’s actually interesting. The the chronology of it is that CMS directed the state originally even before the program or the the expanded program was approved to make those payments, which we got in April, and then they did approve the program. And I think, you know, we just broadly and partly because of how important Nevada is to us, you know, viewed that as, again, just sort of an overall sign that CMS was prepared to approve these programs in the normal course and that the pipeline of programs remaining to either be reapproved or newly approved would continue. And so I think, you know, to me, there there were to us, I think the remaining question is simply as those approvals come and particularly the new approval and particularly DC, how is it gonna fit within that grandfathering language that’s in the bill?

Ben Hendrix, health care services and managed care analyst, RBC: That makes sense. And then any any thoughts on if these reapprovals will have kind of normal course inflationary constructs to cover the cost of rising labor or what have you?

Steve Filton, chief financial officer, Universal Health Services: Yeah. So I think that’s an open question. Again, you know, clearly, it appears to be the the congressional intent is to cap the growth in these programs, but whether that’s on a sort of percentage of provider tax or an absolute reimbursement amount, etcetera, I think is still an open question.

Ben Hendrix, health care services and managed care analyst, RBC: Got you. Moving on to volumes and and and your your segment performance. I think you came out with expectations for the acute segment volumes to kind of grow within long term targets. I think some of your peers have talked about long term targets maybe plus 100 basis points or so. Just wanted to, see what you’re seeing kind of thus far through the year and if we’re still kind of on track to hit that, that long term growth trajectory.

Steve Filton, chief financial officer, Universal Health Services: Yeah. So, you know, when we gave our original ’25 guidance at the February, we talked about our acute care same store growth rate target being in that five, six, seven percent, and I and I would believe that that’s relevant not just to ’25, but to a kind of a longer term target. So if you pick the midpoint of that 6% and say, you know, we said it would be split pretty evenly between price and volume. I think we were on the low end of price and volume in q one. I think that’s a function of the comparison to a leap day last year, and and I think a slightly muting impact of the flu season in terms of, you know, acuity and pricing.

But I think, you know, those seem to be very achievable targets for us. And I think for our peers, you know, we all kind of, I think, you know, put up volume growth numbers in q one that were pretty similar. So, yeah, that that feels like a a more normative kind of recurring sort of target coming out of the pandemic, but certainly, you know, sustainable and achievable going forward.

Ben Hendrix, health care services and managed care analyst, RBC: Mhmm. And on the behavioral side, we, maybe saw flattish volumes in the first quarter, so maybe implying a little bit more of a ramp, through the latter part of the year. You noted having seen the, some volume accelerate in late March, but I know that we’ve got a calendar day headwind in April. So now that we’re kind of getting through May, anything kind of showing you any any different trajectory than what you were expecting?

Steve Filton, chief financial officer, Universal Health Services: I mean, I think it’s an you know, from our perspective, an upward cadence. Obviously, this was, you know, probably got more focus on the the q one earnings call and then, you know, subsequent sort of conversations with investors. You know, I was fairly emphatic or we were fairly emphatic about the fact that our two and a half, 3% patient day growth target was still intact. That was still our target for the year. Got a lot of attention.

Got a lot of questions. I would add that I also said on the call that if we didn’t achieve the target, the volume target, I thought that we would still, you know, get to our overall revenue target because I think our our overall behavioral pricing would be stronger than our original guide, and and I think that’s still our view. We’ve seen an upward cadence in our volumes. I think they will improve. Whether we’ll, you know, be able to get to that two and a half, 3% for the full year, I think, is an open question.

But I think whether we do or we don’t, we’re still gonna get to our overall revenue target for the year.

Ben Hendrix, health care services and managed care analyst, RBC: And maybe you can talk a little bit about the the pricing trends and behavioral. They’ve very strong, and as you you say, they’re kind of carrying maybe a little bit of softness on the volume side. So what what kind of trends are we seeing there, and what kind of cases are are presenting?

Steve Filton, chief financial officer, Universal Health Services: Yeah. And I and I think we made the point and have made the point because that pricing has been strong for quite some time now that there is a, I think, a real interplay between volumes and pricing on the behavioral side, and that is as it’s been as I think capacity, overall capacity, in our behavioral hospitals, particularly our acute behavioral hospitals, and the industry has been somewhat limited either by labor scarcity and and the ability of providers to fill all their vacant positions by physical capacity and the number of beds available, all those sort of things. It’s given us more leverage over our payers to say, look. If you want to be assured of a bed or capacity for all your subscribers, you’re gonna need to pay us what we believe to be a market rate, etcetera. And I think particularly amongst our managed Medicaid payers, that’s been a kind of a potent argument and a relevant argument, and that’s really, I think, helped us.

And, you know, our view over the longer term has been, you know, going back to if, you know, we’re gonna get to this six or 7% same store revenue growth over an extended period of time, that has been skewed more towards price than to volume, as, you know, your question sort of alluded to. We think over time, it’ll skew less towards price and more to volume, but that shift has certainly been slower to occur than we originally anticipated. Mhmm. Maybe we

Ben Hendrix, health care services and managed care analyst, RBC: can touch on your referral relationships and what you’re seeing in behavioral. Clearly, we one of your competitors has seen some behavioral headwinds amid some company specific headlines, but just wanted to kinda get an update on your referral relationships and how they’ve held up and and any changes you’re seeing in the market.

Steve Filton, chief financial officer, Universal Health Services: Yeah. I I mean, I think our referral relationships, you know, continue to be strong, and and, you know, obviously, those are market specific and geography specific. So, you know, it really is dependent on the quality of care that you deliver, the, you know, I think effectiveness of your relationships and your communication with your referral sources, you know, how your patients feel about their care and their treatment and their outcomes, all those things I think are important, and I think we generally do well in all those areas. I don’t know that we’ve really had any significant we’ve enjoyed any significant sort of measurable impact from some of the struggles that our peer has experienced. We don’t compete with them in all that many, you know, markets directly, but in the markets that we do, it’s not been obvious to us that there’s been a significant market share shift to our benefit, but, you know, just generally, I think we find that behavioral demand remains strong and, you know, the challenge for us is, you know, meeting that demand, filling, you know, vacant labor positions, you know, efficiently, you know, dealing with our referral sources, etcetera, because there is there definitely is more competition, I think, particularly, you know, given sort of the strong pricing, giving some of the benefits of, you know, DBP payments in certain states and geographies, you know, we do see more competition in behavioral, and and that means that all the things that I talked about, relationships with referral sources and efficiency in in handling referral requests and communicating with all those things become even more important and because, you know, you’re competing with more people to do that the right way.

Ben Hendrix, health care services and managed care analyst, RBC: Mhmm. And then as far as policy impacts behavioral, and we’ve always seen broad bipartisan support for behavioral support and reimbursement updates and and trying to expand access to behavioral health care. In the new administration, I imagine that’s continuing, but then also, you know, we’ve like we’ve heard from Alex Azar yesterday, we there’s been some shift in sentiment around various policies, whether it be Medicare Advantage or otherwise? Do you still see continued bipartisan, support in behavioral like we’ve seen in in prior years, or is there anything shifting there?

Steve Filton, chief financial officer, Universal Health Services: No. I think your characterization is fair, and I think it’s driven by the notion, which I think is appropriate, that, again, behavior demand for behavioral treatment is growing, and, you know, it’s important, I think, you know, to both parties that access to that care is available, etcetera. Look. I think there is definitely a movement both on the part of policymakers and legislators and the payers and employers to make sure that care is delivered in the most efficient setting, which I think, you know, means, you know, greater emphasis on outpatient care in its various forms, etcetera. And so, you know, we’re dealing with that, and I think expanding our outpatient footprint and outpatient continuum with partial hospitalization and intensive outpatient therapy, etcetera.

But, yeah, I think broadly, the crux of your question is I think that broad bipartisan support that we’ve seen certainly in recent years, know, seems to be holding steady.

Ben Hendrix, health care services and managed care analyst, RBC: Great. Thank you for that. And before we move on to kind of talk about capital allocation and those topics, I wanted to jump back to acute care and just kind of get an idea of some of the volume across categories. I know we’ve got given some of this calendarization that we’re seeing in the first quarter with day count and and with April in the in the the lapping past Easter, just wanted to get your thoughts on how we should expect trends in various acute categories kinda going through the rest of the year.

Steve Filton, chief financial officer, Universal Health Services: Yeah. I mean, again, I think, you know, if we’ve talked about the acute care business growing five, six, seven percent same store revenue, if you pick the midpoint there, 6% sort of based on, you know, kind of 3% volume, 3% price growth, We were close to both of those targets in q one. That seems to be the right, you know, or or feels like a very achievable target on both sides, both price and volume. You know, you talk about some, you know, very kind of nuance sort of issues, the timing of Easter and and spring break in q two, whatever. But I I I think over the the full year and and honestly over, you know, kind of a longer, maybe more intermediate term period, that that sort of 6% growth split pretty evenly between price and volume certainly seems to be quite achievable.

Ben Hendrix, health care services and managed care analyst, RBC: And then also just wanted to squeeze in, you you’ve kind of given your thoughts on the tariff discussion. I think in the past, you’ve said maybe 75% of your supply costs are fairly protected, which seems consistent with a lot of your peers who most of whom are involved with the health, health trust, GPO. But since we’ve seen some kind of loosening of the tariffs against China, any any changing thoughts in your, you know, in in your overall impact? Or I

Steve Filton, chief financial officer, Universal Health Services: don’t think so. I mean, I think, you know, you you know, you you see in our financial statements that our supply fence has been well controlled. Clearly, there’s been little impact to the tariffs in the short run, and I think our view is that, you know, any impacts in the longer run seem to be mitigated by, you know, a kind of a, you know, less intensification of the tariff language and and and, you know, the the threats, etcetera. So it feels like, certainly, in in the short term in ’25 and ’26, there there’s not a lot of threat. Now, obviously, if we go back to an environment in which, you know, the country is threatening tariffs with, you know, China and others, much higher tariffs.

You know, I think, you know, there there’s a risk of the the contracts that we have and the the supply chain, you know, dynamics that we have, you know, coming under pressure, but it doesn’t feel at the moment like that’s as significant a threat as, you know, we might have thought just even a few months ago. Yeah.

Ben Hendrix, health care services and managed care analyst, RBC: And I just wanted to talk about capital expenditure maybe in in that regard. You know, 240,000,000 in one q is tracking in line with kind of what you’ve put out for the year, and maybe you can, break down how you’re prioritizing CapEx this year. I know we get a lot of attention in this from our devices analyst who’s curious about, you know, how your what kind of equipment, you know, the the forecast is for the kind of equipment you’re acquiring for your facilities.

Steve Filton, chief financial officer, Universal Health Services: Yeah. So I think in our case, it’s worth noting that a a good chunk of that 240,000,000, I would say, probably between a quarter and a third of it are devoted to these new hospitals that either we just have opened or are opening. So we have the you know, our West Henderson Hospital, which, although it opened in in late twenty twenty four, there’s still a lot of equipment purchases and things that went through or at least, you know, were paid for in the first quarter. We’re we’re building a new hospital in in Palm Beach Gardens, Florida that’s consuming a significant piece of that, and we’re building a replacement acute care hospital in Riverside County, California. So I would say of that 240,000,000, like I said, a quarter or a third of that is of these new hospitals.

Beyond that, you know, I don’t know that there’s anything, you know, terribly sort of skewed in our spending. You know, it’s not based on any particular so we’re skewed to any particular service line. It’s not skewed more towards acute or to behavioral. We’re building new behavioral beds and some new behavioral hospitals as well. And, you know, and then we have our regular maintenance capital.

But I think, you know, again, in our case, our our CapEx for the year is somewhat inflated by the new hospital projects.

Ben Hendrix, health care services and managed care analyst, RBC: And on the topic of Willis Henderson, it seems like you’ve seen faster than expected ramp there and maybe some early EBITDA contribution. Maybe you could kinda talk about performance to date there and kinda how how that’s trending.

Steve Filton, chief financial officer, Universal Health Services: Yeah. And so what we said on our first quarter call is that West Henderson was EBITDA positive in its first full quarter of operation, which is really extraordinary kinda ramp up for a new hospital. Although our experience with new hospitals in Vegas tend Las Vegas tends to be better, faster, etcetera, than in any other market, and West Henderson seems to be, you know, replicating that, you know, model or dynamic. What we said, again, in our original guidance, we’re gonna about two hospitals basically opening in 2025, West Henderson, which opened very late in ’24, and then Cedar Hill in Washington, DC, which opened in April. We said that the two combined would be, you know, modestly EBITDA positive for the year.

I think that implies that West Henderson will be measurably EBITDA positive, and Cedar Hill will be somewhat negative for the year, which I think is what you would expect in a normal, you hospital ramp up. And then that seems to be the way we’re trending. You know, Cedar Hill may have a slightly sort of outsized drag in q two as it opens with start up costs and and a slow ramp up than any hospital has. But, again, I think our overall guidance that we gave, which is that the two the two combined would be modestly EBITDA positive for the year, remains our thought.

Ben Hendrix, health care services and managed care analyst, RBC: Probably safe to assume that kind of as a base case assumption that the Florida and California hospitals track closer to Cedar Hill in terms of their ramp up trajectory? Yeah.

Steve Filton, chief financial officer, Universal Health Services: I I think, you know, again, the nor well, the California hospital is a replacement facility, so that’s a little bit of a different dynamic. But but the Florida hospital, which will open about a year from now in the spring of twenty six, you know, I think the the typical ramp up for a new hospital is usually takes twelve, eighteen months to get to sort of, I’ll call it, divisional wide margins and averages. And now think that’s, you know, generally would be the forecast for for our Palm Beach Gardens hospital.

Ben Hendrix, health care services and managed care analyst, RBC: And how is staffing some of these newer facilities? It’s been fair it seems like it’s gone fairly smoothly, but any anything to observe on the on the labor front there?

Steve Filton, chief financial officer, Universal Health Services: No. You know, again, I think it it you know, sometimes at a new hospital, you’re obviously, you know, staffing from, you know, a blank slate, and it it can be a little bit challenging. And that, I think, is part of the challenge of the ramp up. Lots of orientation, some initial turnover is, you know, people get used to the new facility, etcetera. But I don’t think yeah.

I think all those dynamics are expected, and we’ve been doing this long enough that it’s it’s something, like, we know how to do, and and it’s not terribly disruptive.

Ben Hendrix, health care services and managed care analyst, RBC: Got you. And then more broadly on on the cost side, I just wanna go back to that for a second and talk about professional fees. We know we’ve seen some of your peers, you know, talk about a little bit of an increase kind of, to start the year and just kinda what you’re seeing there and how that’s being managed.

Steve Filton, chief financial officer, Universal Health Services: You know, what we said going into the year was that professional fees, which had seen a significant increase in late twenty three and then well into ’24, in ’25 would increase by, you know, kind of just a normal inflationary amount, 5% or so. And that’s really been the way it’s looked in in in the first quarter, and I think it remains our expectation for the year. Some of our peers say, and and we would share the view, that we still feel pressure from some hospital based physician providers. I think a number of folks, know, the the original pressure, I think, on those professional fees back in 2324 really came from emergency room physicians and anesthesiologists. We’ve talked, and some of our peers have talked about radiologists being more recently sort of pressuring us, but it doesn’t feel to us like that’s gonna be something that’s really gonna measurably affect our buy you know, our costs.

Part of the benefit or the ease in in dealing with radiology rather than these some of these other services is, you know, there are other options for radiology. Radiology can be a service that is performed remotely. There have always been providers that provide sort of weekend and and overnight services, radiology reads, some even, you know, foreign providers do that as opposed to ER physicians and anesthesiologists who have to be there in person. So just more optionality in dealing with that that radiology pressure.

Ben Hendrix, health care services and managed care analyst, RBC: Great. Well, I think that brings us to time. Thank you very much, Steve, for being with us.

Steve Filton, chief financial officer, Universal Health Services: Thank you. My pleasure.

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