Universal Health Services Aktie

Good morning. My name is Sarah Conrad, and I'm part of the health care services team here at GS. Today, I'm joined by UHS with CFO, Steve Filton; and Darren Lehrich, who's VP of IR. Thank you guys so much for joining us.

So I guess I want to start off on the volume and demand environment, which I think has been super topical after peer report last week. So on your recent 1Q '26 earnings call, you reiterated a 2% to 3% 2026 volume growth framework.

And then at recent conferences, you've articulated that 1Q volume is roughly in line with the low end of the range after adjusting for flu and weather. Can you help us frame any emerging industry dynamics in the second quarter that we should continue -- that we should consider that could influence how acute volumes are trending in the second quarter and into the second half of '26 relative to full year guidance?

So there, I think sort of consistent with our policy in the last several quarters, we really haven't been commenting on intra-quarter volumes, and I think we'll continue to sort of stick to that policy.

And just are there any inputs that you can share that you have the highest conviction could drive increased acute volume growth for UHS from here, including like added capacity, market growth, physician alignment, any other factors?

Yes. I mean we did talk in our first quarter call and at conferences subsequent to that about the fact that we've added a significant amount of acute capacity, I think, 178 beds in 3 distinct projects or discrete projects in the second quarter, a tower in our Lakewood Ranch facility on the West Coast of Florida, new floor in our Henderson facility in Las Vegas and then a replacement facility in Riverside County, California that adds some incremental beds. It's a replacement facility that adds beds.

So those are projects that because they're at existing hospitals should ramp up more quickly than de novo project. We also talked in our first quarter call about the continued ramp of the Cedar Hill Hospital in Washington, D.C., which we acknowledge got off to a bit of a slow start, but we think whose both volumes and earnings are sort of more weighted to the second half of the year.

That's super helpful. And then I guess as we think about the previous acute margin path, you had previously outlined a path back towards 16% to 16.5% acute margins, but we've seen some shifting industry dynamics. Is it reasonable to assume that your thinking may be evolving on the appropriate long-term margin target? And can any of these headwinds be offset by potential AI or productivity improvements?

So that margin commentary was made as the industry and we were emerging from COVID when margins had been diminished fairly significantly. And I think if you look at our 2025 margins on a same-store basis, taking out the impact of the de novo facilities, I think we were at 15.8%. So pretty close to that target that we had set.

And I think we effectively had recovered from the COVID pressures with moderating labor costs and lower acuity patients, eliminating those COVID patients who were a significant profitability drag. Obviously, now as we look forward into the next several years, there are some new headwinds, all of which I think have been discussed at great length. This year, there were the ending of the exchange subsidies. And next year, we have the Medicaid work requirements and then 2028, we've got the beginning of supplemental payment reductions.

We certainly have every intention of trying to counter the impacts of those. And to your point, I think technology plays a significant part in that. We have talked a lot about our recent technology investments, AI and otherwise in the revenue cycle. And I think we suggested that those improvements broadly added maybe 50 basis points to revenue per unit in 2025 for the acute division.

We're undertaking a very similar third-party consulting review of our behavioral revenue cycle this year and into next year, also beginning to implement some clinical applications, AI applications that I think should serve as an aid in reducing length of stay and increasing productivity, et cetera. So yes, there's any number of headwinds as we look into the next several years, but I think there's also a significant number of opportunities to offset those.

I think at our recent headquarters visit a few weeks ago, we talked a lot about the AI productivity, which was driving revenue per adjusted admission. Can you give us just a little bit of framing there as we should think about the benefit in 2025 and then into 2026?

Yes. So again, I think in our 2025 quarterly releases, I think, estimated that we were enjoying maybe a 50 basis point increase in revenue per adjusted admission as a result of some of the improvements made in the revenue cycle. And these, I think, included more accurate coding, both ER and inpatient coding, more effective denials management and denials appeals and that sort of thing.

It's a little bit hard to parse it out exactly because it's kind of a fluid environment, and we know that the payers are also increasing their investment in technology and they're being more aggressive. Clearly, they've seen improvements in their medical loss ratios in the last several quarters.

So I think we feel at a minimum, we're keeping pace with what's happening on the payer side, but it's sometimes hard to parse out exactly what's due to the revenue cycle improvements, what's due to other changes we might be making.

And then I guess one more acute follow-up from our visit. You had talked about the growing emphasis on growing your acute adjacent outpatient assets, including ASCs. Can you frame where you are in the process right now? And just any color you can give us around this initiative?

Yes. I mean, like everybody else, we certainly have acknowledged that certainly over the last few years and maybe even for longer than that, there's been a continued shift to outpatient. That is certainly a payer preference. They continue to view outpatient, whether it's ASCs or freestanding imaging or whatever as lower cost settings of care. And are encouraging patients or maybe more than [indiscernible] patients or incenting patients to use more outpatient facilities.

I think patients prefer generally to be treated in an outpatient facility if it's clinically appropriate. And we've certainly tried to participate in that. Probably the most success we've had on the acute outpatient side is in freestanding emergency departments. We've got, I think, at last count, 35 freestanding EDs. We'll have another several more by the end of this year. And these serve a great many purposes. They're just another very convenient access point for patients. They've allowed our ED volumes to grow. Patients like the convenience. They tend to be sort of a more pleasant experience for the less acute, less emergent patients.

We also have about a dozen ASCs in our various markets. I think we have at least one ASC in every one of our larger markets, but plan over the next several years to double or even triple the amount of ASCs that we have. And I think in both segments, we view the likelihood that outpatient over the next several years will grow faster than inpatient. And we want to make sure that we participate in that growth, having the appropriate number of facilities and geographically -- properly geographically dispersed, et cetera.

Okay. I want to pivot over to the behavioral segment. So you recently highlighted that the key drivers to move more deeply into that 2% to 3% growth range are the increased labor investments, ongoing shift to more aggressive outpatient strategy. As you think about those 2 variables, what do you think is more important on accelerating behavioral health volume growth? And what would be the operational milestones that would give you confidence that the BH segment is moving to a sustainably stronger volume growth tempo?

Yes. I mean I'd repeat the comment that I just made about the acute segment. And maybe this is, I think, a slightly newer development on the behavioral side that is the shift to outpatient, which I think has been underway for probably a decade or more on the acute side, I think, is a more recent development on the behavioral side.

But clearly, we've seen, I think payers are reporting increased demand for behavioral services on the outpatient side. And in fairness, we have historically been an inpatient-centric company and I think have only participated and enjoyed this growth in outpatient demand to a limited degree. And I think we feel like we've done a great number of things in the last several years to really increase the focus on outpatient growth in behavioral.

One is, I think we've reorganized to a significant degree. We've created dedicated outpatient personnel, meaning these are folks who are focused exclusively on growing outpatient. They're incented, they're held accountable exclusively on growing outpatient, focusing on those patients who we create, if you will, these are patients who are discharged from our facilities as inpatients, but who need further care, either what we would describe as the most acute level of care, which we would describe as partial hospitalization or something a little bit less intense and we call intensive outpatient, somewhere between, I would say, high single digits, low double-digit percentage of our patients require that sort of care, but we only capture a small portion of those patients.

And sort of to your point, what the hurdles there or the obstacles are often geography. Patients may live far away from the hospital. And while they were willing to make that drive or the trip for -- to be an inpatient, they're not willing to do it every day or 3 days a week to be an outpatient. So geography makes a difference. And sometimes we just don't have the appropriate number of therapists to do that.

And that's why we were so enthusiastic about the Talkspace acquisition because what the Talkspace acquisition when it's closed, hopefully in the third quarter will allow us to do is to offer much more of a virtual alternative so that if a patient wants to continue in our system and have that continuity, they now have a virtual option that, quite frankly, they probably didn't have before. We had some limited amount of virtual, but not many.

And then the other piece is Talkspace had this panel -- or has this panel of 6,000 therapists. Again, this has been an issue for us. They believe strongly that those 6,000 therapists have a significant amount of incremental capacity to treat more patients. That's very helpful. But they also have this infrastructure to recruit more therapists in a way that probably has economies and effectiveness beyond what we have. So yes, I mean, I think focus on outpatient, we are building through our 1,000 branches, branded freestanding facilities, more access points for patients that are not necessarily associated with our hospitals either geographically or even sort of on a branded basis.

And then I think the opportunity with Talkspace to really build this continuum that goes from sort of the lowest acuity virtual offerings to the highest acuity inpatient that we've been for many years and then everything in between, which I think is really that in-between space is really perhaps the most significant opportunity.

Yes. And then as we talk a little bit more about the Talkspace acquisition and the 1,000 branches program, I think one of the more interesting points from our headquarters visit was that only a low single-digit percent of discharged patients transition into UHS is own step-down programs today. So what are the biggest barriers to improving conversion? And where do you think we could go?

Yes. So I think this is what I touched on before. I think -- so when -- a couple of things are important. So when a patient is being discharged, number one, we've really got to be focused on that discharge planning. And I think historically, we may not have been as focused as we should have been.

We were so focused on the inpatient part of their stay and others stays. We didn't always necessarily focus on their, I'll call it, after care. We're, I think, way more focused on it today. That's part of it, just the focus part.

Secondly, we've got to make sure we have the therapists we continue to invest in hiring, but also, again, one of the, I think, exciting things about the Talkspace acquisition is this significant incremental availability of therapists that we'll be able to access once the deal closes.

And then just that virtual option that some patients prefer. There are some patients who actually prefer inpatient or face-to-face care. There are some patients who prefer virtual care. Having Talkspace sort of, if you will, under the UHS tent will allow us to really offer patients and offer payers to provide care in the setting that makes the most sense both clinically and financially.

Okay. So I want to pivot a little bit to the policy side. So this year, we had the expiration of the ACA enhanced subsidies. And you framed this ACA issue as more of like a payer mix collectibility issue versus volumes. I guess now that we are into June, can you give us any update on the volume progression that you've seen? And just as you look toward the market, can you frame like how important is the absolute like total volume of exchange patients versus that metal tier versus utilization of these patients and how we should be thinking about this transition?

Yes. So the reason we made the assumption that the lapse of the exchange subsidies was likely to be -- the impact was likely to be felt on payer mix, and I'll call it bad debt or uncompensated care rather than on volume is when we looked at that exchange population, they tended to behave in a way that we would say was very similar to our Medicaid population, that is they were very ER-centric, meaning most of the care that they sought was through the ER. That's sort of where they began their treatment process. They didn't necessarily have their own private physicians, et cetera.

And so our notion or our assumption was that even if they lost their coverage, they would continue to come to the ER in the same patterns and use the same utilization as they had before. The issue was now they would be coming without coverage and that would create an uncompensated or bad debt burden for us. And what we said in our assumptions was we thought that 25% to 30% of our exchange population would lose their subsidies, would lose their coverage as a result of the subsidies lapsing and probably 80% to 90% of them would not be able to get other coverage.

Like other providers, I think we commented in Q1 that we weren't seeing the loss of exchange patients at that rate, that full rate that we expected for the full year. And I think that was always our expectation in part because we have this view that we're going to continue to learn more holistically, I think, how many patients have really lost their coverage because we still have patients who come to the hospital with an exchange coverage card or whatever, but we'll find out later when we go to bill and we go to verify or whatever that the patients have not paid their premiums.

And as a consequence, they really don't have coverage. And so I think what we -- and I think our other peer providers said in Q1 was we still needed another quarter or 2 to really gauge whether we -- whether our assumptions were correct or not. I think at this point, we continue to believe our assumptions seem reasonable and that impact will sort of grow as the year goes on. But I think we continue to feel like we've estimated it reasonably accurately and shouldn't be materially short in any event.

Okay. That's super helpful framing. I think the other thing we've been very focused on is regarding the Medicaid state directed payment reforms. There was a recently announced proposed rule where CMS expanded SCP reform to cover nearly all Medicaid services, including BH, and they sized total savings north of $700 billion. What's your initial interpretation of the proposal and how it impacts your business and the industry overall?

Yes. So we didn't really -- as we read the proposal, view it as containing anything terribly new or significant. When we estimated and we've been very transparent both in estimating what our benefit is from the DBP payments and how our benefit is likely to be reduced based on the provisions of OB3 beginning in 2028. And those assumptions have always included our behavioral hospitals and the DBPs that our behavioral hospitals are receiving.

So yes, I think in the context of how does this make us think about our overall DBP payments and the estimates that we've made about the reductions that begin in 2028, not significant. I think one of the more significant, what I'll describe as administrative or mechanical parts of the proposal are CMS is suggesting that the states and the payers really have to adjudicate these DBP claims on an individual claim basis, which they don't really do now.

That's, I think, an administrative burden that I think will be commented on, I'm sure, by payers and providers and the states pretty extensively in the comment process. But as far as sort of the ultimate impact, I don't think we felt like the rule had a significant different impact than what we had already been estimating.

And then I guess just staying on that SVP, you recently got visibility into the 2025 retroactive Florida SVP approval. You disclosed an expected approximately $100 million retroactive benefit in the second quarter. We're still waiting for that 2026 program to be approved. How should we balance thinking about this and the benefit to 2026?

Yes. So I think one of the challenges we've always had is predicting with any sort of accuracy or specificity when these programs will be approved. CMS kind of moves at their own pace, and it's difficult to predict. I think it's worth noting -- and I think generally, whenever we express a point of view about a program and its likely approval, we're really just echoing what that specific state has told its hospitals.

So in this case, Florida says, as we all know that the 2025 program has been approved. We believe that 2026 or they believe the 2026 program is -- will also be approved. We don't have enough knowledge of the specific element of the plan to know exactly what that impact would be on us or we certainly don't know when the timing would be, but have an expectation that at some point, we'll also be recognizing the benefit from a 2026 Florida program.

And then I want to talk a little bit about your AI initiatives. You've provided a lot of visibility into some of your AI investments and key initiatives. You cited roughly 2 dozen active projects and a further pipeline under evaluation. Can you talk a little bit about what you're most excited about in development or being deployed today? And then also relative to how the current market is thinking about your acute and BH businesses, where do you see the most upside opportunity from AI?

Yes. So I think we've talked about, as you said, a couple of dozen projects. I think we've been specific about several. We've used an AI application from a vendor for coding of emergency room patients. Coding for emergency room patients, as you might imagine, is a more or more streamlined, less complicated exercise than coding for inpatients. There are hundreds, close to 1,000 different DRGs for inpatients. There's a handful of essentially acuity codes for ER patients.

We've found that AI can code more accurately. We've gone through a significant sort of, I'll call it, parallel measurement period where we'll code manually and we'll code through the AI application, and we'll compare the 2 and find that the AI application is more consistent, more accurate. So that's been a benefit to us. We've talked about doing a number of things elsewhere in the revenue cycle.

We know that payers have been using AI to generate denials and denial letters, et cetera, for a number of years. We've started recently to use AI to write those denial appeal letters. And we find that now a nurse or another clinician who used to spend an hour writing an appeal letter now spends 5 minutes reviewing denial appeal AI-generated letter. So driving efficiency in that regard.

We have found on the behavioral side that AI is helping us in the intake process. So a lot of times, when we are referred to patient by an acute care emergency room or community mental health center, et cetera, they will send us over an extensive medical record. Sometimes it could be 10, 50, 60 pages long.

And historically, the nurse or psychologist or somebody is having to review that. Well, now we've got an application that is summarizing that in, I'll call it, sort of in an executive summary and now a clinician is reading page or 1.5 page, which is really accelerating the intake process and reducing the amount of time we have to spend on the intake process.

So again, just another example, we've been using AI to make follow-up calls. When a patient is discharged from an acute hospital, they'll generally receive a post-discharge call 24, 48 hours after they're discharged. They're going to be asked how they're doing, whether they've made their follow-up doctors' appointments, whether they filled their prescriptions, what their pain level is, and that has generally been an effective tool in reducing readmissions and increasing patient satisfaction, et cetera.

We found that now 40% of those calls are made by AI agents. Patients are notified upfront, but it's an AI agent on the phone. About 40% of them continue the call. And interestingly, those that do, for the most part, tend to be very satisfied.

The AI agents [indiscernible] have more patients, I think, sometimes than our own clinicians. They're willing to stay on the phone longer with the patient and the patients like that. And I think, again, just another example of how we're driving productivity through AI. I'll just offer one more because you talked about sort of productivity or we talked earlier productivity improvements.

One of the productivity improvements we see on the acute side in the next several years is continued reduction in length of stay. Length of stay in the acute business rose dramatically during the pandemic. It's come down significantly since then. But I think we believe there's still opportunity to improve it even more. And interestingly, historically, we sort of measured our effectiveness on length of stay post discharge, meaning we would look at what a patient's length of stay was compared to what was -- it's called the Medicare Geometric Mean Length of Stay.

But today, we've got an AI application that at the beginning of a patient's stay based on their diagnosis, based on their condition, et cetera, projects what their length of stay should be, and we can sort of measure our effectiveness in real time, how we're doing against that, et cetera. So there are those -- now again, all these things are sort of tied to other issues.

One of the challenges we've had with length of stay over the last several years is we've got patients who are being -- or need to be discharged to some other setting of care, skilled nursing, nursing home, rehab, et cetera. And often patients are sort of held in the hospital because there's not an available bed or capacity in one of those places. That's not something we can necessarily control. So that's a challenge.

But also, we've got -- in many of our emergency rooms, we've got a backup of patients who are holding, waiting for bed. And so to the degree that we can add capacity where it's appropriate, we talked about some of those examples earlier, we can help that throughput. And I think that helps length of stay as well because patients who are being held in the emergency room are probably not getting the same level of diagnostics, et cetera, that they'll be getting once they get to the floor.

And then you've been very careful to frame AI as a multiyear margin opportunity. You've noted a couple of areas we should be watching, including length of stay, and I assume revenue per adjusted admission as well. Are there any other important milestones that we should be watching to see these AI investments like trickle through the P&L?

Yes. I mean I think the other sort of obvious one that we touched on is labor productivity. So in a couple of the examples that I gave, the denials management, the preparation of denials appeals in the post-discharge calls, we're eliminating or at least reducing dramatically the amount of human time that has been devoted to that. So I think over the next several years, as we look to drive productivity to drive efficiency, a lot of that will be AI or technology generated or technology initiated.

And then I want to talk a little bit about capital deployment. So the Talkspace acquisition is expected to close in the third quarter of 2026. You've talked a little bit in this panel about continued investments in de novo and outpatient assets.

Just as we think about capital deployment, potential ongoing buybacks, how are you thinking about the relative returns from deploying capital into organic acute assets versus behavioral outpatient expansion, repurchases at today's valuation? Just any framing would be super helpful.

Sure. So once the Talkspace deal is completed, again, we hope in early Q3, our leverage level should be in the low 2s. It's still at the low end of a range that we've talked about for a long time in that 2% to 3% range. So we certainly have the ability to continue to deploy capital in all the ways that you suggested, including continued CapEx investment, which I think will be skewed towards outpatient in both segments, selective M&A where it makes sense and continued share repurchase.

Probably goes without saying, but we view our current share price as fairly compelling at this point. We've been a very active acquirer of our own shares for many years now. I think over the last 10 to 12 years, we've repurchased about 40% of the company's shares. I think we would anticipate continuing to be an active repurchaser. And I don't think our leverage levels I don't think they'll prevent us from doing that, but I think, honestly, they'll provide us an incentive to continue to be active.

And then I want to talk a little bit about the capacity ramp with your new Florida hospital that's now opening, additional beds are coming online. Can you talk about how we should think about the ramp of these assets towards your total company margins? What are some of the key variables that we should be considering?

Yes. Most new hospitals take somewhere between 12 and 18 months to ramp up to kind of divisional averages of occupancy and margins, et cetera. And I would think our new Florida hospital would be the same. I think the only time we've seen hospitals ramp up faster than that tends to be in the Las Vegas market where we found West Henderson was literally profitable in its first quarter of operation, which was really extraordinary.

But yes, I mean, we're very excited about the new hospital, which is about 2 hours north of here in North Palm Beach County in a very desirable demographic area, growing area, very well situated. And Darren and I both were at the opening of the hospital just a little over a month ago. So we're very enthusiastic about that. But we certainly know and I think embedded in our guidance for the year is the notion that this year, it will be a bit of a drag. But by -- we would think by the end of next year, should be sort of closing in on more like divisional performance.

Okay. We've got just about 1 minute left. So I just want to ask on 2Q volume modeling. In the first quarter, we had a few one-timers. We had flu. We had some seasonal dynamics, spring break timing. Are there any lapping dynamics or onetime items that we should be considering?

Yes. I mean -- so we aren't providing intra-quarter commentary. As Steve mentioned, I think from a seasonality perspective, the only thing that I think we'd want to just call out is what Steve was just talking about as it relates to the opening of our hospital in Palm Beach Gardens, Florida. So that did open in May as you would expect a new hospital de novo to have some drag on overall profitability as it ramps. So that will be in the Q2. But as it relates to your volume question, not commenting.

Yes. Had to try. And with that, we're out of time. Steve, Darren, thank you so much for joining us today.

Thank you.

Hello, and welcome to the Annual Meeting of Stockholders of Universal Health Services, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Marc D. Miller, Chief Executive Officer and member of the Board of Directors of Universal Health Services. Mr. Miller, the floor is yours.

Welcome to the Annual Meeting of Stockholders of Universal Health Services, Inc. This year's annual meeting is being conducted completely virtually via a live audio webcast. I would like to introduce the other directors and officers of the company who are participating in today's meeting. The Board of Directors are Alan B. Miller, Executive Chairman of the Board; Nina Chen, Eileen McDonell, Warren Nimetz; Maria Singer; and Dr. Elliot Sussman. Officers of the company are Steve Filton and Chick Boyle.

In addition, Scott Hammond of PricewaterhouseCoopers, our independent auditors, is participating today and is available to respond to any questions. Harold Murphy of Computershare, our transfer agent, is participating today and will act as Inspector of Elections as to the Class B and Class D votes. In order to avoid any confusion, let me take a few moments to outline the format for today's data.

First, each company proposal will be made and seconded. The Board of Directors' position on each proposal is set forth in the proxy statement, which was made available to all stockholders eligible to vote. Next, we will tally the preliminary votes with regard to each proposal.

The polls on our virtual meeting website opened at approximately 9:50 a.m. Eastern Time this morning. Any stockholders who have logged into virtual meeting web portal using a 15-digit control number will be able to make or change their growth electronically until we declare the polls have closed.

For the record, as persons appointed in the official proxy, Mr. Filton and Alan B Miller have voted in accordance with the proxies received from stockholders. Once the votes on all the proposals have been tallied and the results announced, the meeting will be adjourned. After the meeting is adjourned, we will attempt to answer as many stockholder quarter questions as time allows. This meeting will please come to order.

I will act as Chairman of the meeting, and Mr. Steve Filton will act as Secretary of the meeting and Inspector of Elections as to the Class A and Class C votes.

Mr. Chairman, I present the affidavits of Computershare and this company with respect to the notification to the company's stockholders of the notice of the meeting, the annual report, the proxy statement and the forms of proxy, which were mailed to Class A and C and to Class B and D stockholders who requested to receive printed proxy materials.

I also present the affidavits of the inspectors of elections and the voting certification for the Class A and Class C stock prepared and certified by me as Secretary of the company.

The affidavit forms of proxy materials and voting certification are directed to be filed with the company records.

Mr. Chairman, I present the certified list of holders of the company's Class B and D common stock as of the close of business on March 23, 2026, the record date for the meeting. as prepared and certified by Computershare, transfer agent and registrar for Class B and D common stock and the certified list of holders of the company's Class A and C common stock, as prepared and certified by me as Secretary of the company, transfer agent and registrar for Class A and C common stock.

The list of stockholders are directed to be filed with the company's records.

Mr. Chairman, the transfer agent has computed the number of shares of Class B and Class D common stock presented by the official forms of proxy provided to the Class B and Class D stockholders and the number of shares of such classes present or represented here.

I have computed the number of shares of Class A and Class C common stock represented by the forms of proxy provided to Class A and Class C stockholders and the number of shares of such classes present or represented here. For purposes of voting for 1 director by the holders of Class A and Class C common stock, the holders of a majority of the voting power of the outstanding shares of Class A and C common stock are present or represented here.

For purposes of voting for 1 director by the holders of Class B and Class D common stock, the holders of a majority of the voting power of the outstanding shares of Class B and D common stock are present or represented here. For purposes of voting on each of the other proposals at the meeting, the holders of a majority of the voting power of the outstanding shares of common stock are present or represented here.

A quorum for all matters is present, and the meeting is properly constituted for the transaction of business.

As set forth in the notice sent to each of the stockholders, the business of this meeting includes election by Class A and Class C stockholders of 1 member of the Board of Directors and the election by Class B and Class D stockholders of 1 member of the Board of Directors.

Number two is to conduct an advisory nonbinding vote to approve named executive officer compensation. Number three is the ratification of the selection of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026; and number four, to act on a stockholder proposal to report votes based on UHS shareholder money at risk, if properly presented at the meeting.

Please note that after the proxy statement was issued, the New York State Common Retirement Fund withdrew its proposal to adopt a policy requiring Universal Health Services, Inc. to publicly disclose its workforce diversity. Therefore, there will be no vote for Proposal 5 held or announced at this meeting. The meeting will now proceed to, and we will accept the nomination for 1 director of the company to be elected by the holders of Class A and Class C common stock voting together as a single class.

I nominate Mr. Alan B. Miller for election by the holders of Class A and Class C common stock to serve as a director of the company for a 3-year term and until his successor has been elected and have qualified.

I second the motion.

Since there are no other nomination, the nominations are closed. The meeting will now proceed to and we will accept the nomination for 1 director of the company by the holders of Class B and Class D common stock voting together as a single class.

I nominate Ms. Nina Chen Langenmeyer for election by the holders of Class B and Class C common stock to serve as Director of the company for a 3-year term and until her successor has been elected and have qualified.

I second the motion.

Since there are no other nominations, the nominations are closed. The meeting will now proceed to and we will entertain a motion for approval of the advisory nonbinding vote on named executive officer compensation by the holders of Class A, C, B and D common stock.

I move for the approval of the named executive officer compensation.

I second the motion.

The meeting will now proceed to and we will entertain a motion for the ratification of PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026, by the holders of Class A, C, B and D common stock.

I move to ratify PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026.

I second the motion.

The meeting will now proceed to the stockholder proposal to report votes based on UHS shareholder money at risk. I now invite John Chevedden to present this proposal. Mr. Chevedden will have 3 minutes to present the proposal.

Hello. This is John Chevedden. Proposal 4, report votes based on UHS shareholder money at risk. Shareholders request that in addition to the usual way that Universal Health Services reports the annual meeting votes that UHS report annual meeting vote results for each item based on the money at risk that UHS shareholders have. This proposal advocates a best practice given that UHS officers and directors have only 16% of the ownership of UHS yet have 91% of the voting power. Long-term UH shareholders may have forgotten this detriment to UHS shareholder value.

To improve shareholder value, it would be a best practice for UHS to transition to a 1 share equals 1 vote structure. But until this is accomplished, the annual meeting voting results should be presented in 2 formats. Thus, the vast majority of UHS shareholders will then be able to see clearly when the votes of the UHS officers and directors are contrary to the votes of the overwhelming majority of UHS shareholders.

Dual-class stocks like UHS tend to create an inferior class of shareholders and hand over power to a select few who then are allowed to pass the financial risk on to others. With few constraints placed upon them, managers holding superclass stock can spin out of control. Insiders and senior managers can entrench themselves into the operations of the company regardless of their abilities and performance. Dual-class structures may allow management to make that decisions with a few consequences. UHS Shareholders should be aware that the current and equal voting structure where insiders have outlandish voting power compared to the money at risk can lead to long-term UHS underperformance.

UHS voting structure is similar to Ford Motor Company. Ford stock was at $16 in 2015 and is only at $13 today in spite of the robust stock market. Thus current UHS holders might consider selling their UHS stock when there is an uptick in its price and invest in a company where management has voting power consistent with management's company money at risk.

UHS stock was at $148 in 2015 and at only $170 now in spite of a robust stock market. Until UHS transitions to 1 share equals 1 vote as the best practice for UHS annual meeting voting results to be reported in 2 formats. Please vote, yes, report votes based on UHS shareholder money at risk Proposal for.

Okay. The Board of Directors has waived any requirements that the proposal be formally made and seconded, but that is deemed made at this meeting. The Board of Directors has recommended a vote against the stockholder proposal to report votes based on UHS shareholder money at risk for reasons set forth in the proxy statement.

There are no other matters, Mr. Chairman. If any stockholder logged in via control number would like to ask a question about the proposals, please do so now via the web portal.

There are none.

The polls are about to close. Any stockholder logged in via control number to our virtual meeting web portal who has not yet voted or would like to change his or her vote to do so now by clicking on a voting button on the web portal, and following the instructions there.

Stockholders who have timely submitted their proxies by mail, telephone or Internet or given their brokers voting instructions and do not wish to change their votes, do not need to take any further action.

[Voting]

Now that all eligible stockholders have had a final opportunity to vote, I declare that the polls for the 2026 Annual Meeting of Stockholders are now closed. Mr. Filton, do we have preliminary voting results?

As a person appointed in the proxy, I have voted in accordance with the proxies received from all the Class A and C common stockholders who returned the official form of proxy with respect to Proposal 1, the election of directors. 7,236,288 votes were cast in favor of the election of Alan B. Miller, and no votes were withheld. .

As a person appointed in the proxy, I have voted in accordance with the proxies received from all the Class B and D common stockholders who returned the official form of proxy with respect to proposal 1, the election of directors.

31,836,231 votes were cast in favor of the election of Ms. Nina Chen-Langenmayr, and 14,129,963 votes were withheld.

With respect to proposal 2, the approval of an advisory nonbinding vote to approve named executive officer compensation, 62,219,230 votes were cast in favor of the approval of named executive officer compensation, 228,600 votes were cast against and 1,996 votes abstained. With respect to proposal 3, the ratification of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026, 62,633,332 votes were cast in favor of ratification of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026, 77,514 votes were cast against and 1,586 votes were abstained.

With respect to Proposal 4, a stockholder proposal to report votes based on UHS shareholder money at risk, 2,917,981 votes were cast in favor of the stockholder proposal to report votes based on UHS shareholder money at risk, 59,513,156 votes were cast against and 18,688 votes abstained.

Based on that report, I declare the following: Alan Miller, Nina Chen-Langenmayr have been elected to serve as directors of the company for a 3-year term. The advisory nonbinding vote to approve named executive officer compensation has been approved. The ratification of PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal year ending December 31, 2026, as approved, and a stockholder proposal to report votes based on UHS shareholder money at risk has not been approved.

This completes our agenda. Thank you for listening through the legal formalities of the meeting. The Chair now entertain a motion for the adjournment of the meeting.

I move that the meeting be adjourned.

I second the motion.

All those in favor of the motion, please say Aye.

[Voting]

Aye.

Aye.

All opposed?

[Voting]

Motion is carried, and the meeting is now adjourned. The business affairs of the company were fully discussed in our shareholders' letter and the balance of the annual report. I will be glad to answer any questions which the stockholders may have concerning the business and affairs of the company. Thank you for your attendance and your attention.

At this time, the company would like to take any questions you may have for them today. [Operator Instructions]

Steve, any questions presented by stockholders today?

No, there are no questions, Mr. Miller.

Okay. We appreciate everyone's participation today at our virtual stockholder meeting. Thank you very much.

This concludes the meeting. You may now disconnect.

[Audio Gap] percent and same-store revenue growth in our behavior was up about 7%. And we've commented that there's a bit of a stronger contribution from pricing, and we had some seasonal factors that impacted our volume in the quarter. I think if you think about those seasonal factors, primarily weaker flu on the acute care side and then a little bit of weather disruption on the behavioral side. And excluding some of those factors, I think we were right in the 2% range from a volume perspective in both segments.

Pricing growth in the quarter included core growth. We put that at around 3% and the benefit of funding from some of the Medicaid supplemental programs that were approved last year. We had a a $133 million year-over-year increase in those payments.

So given all the sort of focus on the increase in those Medicaid supplemental payments, we've been getting this question a lot. What was the core growth. And I think just to sort of give you the headline, we would put it at around down $20 million or so, so down around 3% -- and that math exercise essentially is we had a $15 million headwind related to the exchanges that we -- it was part of our guidance that we reaffirmed.

We had about a $30 million impact split between behavioral and acute on the seasonal factors related to flu and respiratory. We had about a $5 million impact for the readiness for the California staffing regulation that begins in June. And then on a non-same-store basis, we have a number of de novo hospitals, and there was about a $15 million noncore type of headwind in the first quarter on that. So put all those things together, it kind of adds up to about a $20 million or down roughly 3% number. And obviously, we expect that to improve over the balance of the year.

Can you help us bridge then how that goes from Q1 for the rest of the year?

Yes. So I think there's really four components to that. So clearly, when your volumes have some pressure as we saw in the first quarter. You lose some operating leverage. And we do expect volumes to improve as we look at the rest of the year, reaffirm the 2% to 3% zone that we think we can achieve. Part of that is we have a bit of new capacity coming online and acute. We've got about 2% of new capacity growth coming online. Some of that you'll see in the second quarter, but certainly in the second half of the year. So as that capacity gets absorbed, you'll see some benefit there.

So operating leverage between both segments. The second piece is we've talked a lot about the investments that we've made in behavioral in terms of headcount. And really, those investments were made to better accommodate the demand that we're seeing and be able to grow our volumes a bit better.

And so in behavior, we expect there to be somewhat of a moderation in head count growth in '26. Headcount grew about 4% in '25 against 1% volume growth. We expect head count growth to be more closely in line with volume growth this year, so closer to that 2% level. It stepped down in the first quarter, it was about 2.5% or so head count growth in Q1. And as we kind of move down into the 2% range, I think that will contribute some positivity to the P&L.

And then two more things, Kevin, I would say, we don't talk a lot about our health plan. We've got a pretty high-performing, high-quality health plan in State of Nevada, particularly in Northern Nevada. We achieved 4 stars. So we went from 3.5 to 4 stars. That should be about a $25 million tailwind for the year, and we have been losing a little bit of money last year. We made some money in -- that's a positive. And then, look, we have talked a lot about our Cedar Hill de novo hospital. We've got $50 million built into our guidance of improvements. We lost $50 million and start-up losses last year. We expect to achieve breakeven for the full year, some gradual improvement as we move through the year should also help the underlying. That does enter our same-store group in the second quarter.

All right. Great. And then that 2% to 3% volume number that you guys outlined for both the acute and the behavioral it sounds like you're saying you think Q1 was essentially 2% if you kind of adjust for blue in both of those numbers? Like how do we think about the fundamental demand of both of those businesses right now like to get to that 2% to 3%? .

Yes. So I think, first, it starts with the markets, right? We have for a long time, really gravitated, especially in our acute care division, when you look at our footprint to markets with stronger than average population growth compared to the U.S. overall strong demographics.

And so those are key elements of the demand drivers in our business. So if you're in good markets and can grow at a higher rate because of the underlying trends in the market. We've also invested pretty heavily in our markets. So I talked about some capacity that we're adding in both divisions, both acute and behavioral, but in particular on acute, we've got a number of big bed tower projects that will be coming online here in the second quarter, and then we're opening our 30th hospital this month in Florida in a really attractive market, that will be a de novo, but worth mentioning just that hospital because it's in the Palm Beach Gardens Jupiter area, and that will be embedded growth as we think about future years, just given the strength of that market.

And then I think the strategies that we employ. So alignment with our physicians, investments that we make in outpatient, all the things that really contribute to volume, I think as it relates to the exchanges, the reduction in exchange volume that we've talked about is really more of a payer mix shift issue for us is the way we think about it than it is a volume drag. We think a lot of that exchange -- those exchange members that are losing coverage and not paying their premiums, ultimately show up at the hospital and Included in our $75 million exchange impact or headwind for this year is really the notion that the vast majority of those will convert to some form of uninsured as opposed to volumes, that's a lesser part of it.

Kevin, on the behavioral side, I think the last few quarters, we've exhibited much better momentum around volumes the last 4 quarters. You've seen sequentially improving volume. We talked about in the first quarter. We reported 1.6% adjusted patient day growth. Weather was a little bit more widespread and the behavioral impact, that was about a 50 basis point impact overall.

And so that would have come on straight into that 2% range. I think for us, the two big drivers of volume and behavioral that we think will get us more deeply into the 2% to 3% range are going to be, again, investing in headcount, which we've done most of that in '25 and then really focusing more aggressively on our outpatient strategy, which we're dealing with some capital with the Talkspace acquisition. You can certainly talk -- cover that one, but also some things that we're doing from an internal perspective.

And can you talk a little bit about the behavioral investment? Because it sounds like you added 4% to labor force, but it sounds like the volume hasn't been matching the 4%. Like did you get what you wanted to out of that lift? And why is it only 2% necessary going forward if you did 4% last year?

Yes. So I think if you look at the progression of our volume, we went from kind of negative in the first quarter to exiting the year around 1.5%. And so I would attribute some of that incremental progress to the investments that we made in headcount. So roughly 4% growth in headcount. There's obviously onboarding and training and things like that, that go into bringing those folks on. And we exited the year, as I said, around 3.5%, 4% headcount growth, and that stepped down a little bit closer to 2.5% in the quarter. So when we think about our ability to service the volume that we have, we have the capacity in many of our facilities. From a bed perspective, we're operating in the kind of low 70% with our occupancy rates. And now it's really just about matching volume with staff and being able to get the operating leverage from that.

Okay. And then you mentioned the Affordable Care Act being more of a payer mix issue, but it seems like Q1 was a little bit lower than kind of what the annualized number would have implied it to be, which is kind of what a lot of the companies are saying right now. So I mean, I think you indicated that it was going to ramp as the year goes on. Does it -- so I guess, a, what are you seeing there? But then b, if it's ramping as the year goes on, does that mean '27 is a bigger annualized cut than '26? Or is it something about the seasonality of that business that should always be lower in Q1?

Yes. No, I appreciate that question. So Yes. So exchange, health insurance exchange volumes, the observed trend in the first quarter was down 5%. And what we really did in the quarter was we had a $15 million impact in the first quarter, and more than half of that was an additional reserve that we took, which really kind of takes into account this idea that -- our fully-loaded exchange volumes will ultimately be down closer to 11% to 12% after we see kind of who pays premiums and who doesn't and the effectuation rate of those individuals that we serve that may not even have coverage at the end of the day.

So that's really what that impact was. And we did make the comment that the impact would steepen a little bit as we move through the year. And so there's a few things that go into that. First, we did have -- in 2025, we had a little bit of a buildup of our exchange volumes. So ended in the second half higher than what we were in the first half. So the expectation is that the year-over-year reduction in exchange volumes as a result will be a little bit steeper.

But I think we also built in the idea that there's some shift in metal tier. So some of the behavior may change in terms of utilization, certainly the out-of-pocket and some of the uncollectibles, we're in that $75 million number that we expect to build throughout the year. So I think it's a little early to say for sure exactly how the rest of the year plays out, we'll probably know more in the second quarter. I think it's fair to say there's probably a little bit of a headwind as we think about '27 just given the dynamic that we had a higher exchange mix last year and then the decline is a little bit bigger. I don't think it will be that much that material, though, as we think about '27.

Okay. And then when we think about the Florida SDPs, you guys put out an 8-K, I guess, last week, right, with the '25 approval, but we don't have the '26 approval. Can you just go through kind of where we are in all of that right now?

Yes. So certainly, a lot of questions in the Florida program now for several months. A lot of providers obviously have exposure to that market. And we were, I think, pleased to see the approval. It shows that even in this current administration, there's recognition that these Medicaid supplemental payments are part of the broader funding mechanism for providers and hospitals. In many states, Medicaid base rates are underfunded. And so that's why these programs were designed and we think they aren't going away. They'll continue to be there. There's obviously some things that the legislation last year that will change that a little bit in the future. As it relates to Florida, so we did note in our 10-Q filing last week that the program was approved. And it relates to the fiscal '25 program, so October 1, '24 to September 30 of '25, the incremental benefit that we expect relative to how we -- the previous program would be $100 million of incremental supplemental benefit, and we'll record that in our second quarter coming up here. The '26 program has not been approved. We fully expect it to be approved. It's just -- it's lagging the '25 approval. It remains to be seen if it will be approved in the same way, the same structure. And so we don't have an estimate on that yet. And at this point, the 25 is the known amount.

Is there a nuance that would make you think that it would be potentially noticeably different than the 25?

No. I think it's really just a reticence to provide an estimate on that program until it's approved and the structure is fully known. But I think our our general expectation is that it will be approved at some point this year and from a sizing perspective, likely to be similar in size to the 25 program that was just approved, but we'll have to wait for those details.

Okay. And then a number of companies have talked about major cost-cutting initiatives because of whether it's SDP cuts in the future or maybe more in the near term kind of Medicaid, pressure on enrollment, exchange pressure on profitability. What are you guys doing, if anything, to kind of like adjust and react to those funding pressures? .

Yes. So I think the -- so first of all, I would say we're always working on those things internally, and I think our teams have done a really good job on the cost side. In acute care, we've done a lot to improve productivity. And I think there's still a lot of opportunity there, not just this year, but as we think about into the future. So what does that mean? Driving improvements in length of stay and throughput in our hospitals, both on the inpatient and through the emergency departments.

So real opportunity there. In behavioral, we've talked to you a little bit about this, but we made a big investment over the last couple of years in improving our RCM on the acute care side and have yielded some real results from that initiative really over the last 4 to 6 quarters on the acute side. We're going through that same process on the behavioral side. I think that will be a bit more of a '27 tailwind for us as we think about revenue cycle improvements and behavioral, but those are real opportunities for us thinking about next year.

And then I think the other piece of this, and it's not necessarily cost related, but I think relevant to UHS as a company, we've opened a lot of hospitals and recent years, you were at one of our newer ones here in the market. We opened that hospital with 150 beds. We're staffing it to 120. But I think you heard from local folks that we've got plans in place to continue to grow as that market continues to grow in the southeast part of Las Vegas and West Henderson, and we've got de novo hospitals, one that we'll be opening this month. That will be embedded growth as we think about '27 and '28.

We've got facility in Washington, D.C., that's had some gradual improvement. More to go there, but that's embedded growth as we think about the opportunity to, to really get some earnings growth out of some of those newer facilities. We have two de novo hospitals on the behavioral side that one just opened and one they'll be opening in the third quarter. So again, lots of opportunity as we think about new facility and expansion.

Okay. And then can you talk a little bit about AI. It's a hot topic nowadays. Everyone seems to be talking about what the opportunity is? Where do you guys see the opportunity for AI? And is there anything that people are talking about that you feel like you're getting ahead of their skis on at all as far as the opportunity?

Yes. So I mean, I think -- so let's start maybe with the fundamental. Some industries are going to be disrupted in pretty significant ways and some industries are going to benefit a great deal from AI or other advanced technologies. And I think our industry is certainly in the latter. And so we're early in that journey. I think what I would say a few things.

First, there's a big focus internally on our AI governance process and making sure that we're making the decisions in a controlled way that we can scale them across our facilities and get the benefit, and know what the KPIs are that we're measuring against. And so those decisions are made in, I think, a very controlled way.

We've got a lot of projects that are in various stages of evaluation. It's a couple of dozen are all in flight. Probably half of those are scaled or mostly deployed. And a lot of it -- a lot of our start was on the revenue cycle side. We've talked a lot about but in acute care, as we went through our process improvement, it was both process and technology improvement.

And so from standpoint of how we manage denials and how we do claims appeals. There's a lot of automation that we brought in into that process with technology and AI being a big part of that and we'll continue on that journey with behavioral. As I said, we were an early investor in Hippocratic AI, which is one of the leading AI companies in health care and happy to partner with them in a number of projects.

We have one solution that's fully deployed. We've talked a little bit about how all of our patients that are being discharged from the hospitals typically get a call from the nurse while we've been able to automate many of those calls with the Agentic AI through a post-discharge follow-up. So being able to verify with the patient. They've got their prescriptions, they're following up on the DME or some of their post-acute care, et cetera. And there's few other projects with Hippocratic AI that we think will impact some of the other areas of the hospital.

And then with respect to your question about what people might be missing. I think this is going to be a more gradual process. I think we're -- we're kind of -- we think this is a multiyear process that should have some benefit to margin, but it's not going to show up overnight.

And then actually, you mentioned on the behavioral side, doing some things on claims denial side of things, similar to what you've done on the acute care side. Is there the same opportunity from like a revenue capture perspective there? Or did you start with the cube because that was going to be a bigger opportunity or is there a similar update both.

Yes. So I mean, I think we started with acute. I think the opportunity there really was built around the fact that we have fully deployed our EHR across our acute care division, we're still in the implementation process and behavior on that. And we expect to see some of the similar types of process improvements on behavioral and some of the technology that we've deployed, particularly around claims, denials management, those types of things, we think technology will play a big role in behavioral.

Okay. And then on behavioral, you've talked a lot about the shift to how patient, you guys seem to be investing a lot of money into that side of the equation. Can you talk a little bit about why that's so interesting now and what the opportunity is for you? .

Yes. So I think behavioral, just kind of at a high level, think about it as being roughly a little bit less than 10% of our total revenue and our behavioral business. And clearly, the outpatient side of behavioral has grown a little bit more rapidly than the inpatient side. And so our focus, our investment, our strategies have been really designed around the opportunity that we see over the long term to participate in a bigger way on the outpatient side.

People are accessing mental health care services, a stigma attached to Mental Health has sort of come down as a society and many people are comfortable kind of entering the mental health care system and kind of lower levels of care. And now we've got a full continuum of services to offer from inpatient to some of the step down levels of care that are adjacent or satellite to our hospital campuses.

We're opening outpatient -- freestanding outpatient clinics. We're making some investments there. And then we obviously -- we announced the Talkspace acquisition. We're really excited about that. That will be a virtual platform that really kind of fully closes out the full continuum of services and outpatient.

Is there a way to think about where outpatient can go if it's a little less than 10% of the behavioral, like, I guess, in acute outpatients closer to half. Like is there like a way to think about that?

Yes. Well, I think the idea is that -- we do think that getting more deeply into the 2% to 3% range from a volume perspective, outpatient is going to be an even more important part of that equation. I don't know that we have a target around where that can go. But with Talkspace, just the base business, that would add 300 or so basis points to the to the outpatient mix.

And then we have a number of programs that will be developing alongside Talkspace that are really more revenue synergies to get out some of the the step down levels of care where people are coming out of our inpatient facilities and need the continuum of services. And some of them really just don't want to go back to the inpatient campus or satellite campus location. They want to have these services on a virtual basis, and now we'll be able to offer those higher levels of care on a virtual basis with the Talkspace platform. .

Yes. And on the call, you talked a lot about how there were synergies between the 2 businesses. Do you view the synergies more as driving volume into Talkspace kind of leveraging it as a postop -- or do you believe the Talkspace can drive volume into the inpatient side. For one way than the other? .

It's by rational, but I would say the opportunity that we're going to really focus on heavily in kind of the early days of the integration will be in the step-down levels of care, where -- we know that people need those levels of care inpatient LP intensive outpatient services or the example we've talked a lot about and the opportunity to develop those on a virtual basis is something that we're excited to do with Talkspace.

There's other ways that I think Talkspace plays into our environment. On the residential side, where we have a lot of youth and adolescent having text-based therapy and some of the asynchronous types of therapy that Talkspace offers is going to be really appealing to that population, and we'll be able to create a more sticky sort of post discharge relationship with the patient. So it's really becoming more about the lifetime value of the patient as we follow them in their journey.

Great. And then since you are in Las Vegas, a little about Las Vegas market. I guess it's unusual to be hearing about Las Vegas being kind of a drag to the corporate. Like in Q4, it was down in Q1, it was better, but still a little bit below kind of the average. So like where -- what's been going on in Vegas and how do you think about that rebounding over the rest of the year? .

Yes. So we're pleased to see that the first quarter volumes improved a little bit after being a little softer in the fourth quarter. So we were up about 1.5% or so in Vegas, in Nevada broadly and feel good about kind of the overall market. We've been here for a long, long time. We've got a big footprint, not just here, but also in the northern part of the state with renew. And I think as we heard yesterday in the hospital visit, clearly, tourism volumes were down kind of high single digits last year, that was maybe a little bit of a drag overall.

But I think the good thing about what we're seeing in the market is unemployment has held steady. There are other, there's better balance to the Vegas economy now. We've got a lot of sports teams and a lot of the industry, particularly moving in the Henderson area, where we have two hospitals. And so feel good about our prospects here, our footprint, our market share or outpatient strategy. And then the northern part of the state, we've got this health plan that should exhibit some real improvement year-over-year as well.

And maybe last question we run out of time here, but can you talk a little bit about your capital spending? -- leverage. It's pretty low relative to where the competitors are operating. Is there -- are there deals to be had? Should we be expecting free cash flow to be done on hospital deals on adjacent deals like Talkspace? Or should we think about repo as capital deployment? .

Yes. So we've had $1.3 billion under our share buyback. And so I would start there because I think we made the comment in the first quarter earnings call that we'd be a little more aggressive in the second quarter on share buyback, just given the compelling value that we see in our own stock. We've got $800 million or so earmarked for Talkspace, which we expect to close in the third quarter, and that's on track. And then we'll continue to invest in our markets, be opportunistic with share repurchase -- and from an M&A perspective, in both segments, I think you'll see us continue to be opportunistic, particularly in the outpatient side in both segments.

All right. Great. I think that's all we have time for. Thank you very much. .

Good to see you.

Good day, and thank you for standing by. Welcome to the First Quarter 2026 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Darren Lehrich, Vice President of Investor Relations. Please go ahead.

Thanks, Daniel. Good morning, and welcome to Universal Health Services First Quarter 2026 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then, we will open it up to Q&A.

During today's conference call, we will be using words such as believes, expects, anticipates, estimate 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, we recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2025.

In addition, we may reference during today's call measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS, which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release.

With that, let me now turn it over to Marc Miller for some introductory remarks.

Thank you, Darren. Good morning to all participants on today's call, and thank you for your continued interest in UHS. The first quarter of 2026 feature significant acceleration in our Behavioral Health outpatient strategy with the announcement of the Talkspace acquisition and continued steady operating performance and cash flow generation in our core operations in the midst of a more challenging seasonal volume trends.

Revenue growth for the first quarter was 9.6%. Adjusted EBITDA net of NCI increased 8.4% and adjusted EPS increased 16.1% as compared to the first quarter of 2025. These results highlight the adaptability and financial discipline of our leadership teams and the benefits of our efficiency initiatives, which are driven by technology adoption and operational excellence.

Speaking first to the Talkspace acquisition announced on March 9. Talkspace is an established market leader in virtual outpatient Behavioral Health Care with a network of 6,000 licensed professionals serving all 50 states. We believe Talkspace is the best-in-class virtual platform in the behavioral industry with differentiated technology offering and strong brand recognition among patients and clinicians.

Talkspace's successful payer-driven business model aligns well with our strategy to increase access to a full spectrum of outpatient services and diversify our behavioral payer mix. Over the past 24 months, we focused significant resources to grow existing outpatient service locations adjacent to our hospital campuses and develop new freestanding outpatient clinic locations. We will continue to invest in these areas internally.

The addition of Talkspace's high-quality scaled platform accelerates our ability to create the industry's first end-to-end continuum of Behavioral Health Care Services that is strongly aligned to the demand trends and preferences of the market overall. This national continuum includes lower acuity outpatient and step-in services all the way to residential and inpatient services, where we've led the market for more than 4 decades.

We plan to share more details about the impact of the transaction after closing, but I'd like to highlight 2 primary benefits for the acquisition. First, from a strategic perspective, Talkspace represents a multi-year value creation opportunity, underpinned by access to new sources of outpatient revenue growth. This is supported first by the strength of the base, Talkspace business, which has a very strong outlook on a stand-alone basis and enhance further by the programs we plan to develop alongside Talkspace to complement each other's businesses.

For example, there is a significant opportunity for us to introduce Talkspace's 6,000 clinicians into our environment to develop higher acuity virtual offerings such as virtual intensive outpatient programs or IOPs. This will improve our ability to manage more patients stepping down from UHS facilities with a preferred virtual option.

The types of programs we build on a virtual outpatient basis will drive higher-quality continuity of care further downstream after our patients step down from higher levels of care. There are numerous other bidirectional revenue synergy opportunities we'll be working on post-closing that will improve access to outpatient virtual services for UHS patients and improve access to higher levels of care for Talkspace patients.

Second, from a financial perspective, we expect the deal to be accretive to earnings during the first 12 months post-closing, and we expect it to be increasingly accretive thereafter. By year 3 post-closing, we expect the effective EBITDA multiple for the Talkspace transaction to be in the single-digit range.

Moving on to the quarter. I'd like to highlight a few items before I turn it over to Steve to review the financials. From a growth perspective, we met our internal same-facility revenue growth and earnings objectives in the first quarter despite a more dynamic operating backdrop. This was accomplished through solid expense management and higher contributions from pricing in both segments due to more positive trends in rate. We expect same-facility growth to be more balanced between volume and pricing as the year progresses, as we believe first quarter volume performance was impacted heavily by seasonal factors consistent with what we highlighted in February on our fourth quarter earnings call.

From a technology perspective, our enterprise-level AI governance process remains very active and focused on 2 primary domains within our business, in the operational domain to impact quality and patient experience and in the administrative domain to increase efficiency. During 2025, we focused heavily on scaling solutions that reduce the burden of our routine administrative tasks. We deployed and scaled a total of 8 different use cases of AI solutions into our revenue cycle operations that are now yielding significant benefit on a go-forward basis.

For 2026, we are focusing more heavily on enabling solutions in our clinical operations to improve hospital-level efficiency and patient experience. Included in our 2026 road map are several new use cases being designed and built with Hippocratic AI, which is one of our key AI solution partners. It is too early to project the longer-term financial impact of the 2026 initiatives, although we expect them to be incremental to margins over time. And just as importantly, we expect them to have a real impact on quality and patient experience.

In closing, I am encouraged by our progress so far in 2026 and remain optimistic about our ability to deliver high-quality services in an efficient manner in the communities we serve. On behalf of our entire organization, we look forward to welcoming Talkspace employees into UHS in the coming months.

With that, I will now turn the call over to Steve Filton for more details on the quarter.

Thanks, Marc. I'll highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $5.65 for the first quarter of 2026. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted EPS was $5.62 for the first quarter.

On a same-facility basis, adjusted admissions at our acute care hospitals were unchanged as compared to the first quarter of 2025. We estimate Acute Care volumes during the first quarter of 2026 were impacted by approximately 200 basis points due to weaker flu and respiratory activity and winter weather in certain markets.

Performance in the Nevada market rebounded slightly with adjusted admissions increasing approximately 1.5% over the prior year. Same-facility acute care emergency department visits increased approximately by 2%, and we also saw positive trends in certain higher acuity important service lines or inpatient service lines, notably cardiology, orthopedics and neurology.

On a same-facility basis, net revenues in our Acute Care hospital segment during the first quarter of 2026 increased 8.2% and were up 6.2% excluding the impact of our health plan. Acute Care same-facility revenue per adjusted admission increased 6.3% during the first quarter of 2026 on a reported basis and was up 4.9% after excluding approximately $30 million of prior period supplemental program net benefit related to the expanded 2025 Nevada program, which we contemplated in our guidance.

Operating expenses were well managed across labor, supply and other expense categories. Same-facility Acute Care salaries, wages and benefits expense per adjusted admission increased 3.1% and supply expense per adjusted admission increased 3.5% over last year's first quarter. Same-facility contract labor was 2.3% of Acute Care segment revenues or 40 basis points lower year-over-year. Other operating expenses increased primarily as a result of the growth in our health plan. For the first quarter of 2026, our Acute Care performance resulted in 11.7% growth in same-facility segment EBITDA. Excluding the prior period supplemental program revenue, first quarter 2026 same-facility Acute Care segment revenue would have increased 3.3% on a year-over-year basis.

With respect to health insurance exchange trends during the first quarter of 2026, we estimate an impact of approximately $15 million. Our exchange adjusted admissions declined approximately 5% as compared to the first quarter of 2025. However, due to our expectation that some of the exchange members treated at our Acute Care facilities during the first quarter will not sustain their premium payments, the impact to our Acute Care financials assumes an effective HICS decline that is higher than the reported trend. We are reiterating the full year $75 million pre-tax impact, which assumes the exchange declines will steepen somewhat as the year progresses.

Turning to our Behavioral Health segment results during the first quarter of 2026. Same-facility net revenues increased 7.3%, supported by a 5.8% increase in same-facility revenue per adjusted patient day and a 1.6% increase in same-facility adjusted patient days as compared to the first quarter of 2025. We estimate that the winter weather impacted first quarter Behavioral Health volume growth by approximately 40 to 50 basis points.

Same-facility Behavioral Health segment EBITDA increased by 8.4% in the first quarter of 2026. Excluding the net benefit from prior period supplemental payments, same-facility revenue per adjusted patient day would have increased 4.9% and same-facility's segment EBITDA would have increased 4.3%. For the first quarter of 2026, Behavioral Health segment same-facility salaries, wages and benefits per adjusted patient day increased by approximately 6% on a year-over-year basis moderating slightly from the 7% to 8% level we experienced during 2025.

In California, we are making good progress year-to-date with respect to the state's nurse staffing ratio requirements that go into effect June 1, and we remain on track with the assumptions contemplated in our 2026 outlook.

Cash generated from operating activities was $402 million for the 3 months ended March 31, 2026, as compared to $360 million during the same period last year. During the first quarter of 2026, we spent $217 million on capital expenditures.

In the Acute Care segment, we continue to invest in the 156-bed de novo hospital in Florida, scheduled to open in May, and in 2 bed towers and a replacement hospital project together comprising 178 beds that go online during the second quarter.

In our Behavioral Health segment, we opened a 144-bed de novo joint venture hospital in Pennsylvania in the early part of the first quarter and plan to open a 120-bed de novo hospital in Missouri later this year.

During the first quarter of 2026, we acquired 675,000 of our shares at a total cost of $127 million. As of March 31, 2026, we had $1.3 billion of repurchase authorization available pursuant to our stock buyback program, and we expect to remain active with share repurchase throughout 2026, including leading up to and following the closing of the Talkspace acquisition.

From a balance sheet perspective, in late April, we expanded the aggregate capacity of our credit facilities by $900 million to provide additional flexibility with the pending Talkspace transaction, other potential acquisitions and our continued prioritization of returning capital to shareholders through buybacks and dividends. As of March 31, 2026, we have $373 million of borrowings outstanding pursuant to our revolving credit facility, the borrowing capacity of which was recently expanded to $1.5 billion.

Turning to our outlook for 2026. We are reiterating the financial and operating forecasts that we established on February 25 in conjunction with fourth quarter earnings. Customary with our historical practice, we plan to reevaluate annual guidance as necessary in conjunction with our second quarter earnings planned for July.

Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time.

[Operator Instructions] And our first question comes from A.J. Rice with UBS.

I appreciate the number you gave on the behavioral side of 4.3%, sort of the normalized core growth. I'm wondering if I could ask you that maybe a lot of moving parts in the acute business, on the negative, you had the impact from the weather and the flu, and on the positive, DPP variance year-to-year. Can you sort of parse those out and give us a sense of what the core grew on an EBITDA basis in the acute side, possibly?

Yes. I think it was in the low single-digit range, A.J.

Okay. All right. And then, obviously, interesting to talk about the AI use cases that Marc called out. And then, it sounds like there's some additional ones you're looking at. I wondered if you could pick out 2 or 3 that you're saying these are really meaningful and maybe delve in a little bit more on what you're seeing as an opportunity to deploy AI.

Yes. I mean, as I said, A.J., we're looking to do things that affect our administrative functions to increase efficiency and in clinical operations, so if we can impact patient experience, improve outcomes. So that's kind of where our focus has been. We're already seeing some of those things paying dividends. For example, right now, one of the things on the operating side, we've deployed and scaled a total of 8 different use cases of AI solutions into our revenue cycle operations. And we've already seen, like I said, significant benefits already, and I think this is going to continue and multiply going forward. So I think our efficiency is getting better, but we're also seeing it on the financial side in increased dollars, improvements with denials management and then hopefully increase revenue.

And then, we're also doing a lot of things that are touching the patient. So anything that we can do in those 2 areas are kind of where we're going to focus for now. We're not doing much in the clinical space yet. But I do think down the line, we'll see something there as well.

Our next question comes from Jason Cassorla with Guggenheim.

I wanted to check back in with the $46 million of combined Nevada and Ohio out-of-period Medicaid supplemental payments. I think we're counting somewhere around $120 million to $130 million year-over-year benefit from total Medicaid supplemental payments in the quarter. Is that a fair characterization? And then, if it's so, then could you help us bridge what would indicate a decent step-up in core EBITDA ramp for the remainder of the year to meet that 5% growth expectation? Just any color there would be helpful to start.

Sure, Jason. So I think that's accurate. And I also think it's worth noting that nothing that you enumerated was outside of our expectations. Everything that you suggested, the -- all the DPP that we recorded or the vast majority of it in Q1 was in our guidance. I think that if you exclude the $46 million of out-of-period DPP in Q1, you'll have a good run rate for the rest of the year, and that number is consistent with what we disclosed in our 10-K and will disclose in our first quarter 10-Q as our estimated DPP for the year. So we recognize that we would have this significant benefit in Q1, largely because we had a number of large DPP programs last year, if you could recall, Tennessee, D.C., that were not approved, and therefore, recorded and recognized until after the first quarter.

As far as the ramp for the rest of the year -- so I'm just trying to make the point that everything we recorded in Q1 was within our expectations. I think our overall results were within our expectations. And I think that implies that we expect a ramp in our earnings as the year goes on to get to that core level growth of 5% that's embedded in our guidance. That -- those assumptions include the continued ramp-up of the new facilities: Cedar Hill in Washington, D.C., which celebrated its first year anniversary this month; the opening of a new hospital in Florida; the opening, as I -- as we alluded to in our remarks, of 178 new beds in existing hospitals in California, in Las Vegas and in Florida. The continued improvement in behavioral, both in outpatient revenues, higher-margin outpatient revenue business and continued operating leverage from growth in volumes. And I think volumes were on the softer side in both acute and behavioral, and we expect them both to improve as the year goes on.

And -- finally, I think, as I also, I think, suggested in my remarks, we expect continued moderation in wage pressures in the behavioral business. We saw a significant investment in wages in behavioral in 2025, moderated a little bit in Q1 '26, but expected to moderate further as '26 progresses.

Got it. Great. Very helpful. And if I could just follow up maybe on the behavioral volume picture, excluding weather impacts, you still -- you hit the low end of your 2% to 3% volume target in the quarter. Maybe can you just talk about -- or talk a little bit more about the drivers of growth in the quarter? Maybe how much of that kind of step up or that volume acceleration ex-weather was a function of the higher headcount and increased labor supply? Or are you seeing anything different in the demand picture or throughput there? Just any thoughts around the volume environment for behavioral would be helpful.

Sure. I think there's 2 broad trends. And I think you touched on at least one of them, Jason. Again, we made the point in our year-end call that we invested heavily in beefing up our staffing in behavioral in 2025. And the point of that was to allow us greater flexibility and ability to take on greater patient demand. And I think that's beginning to affect itself or reflect itself.

And then also, we've talked at great length over several quarters about our continued focus on outpatient growth in a business where we're finding more and more of the demand. And we think demand remains strong for behavioral services, but more and more of that demand is shifting to the outpatient setting. And I think we're doing more -- a better job and a more focused job on capturing that demand. And again, I think we think that's an upward climbing trajectory, as I alluded to in my answer to your first question.

Our next question comes from Ann Hynes with Mizuho.

Can we just talk about bad debt reserve trends? I know this is a dynamic environment with some Medicaid disenrollment and also the expiration of the ACA subsidies. How is that trending versus your expectation? And can you remind us, does your guidance assume a deterioration of collectibility on the co-pays to deductibles?

Yes. Ann, so we addressed, I think, specifically kind of the HICS dynamic, as it relates to uncompensated care and bad debt in our prepared remarks. We saw a decline in HICS volume in Q1. But as I noted, we also recorded an additional reserve because we believe that some of those HICS patients who are presenting themselves as having HICS coverage will later be deemed not to have coverage because they fail to make their premium payments. So I think we've taken a reasonably conservative position in Q1.

We continue -- we'll continue to learn more about those HICS dynamics. But at the moment, we believe that our $75 million negative estimate for the impact of the HICS subsidies expiring is good. It will continue to get larger as the year goes on, but that was always our expectation. And that impact largely is reflected in higher levels of bad debt and uncompensated care. Other than that, I can't say that we saw any dramatic changes in our payer mix, slight increases in uninsured and Medicaid -- excuse me, slight -- yes, slight increases in uninsured, decreases in Medicaid utilization, slightly increase in Medicare utilization slightly, but no other big changes. No big changes in denials or patient status changes from the payers.

And I think we attribute a lot of that to the investments that Marc alluded to in technology and also in people and process in our revenue cycle. We've really been focused, particularly in the Acute Care segment on improvements in our revenue cycle efficiency. And I think that's allowing us to, at a minimum, keep pace with the payers, as they demonstrate more aggressive behavior. And as we've disclosed before, we're going to shift that focus or increase that focus to the behavioral segment in 2026 and our revenue cycle efficiencies in that segment.

Our next question comes from Matthew Gillmor with KeyBanc.

I wanted to follow up on the pricing comments. I think Marc had mentioned the positive contribution in rate, but expecting a more balanced outlook for the balance of the year. It seemed like that outperformance was above and beyond your expectations even excluding the SPP. So could you give us a sense for what drove the stronger pricing in the quarter? And what's behind your expectation for the moderation for the rest of the year?

Well, I think a little bit of it, Matt, is simply the mix with a lower sort of flu component, a significantly lower flu component this year rather than last year. By definition, the patients that we had this year were of a higher acuity. Most flu and respiratory patients obviously carry a fairly low acuity. So I think that's a big piece of it. But I did stress, I think in -- or one of us stressed in our prepared comments that we also saw reasonably healthy increases in some of the more acute service lines, including cardiology, orthopedics and neurology. So that helped as well with the acuity and the pricing in Acute Care.

Fair enough. And then maybe asking a follow-up on trends with professional fees. I heard the comments about the controlling costs, but I was curious if there's anything to report there, and give us a sense for what you're doing to try to alleviate some of that, particularly in areas like radiology.

Sure. So I think in our guidance for the year, we talked about professional fees rising at, I'll call it, inflationary rate in the single-digit range, maybe towards the high end of the single digits. And I think we're largely operating within that range. That's not to say that we're not seeing pressure in our markets from certain hospital-based physicians for higher fees. The way we're dealing with that is being more competitive in terms of going out for coverage with more RFPs, trying to reduce the number of locums physicians we use for our hospital-based physicians, which tend to be more expensive. And it's really just sort of a daily grind, but I think our operators have been fairly successful in keeping those professional fees at a level that is manageable, as I said, in the single digits even if it's in the high single digits.

Our next question comes from Kevin Fischbeck with Bank of America.

This is actually Joanna Gajuk filling for Kevin here. So maybe first, I guess, you talk about the decline in the HICS volumes, but I don't think I heard you talk about the changes in your uninsured mix. Can you talk about the payer mix a little bit more in the quarter?

Yes. Joanna, so what I thought I said before was, obviously, we saw a decline in HICS volumes. We saw a slight decline in Medicaid utilization, slight increase in uninsured volumes and a slight increase in Medicare volumes -- I'm sorry.

Yes. No, I was just saying, so it's a slight increase in self-pay or uninsured, sorry.

Yes.

Okay. That's helpful. And I guess, on the supplemental payment programs, right? So it sounds like there was nothing new that was approved that came through this quarter. And I guess, we're still waiting for Florida and California. So any update on these programs?

So as far as Florida is concerned, I think -- as a number of our peers have expressed, I think there is a high level of confidence amongst providers in Florida based on feedback that we've gotten from the state that their pending 2025 program is likely to be approved. We don't know the exact timing. It could be imminent. It could be in another while. But ultimately believe the 2025 program will be approved. And when it is, we'll record it in that period and revise our guidance appropriately at that time. We have been estimating that to be about a $50 million benefit to us. When we see the final approvals, we believe that benefit could be measurably higher, but waiting for the details from the state.

As far as California is concerned, we've been asked about this before. We think that the likelihood of a renewed or expanded California program is much less likely or much less certain, I should say. And we've done nothing to try and estimate the potential benefit there until there's further, I think, sort of consensus building between the State of California and CMS. But it is possible that if there is an expanded program, it could be measurably beneficial to us, but I think it's way too preliminary to make that judgment.

Our next question comes from Justin Lake with Wolfe Research.

Just wanted to follow up on core growth. I appreciate all the commentary about what's going to get better through the year. I think a lot of investors want to look at the hospital business right now given DPP is going to be winding down to some extent going forward on an ex DPP basis. And when I do that math, and I think about all the other moving parts, the headwinds you had on flu and weather, I get to about an $80 million benefit on DPP plus the headwinds versus your growth of about $50 million in the quarter on EBITDA. So it looks like core EBITDA was down $30 million or about 5%, 6%. Just curious if you can help us understand, was there anything in the first quarter last year that wouldn't have recurred, for instance, any good guys that we haven't thought about? Or anything else in the core that you think was driving that minus 5%, if I'm thinking about it right?

Yes. So, Justin, it's a little bit difficult to answer your question with precision. I don't have your calculation in front of me. But I don't dispute it. At the point that I think I made in an earlier response was simply all the points that you raised, all the points that were raised earlier are things that we anticipated, I think that were appropriately included in our guidance. We understood that there was a difficult DPP comparison for us in the first quarter. We understood that our earnings trajectory would have to increase over the year's progression in order for us to get to that core 5% growth that's embedded in our guidance. And for the reasons that I tried to enumerate before, I think we believe we can get there. But I acknowledge I'm not going to agree to all your numbers. I'm not suggesting they're wrong. I just don't -- I'm not able to do that off the top of my head. But I would suggest we get it that we're not at that core 5% growth, excluding all the DPP and other nonrecurring items in the quarter, but still believe that we're going to get there for the full year.

Our next question comes from Ben Hendrix with RBC Capital Markets.

Just wanted to follow up on the HICS trends real quick. You said a 5% decline in volume, though, and then that's excluding what you expect may not actually kind of effectuate in the quarter. And I just wanted to get your thoughts on that 5% versus the 25% to 30% of HICS patients in lost coverage that you kind of embed in your assumptions for the year. Anything changing with that or any kind of results that you saw in the first quarter that kind of informs your decision to renew that number or anything within that range for the 25% to 30% changing?

Yes. So I think what we tried to articulate then was that while we could identify a 5% decline in our HICS volumes in Q1, we had an expectation that some of the patients that we were recognizing as HICS patients will later likely be identified as not having coverage because they fail to make their premium payments. So the reserve on those patients that we recorded for the first quarter reflects sort of a higher level of HICS volume decline, probably something in the low double digits, 10% or 11% or 12%.

We continue to believe that, that number will increase as the year goes on. Our 25% to 30% estimate for the year, we believe we may still get there. Obviously, we were not there in Q1. But again, that was an expectation that we wouldn't get there right away. So we'll see. I think what all of our peers have said and I think providers have generally said is there's still a lot of dynamics in the movement of HICS patients and who's able to make their premiums and who's not that we're going to continue to learn for at least another quarter and maybe more. But I think we feel like from an accounting perspective and reporting perspective, we're being conservative in how we're thinking about it.

Our next question comes from Andrew Mok with Barclays.

Given that flu and weather were early quarter dynamics, can you comment on the progression of volumes throughout the quarter in each segment, including exit rates in March and April?

Well, what I would say, Andrew, is I think the flu volume comparison was more significant in January and February. I think flu season was largely over last year and this year as we got to the end of the quarter. So I think that was -- the significant sort of flu decline was felt more acutely in the first couple of months of the quarter. And then, the weather-related, really depended on the market, but we had storms in both January and February that affected, I think, both business segments. Again, I think March was, for want of a better word, a cleaner month, meaning no real flu impact and no significant weather impact. And I think March volumes were -- showed a more normative increase over last year.

Our next question comes from Raj Kumar with Stephens.

Maybe following up on the kind of March, April trends. I guess -- did you see a significant pickup in potential kind of deferred care that got pushed back because of the winter storms? And then maybe just also any kind of commentary on Acute Care surgical volume trends and just general acuity profile shifts year-over-year?

Well, what I would say generally is that what we find are elective procedures, and that's mostly in the acute segment that are scheduled and postponed because of the weather, tend to be rescheduled. But as we indicated, the bigger impact in Acute Care was the flu, which is not something you recover from. So I think we talk about maybe $5 million to $7 million of weather impact. And that's mostly in the D.C. market, where we had some burst pipes in one of our facilities and had to close beds for a period of time. Quite frankly, that's not something you can really recover from, the bed closure.

And on the behavioral side, same thing. You'll recover outpatient visits, et cetera, but inpatient trauma sorts of admissions are generally going to go somewhere else if they can't get to the hospital. So yes, again, I think that's something that we're not -- as I talk about, our recovery for the rest of the year or our growth for the rest of the year, we're not really counting on a tremendous amount of recapture of those deferred procedures.

Our next question comes from Craig Hettenbach with Morgan Stanley.

I wanted to go back to the strategy in outpatient Behavioral Health and the Talkspace deal. Can you maybe just touch on kind of 1,000 Branches? How that's been going? And how much that kind of informed this next step on Talkspace?

Sure. I mean, things are going well. It's been a little bit slower deployment than we would have thought just with various different situations state by state. But it didn't really inform us at all as far as being an impetus for Talkspace. We've known about Talkspace for many years. We obviously follow the landscape. So we know everybody that's out there. And we've talked a lot about our own outpatient deployment for many years now and wanting to become more proficient in outpatient. So 1,000 Branches is something we've been working on for a number of years.

But Talkspace happened because there was an opportunity that we didn't really create. And once that company indicated that they were interested in at least considering options, we began discussions and it got to where it got to. So I wouldn't say that one led us to the other. I would say that we've been studying that landscape for a long time. And we were pleased, and we are pleased, that we're able to go in both directions because I think that our current outpatient offerings and the ones that we're developing ourselves internally are only going to help us, as we combine with Talkspace and grow, as I said earlier, our whole continuum.

Got it. And then just as a quick comment, you mentioned kind of the effective multiple to be in single digits a few years out. Just what gives you that confidence in terms of what you're seeing in their business? And what you can do with it to drive that effect of multiple down?

Yes. I mean, you said it actually in the question. I mean, we have confidence now that we've had a full look at their business model, what they achieved just in the last couple of years and what their plans are, and we think they can achieve. I'll even say what they were going to achieve on their own in the next 24 months. Add that to what we think we can do to help them increase those achievements and earnings. That's what gives us greater confidence that a few years from now, we'll look back on this, and I think the multiple will be single digits because when you look at it now, we've had folks ask us about it. It's harder to understand the multiple if you just look at it from today's earnings. But in the next couple of years, again, they're on a great growth path themselves, and we're going to add to that once we combine resources.

Our next question comes from Benjamin Rossi with JPMorgan.

Just following up on the volume discussion across segments. Now that we're through the first quarter, what's your current outlook for Medicaid volumes for the year for both segments? And are you seeing any signs of volatility returning either through administrative churn or eligibility friction to start the year?

Yes. Ben, I mean, yes, as I've now said a couple of times on the call, we saw, I think, slight declines in Medicaid utilization in Q1. I think that's reasonably consistent with our expectations for the year. We're not expecting any other major changes, either in Medicaid, quite frankly, or in payer mix other than the HICS commentary that we've talked about a couple of times. So yes, again, I would describe the changes to payer mix outside of HICS in Q1 as relatively minor and pretty consistent with our expectations. And I think we think about that as being -- likely to be true for the rest of the year as well.

Okay. Just then -- as a follow-up then on the de novo side, can you just provide an update on your de novo hospitals? And how you're thinking about full year EBITDA performance across some of your recent openings in Nevada and D.C. and along with the Florida Hospital set to open up next month?

Yes. I'll just -- I'll remind people that as part of our guidance, we talked about the idea that the new hospital in Florida, which is really the true de novo for this year, would likely experience an operating loss for the year as with most new hospitals. We believe, and our guidance contemplates that, that whatever loss that it incurs would likely be largely offset by gains and improvements at our Cedar Hill facility in Washington, D.C. I think we would reiterate that guidance, although I think we are of the mind that the Cedar Hill improvement is likely more back-end loaded maybe than we originally contemplated. It's gotten -- it's had some issues with the weather and some of the other dynamics that we've talked about.

The other new capacity that we referred to in our prepared remarks, new towers in Las Vegas and in the West Coast of Florida and a replacement facility in California, these are in existing markets, and they'll all come online at some point during the second quarter, and we expect they'll ramp up relatively quickly because they're in existing markets and essentially just adding to our existing operations. So we believe that they will have a very positive impact on growth in the back half of the year.

Our next question comes from Ryan Langston with TD Cowen.

I just wanted to follow up and make sure I understood your comments on the denials activity. Are you saying you are seeing accelerating levels of denials, but you're just able to navigate them more effectively? And are you able to provide any further details on what you're seeing by payer clients?

So -- no, I don't think we're seeing an increased level of denials, Ryan, of any material amount. What I suggested I think is that because I think others have talked about maybe more aggressive behavior on the part of payers. And all I was trying to make the point that I think the investments that we've made in our own revenue cycle, particularly in the acute space, both from a technology perspective, but also from personnel and process perspective are allowing us to sort of keep pace with potentially more aggressive behavior on the part of the payers. And I've just simply also made the point that we expect to make similar investments over the next 12 to 18 months in our Behavioral Health revenue cycle functions.

Our next question comes from Scott Fidel with Goldman Sachs.

First question, would be interested if you could give us an update on just how you're seeing the sort of underlying trend in behavioral in terms of just the demand versus supply equilibrium, if there's -- relatively consistent with where we've been the last couple of years or just any type of incremental shifts you may be seeing on -- either on the supply or the demand side?

Scott, in that regard, I think we've been pretty consistent for several years now in suggesting that we think behavioral demand remains strong and probably our greatest challenge is then in meeting that demand. Probably the single biggest obstacle we've had in meeting that demand for the last several years has been inadequate staffing in certain markets, in certain personnel functions, sometimes that's nurses, sometimes that's therapists, sometimes that's mental health technicians, the unlicensed personnel in our behavioral facilities.

The only other, I think, comment that we've made about demand, particularly, I would say, in the last several quarters or maybe the last year, is that while the demand remains strong, I think we see it as shifting, not unlike the way it has shifted in the acute segment for a decade or more at this point to more outpatient delivery. And as Marc alluded to in his previous answer, we're trying to meet that demand in a number of different ways, building out our own freestanding -- ability to deliver care in freestanding facilities with our 1,000 Branches initiative, more focused on the step down of patients who are being discharged from our existing facilities, and obviously, through the Talkspace acquisition as well. So strong demand, although to a degree that demand is shifting more and more to the outpatient setting.

Okay. So if I could ask a follow-up around that, Steve, and around the outpatient strategy that's underway. And particularly, just as it relates to how that's informing your thinking right now on capital allocation. And specifically -- obviously, you have the outpatient clinics expansion going on, you have the Talkspace acquisition. I'm curious around how you're weighing sort of balancing buybacks relative to sort of continuing to invest more, allocating more capital towards continuing to build out that full capacity flywheel on the outpatient and digital side?

Well, I think the point that we've tried to make since announcing the Talkspace acquisition, we had a number of questions, I think, when we first announced sort of in the context of, well, this is a fairly large acquisition, how does -- is this an either/or in terms of share repurchase. And I think, again, as we tried to articulate in our remarks, we continue to find buyback of our own shares to be a pretty compelling investment and intend to remain active in that regard. I think we talked on our end-of-the-year call as having a buyback target in the $800 million to $900 million range, and I think that certainly remains a target for us at a minimum.

The Talkspace acquisition does not increase our leverage significantly. We go from a little under 2x levered to a little over 2x, but certainly, that leaves us plenty of space to consider, as we said in our prepared remarks, any other acquisitions that would come up that we found compelling as well as a continued aggressive CapEx program as well as continue being an active return of capital to our shareholders.

Our next question comes from Michael Ha with Baird.

Just quickly first following up on Justin's question. I understand you're not providing the core growth math at the moment, but I wanted to ask you about the inputs and to see if I'm missing any major components of this math. So far, I'm looking at net DPPs, the exchange subsidy headwind, California staffing requirement headwind, the flu weather impact. But then, how should we treat any Palm Beach Garden de novo costs, the Cedar Hill tailwind, which sounds more back-end loaded now? And is there anything else that we should consider, anything on first quarter last year that would not recur?

Yes. I mean, everything that you ticked through, Michael, are I believe items that we've discussed already. Again, I made the point earlier, and I'll just reiterate, none of those items were really a surprise to us during the quarter, and our overall results in the quarter were very consistent with our internal expectations. I think these were all knowns going into the quarter, obviously, other than the weather and the flu, although we certainly, I think, referenced both on our fourth quarter call.

Your question about Cedar Hill and the new hospital in Florida, again, I'll reiterate, we said in our guidance, we thought that would be a wash for the year largely. That continues to be our belief, although I made the point that I think the Cedar Hill improvement is probably a little bit back-end loaded. But -- no, I mean, I think we've covered all those items. Those were all well within our expectations, all included in our guidance.

Got it. And then, following up on Scott's question on Behavioral Health, I know you had implemented labor efforts focused on retention at year 1 hires since the turnover rate of post year 1 hires diminishes drastically. Wondering how those efforts gone? I know last time we spoke, the turnover rate was moving from as high as 50% down to at least 40% over the last half year. Curious where are you today on that turnover rate? Is it still in the 40s? And if you could remind us what your pre-COVID turnover rate was just to establish reference point, that would be great.

Yes. So again, I think, as we said in our prepared remarks, I reminded people that last year, our salary and wage expense in behavioral was up 8%, which included a pretty significant increase in the headcount. In Q1, it was more in the 6% to 7% range. So we saw some moderation in Q1. We expect to see further moderation as the year goes on. That's a function, I think, of any number of things. It is -- we're not hiring as aggressively in '26 as we did in '25, that's number one. Number two, I think we're seeing some moderation in wage increases. And -- again, I think we expect -- and as your question implied, we're also seeing some progress on turnover. Turnover remains high in behavioral. It remains high, I think, in all sub-acute industries, but we have clearly made progress and measurable progress on turnover in the last year or so.

I'm showing no further questions at this time. I would now like to turn it back to Darren Lehrich for closing remarks.

Thank you, everyone, for participating in today's call and for your interest in UHS. Have a great rest of your day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Hi. Good morning. Welcome back to the Barclays Global Healthcare Conference. I'm pleased to welcome Universal Health Services. And joining me on stage here is Marc Miller, CEO; Steve Filton, CFO; and Darren Lehrich, Vice President of Investor Relations. Welcome.

Let's start with the acquisition of Talkspace that you announced yesterday. You characterized Talkspace as an accelerant to UHS' outpatient behavioral strategy. From your seat, what is the key strategic gap this deal fills? And why was now the right time to buy such an asset?

So we have been talking for the last few years about our intent to continue to grow outpatient services. We do a lot of outpatient now. But as compared to our inpatient portfolio on the BH side, not nearly comparable. So we've been trying to grow that. It's been a little bit slower than we would have liked. So in lieu of that or in addition to, we've looked to really partner with different companies and have been quite interested in who's been doing what in the market and certainly the better players. We had occasion to talk with these folks for a while about maybe different partnerships working together. They decided to go into a process. And so the timing worked out well in that regard.

We just think that this company complements a lot of what we want to do and really fills out the continuum for us because the types of intensive outpatient that we do, partial hospitalization programs, those are a lot of step-down programs from our inpatient.

What Talkspace does with their front-end lower acuity types of solutions is totally additive to what we have now. So we really think that it couldn't be a better fit. They're a very high-quality outfit, and they are really tech-enabled. The tech that they have already deployed, what they've been doing for a number of years is impressive. And the things that they're talking about doing in the coming years, equally, if not more impressive. So we're very excited about the opportunity there.

Right. And how do you plan to integrate and leverage that platform across the UHS system to drive that growth?

So again, I mean, there are a number of things, but I mean, just basically, they do things that we don't do and we do things that they don't do. So we think that there's going to be an opportunity on both sides where, for example, patients that they're touching on the front end who don't have a need, or many or most, who don't have a need for inpatient, some percentage will have a need for either more intensive outpatient or ultimately maybe inpatient. We had no purview to those patients previous to now.

So now we'll have a direct connection to possibly getting those patients into the UHS stratosphere. Conversely, they would never have seen any of the UHS patients. We're going to be able to directly introduce them to some of those as well. So we think that's going to be additive. But on top of that, it's going to be some of the things that they're developing, new relationships that they're already working on that we think we're going to be able to take advantage of.

Right. And understanding the different sort of modalities, how do the demographics compare of their customer base versus your customer base? Is this something that you see expanding the potential reach of your platform?

I think so. I mean, we focused a lot on their younger population. They have a younger population. We touch that population, but that's only one part of our overall. So I mean, they're certainly skewed younger. They're also skewed towards a commercial base. We touch a commercial base, but we treat everybody. So there will be some effect there as well.

Right. And you've highlighted Talkspace is, I think, 6,000 therapists and view that many of them have additional capacity, what's the plan to scale the volume while maintaining that clinical quality, especially given I think their model is largely independent contractors versus W-2s?

Yes. I mean, again, they are able to attract a great number of therapists all around the country because of the tech and the platform that they've created. And so we see it as a huge opportunity for us to tap into some of these folks that maybe have never thought to work anywhere else. They might have their own small practice. They work with a Talkspace type of a platform. And this might not be another opportunity for them to do other types of work that they've not seen previously. So we're not 100% sure what that will mean. But I think, again, it's greater opportunity.

Great. And moving beyond just outpatient behavioral, it appears you're leaning into the AI capability building through internal hiring, working with some external vendors as well as investments, including your stake in Hippocratic AI. Can you help us understand the key pillars of your strategy with artificial intelligence and how your approach may differ from -- in the behavioral business versus the acute business?

Yes. I mean, honestly, our approach is similar depending on almost regardless of which business. It's identifying what the needs are and trying to find the best fit to address those needs. So Hippocratic, you mentioned, is a company that we were an initial investor. There's a few health care investors for Hippocratic AI. We think that they have a terrific platform, and they continue to grow in a whole host of ways, mostly nonclinical facing. So it's a lot of back office. There are patient-facing items, but it's not in the operating room or things like that.

We think that's the right place to focus on the acute care side for the time being. But we're not limited to Hippocratic AI. We've got many relationships with different vendors who are utilizing different forms of AI for revenue cycle, finance, operations, really everything going on, on both sides of our business, we're looking to see if there are AI solutions that can help us into the future. And we're involved with some now, and we're looking at new ones going forward.

Right. So it sounds like there's some kind of tiered investments going on here. Is there a framework for how we should think about the timing and cadence of the benefits here in terms of which segment it accrues to and how it will materialize in the P&L?

I'll let you answer that.

Yes. I mean I think one of the challenges we have, Andrew, is that there are multiple opportunities. And we have an infrastructure, sort of an AI steering infrastructure, if you will, that tries to prioritize and identify the opportunities that are most impactful, can be realized quickly. And as Marc suggested, the different ways we can do that with a vendor relationship, developing it on our own, working with Hippocratic AI to do so. I think it's -- we're in the very early innings of this process, and I think it's difficult to quantify what the ultimate benefit could be.

But I think the way we look at it is we haven't spent a tremendous amount of money. We've invested $20-some-odd million in Hippocratic AI, which we think is actually -- we're going to earn a significant return on. We've entered into these relationships with vendors that I think, quite frankly, are more efficient than where we've been doing the tasks manually ourselves. And we've invested -- we've shifted some of our internal IT investment and IT expenditures more towards an AI focused. But I don't think we're ultimately incrementally increasing our IT spend dramatically. So our investment, not that great.

I think our returns are starting to build, and they'll continue to build incrementally. I think in an industry like health care and in hospitals, the development of AI is going to be just a significant net positive because it doesn't threaten our business at all. It doesn't threaten our demand, but it allows us to deliver a lot of the routine recurring functions that are a big part of what we do in a much more efficient way.

Right. And I think some of those functions, RCM fits into that category. revenue cycle management. That's become an increasingly strategic priority for hospitals. Which capabilities have driven the greatest benefit in RCM? And where do you see the greatest opportunity from here?

So we've talked about a couple that we've cited. I mean one is, again, using a third-party vendor to do emergency room coding, which is something that we used to do on our own. They use an AI application to do so. We tested it extensively in sort of a parallel fashion where we would code claims manually and compare it to how they coded and found out that they were coding more accurately and quite frankly, obtaining greater reimbursement because they were coding more accurately.

The payers have noted that, that broadly, the providers, I think, have gotten better and more accurate in their coding, not just in ER, but in inpatient as well. So that's an example where I think we've got an uplift of tens of millions of dollars annually just by coding more accurately, just by using a vendor who's using AI technology. Another example that we've cited probably before is using AI to appeal denials. We believe that the insurance companies have been using AI to generate their denials for several years now. And then they were doing so in a very sort of efficient nonmanual labor-intensive way.

We were replying to these denial letters with a nurse or other clinical professional having to go through the denial letter, having to go through the medical records, draft the denial appeals letter, et cetera. Now we're using a vendor to generate those letters and having the nurse spend 5 minutes to review each one just to make sure they're accurate and complete, again, just gaining that sort of efficiency. And like I said, I think we're just scratching the surface on these sort of opportunities. We'll continue to find more, and I think they'll continue to make us more efficient and more productive.

Great. Sticking with the hospital segment. We're now a few months into the year following the expiration of enhanced ACA subsidies. Is there anything you can share on how exchange volumes or patient behavior is tracking relative to your expectations? And related to this, what impact do you expect the shift towards bronze tier ACA coverage to have on utilization and acuity trends this year?

So just to remind everybody, we have framed an estimated impact from the lapsing of the HIC subsidies at about $75 million, primarily in our acute division. And it's really based on a couple of very high-level assumptions. One is that about 25% to 30% of the HICs volume that we currently have will lose their subsidy or lose their exchange coverage as a result of the subsidies lapsing. In the first couple of months of the year, we've seen a reduction, not quite at that 25% to 30% level.

I don't think we're surprised that we haven't seen us sort of reach that 25% to 30% level immediately because I think we'll find that as time passes, some patients will not pay their premiums and that sort of unsubscription level, if you will, will creep up. So I think that as an industry, we still have to experience more. We have to see how the next couple of months play out. We have to see -- you suggested another nuance that people may not completely lose their coverage, but they may shift from a gold tier to a bronze tier, and that could create some uncompensated pressure on us if they have a higher co-pay and deductible.

We've tried to factor all that into our estimate. And again, I think based on the first couple of months of experience, we're feeling reasonably comfortable with our estimate. It's certainly not expressing 100% confidence that we got the point exactly right. But I think feel like we certainly have in the ballpark on what the impact is likely to be.

Great. Sticking with the commercial coverage more broadly, there's been mixed data points on the strength of the U.S. employment market. What trends are you seeing across your core markets such as Las Vegas? And how are those showing up in volumes and payer mix so far?

Yes. I think employment trends remain pretty stable, and that's encouraging. There's been some attention to the Las Vegas market in the last year because tourist volume in the market is down. But I think one of the more encouraging things for us in that market is that the employment trends are actually quite strong, which I think suggests that the gaming properties themselves are expecting an improved year and improved tourist volume in 2026.

And I think we find whether you want to look at it from the perspective of employment trends or unemployment trends, that tends to have a bigger impact on our business than, let's say, tourist volume, that sort of thing. So it was a bit softer year in Nevada and Las Vegas, I guess, specifically this year for us.

I think that the Las Vegas market performed probably closer to the divisional average, the divisional acute average than it has in the past where it's generally been an outperformer. But it has not been a drag. It's not -- and I think that's our expectation for '26 at a minimum is, again, it performs at the division level. And if the employment trends and the employment data is accurate, I think it suggests that the economy in Vegas may be on the upswing.

Great. Let's turn to the fundamentals in the behavioral business. Same-store patient day growth improved throughout 2025, but finished at 1.5% growth and short of the 2% to 3% target. You've consistently pointed to labor as a constraining factor, but the labor backdrop does seem relatively stable. So what needs to go right operationally for that acceleration to materialize?

Well, we did disclose in our 10-K, and I think we discussed on our fourth quarter call that we increased headcount or full-time equivalent count in the behavioral segment by a little over 4% in 2025, and that was certainly in excess of how much our volumes grew at a little over 1%. And I think that was a conscious and intentional investment, if you will, in labor to position us better to be able to grow closer to that target. I think the other thing that gives us confidence is that we have been investing in outpatient growth, which I think clearly, outpatient demand in behavioral is growing faster than inpatient.

And that's why we've been focused on it, and I think we'll benefit from that. Obviously, the Talkspace acquisition will help that. I'm not sure it will have a material impact in 2026. But over the next several years, I think growing our outpatient at a faster rate than inpatient has been growing will help us achieve what has historically been a very achievable volume target of sort of 2% to 3% adjusted patient day growth.

Right. And today, I think your outpatient behavioral revenue is about 10% of the segment. You're clearly leaning into that category. As you scale that footprint, how do you ensure that new outpatient capacity is incremental to the system rather than cannibalistic?

Look, I think the truth is that you need to treat patients where they want to be treated and where payers want to treat them. If you think about the acute business, there's been this shift over time out of the hospital and into outpatient settings, whether that's ambulatory surgery or outpatient imaging or freestanding EDs. And we've shifted along with that. And some of that, to your point, is cannibalized business. Some of that is business that was performed on an inpatient basis. But there's no really resisting that. We've got to deliver the care where patients want to be treated and where payers are sort of demanding they be treated, and we'll do that on the behavioral side as well.

And we'll do that by focusing and dedicating people to growing that outpatient business. We'll do it by building out these freestanding outpatient facilities that we really never had a presence in before. And I think now we'll do it by taking advantage of the synergies with Talkspace over the next several years that will really kind of -- you used the term or repeated the term that we used in our press release that I think Talkspace is really going to help us accelerate that outpatient growth that is already underway.

Right. And as you look at those different avenues of investments, like where do you see the strongest returns between step-in and step-out services, particularly in the context of that Talkspace acquisition?

Yes. Again, I don't think it's kind of a linear sort of thing where we're choosing one option. I think broadly, margins in the outpatient space tend to be better than the inpatient space because I think, quite frankly, the payer mix tends to be better in outpatient. It tends to be more commercially and Medicare-centric and less Medicaid-centric. So I think, obviously, we'll make judgments about where the investments make the most sense. But investing in these freestanding centers, which require minimal capital, investing or continuing to invest in the Talkspace technology, which Marc alluded to before, is we find quite advanced and quite sophisticated is something we'll continue to do.

Again, I think this is all about creating this end-to-end seamless continuum. So a patient can be treated anywhere along what I'll call a UHS Talkspace continuum in the future, where it's most appropriate, where the payers are willing to pay, where they're going to be most satisfied. One of the things that interests us in Talkspace is they have very high levels of patient satisfaction as well as therapist satisfaction. And so building out outpatient should be economically and financially beneficial to us, but it should be really quite beneficial from an outcome and a satisfaction perspective for the patients and for those delivering the therapy.

Great. And on the pricing side, behavioral pricing, especially on the inpatient side, has been particularly strong in recent years. What are the primary drivers of that strength? And then I think you've more recently noted that started to moderate. So what's driving that moderation? Is it state budget dynamics, payer behavior, some combination of the 2, changes to the commercial side?

I really think it's just an outgrowth of the success that we've had in the last several years. We've talked a lot about one of the dynamics in the last several years is that because of a lack of capacity, not just in our own hospitals, but in the behavioral space broadly, particularly in terms of inpatient capacity that we've been able to go back to payers, particularly managed Medicaid payers for -- from whom we didn't necessarily have regular increases over the last several years and negotiate what we believe to be just fairer rates, not particularly outsized increases, et cetera.

But some of those increases that we got in '23 and '24 and '25 have now started to anniversary. And so as we anticipate what the year-over-year growth is in '26, it's not as great as -- we're not expecting it to be as great as it has been over the last several years.

Right. And Medicaid supplemental payments, I think, are a component, right, within that. Can you provide an update on the status of some of the larger pending programs such as Florida? To your knowledge, is the holdup related to the structure of these programs or some sort of administrative backlog at CMS?

Yes. So look, I think it's worth noting that CMS clearly is willing to approve new programs. We have acknowledged that at least 2 new programs CMS has approved in the first quarter that will record the benefit in the first quarter, one in Ohio and one in Nevada. So I think broadly -- and they've approved other new programs as well. So CMS continues to approve new programs. The Florida program, as your question suggests, has been delayed. What the state of Florida says is that there are some structural issues that CMS has objected to or at least questioned.

The state of Florida suggests that they're in what they, I think, describe as sort of constructive engagement with CMS and continue to imply that they're expecting approval. We don't know what the timing of that is. We don't know if that's weeks away or months away. And we've taken a conservative approach in terms of recording and not including in our guidance that Florida benefit until it is approved. But based on the feedback that we're getting from the state of Florida, still expect it to be approved.

Right. And policies in the One Big Beautiful Bill are set to phase down Medicaid supplemental payments starting in 2028. Marc, how are you positioning the organization to absorb those changes? And what sort of advocacy efforts are you making in D.C. to delay or adjust those policies?

Yes. So we've been spending a lot of time in D.C. I honestly think that it's unknown what's going to happen, come '28. We've gotten a lot of positive feedback, though, from moderates on both sides of the aisle that this won't stand as it is today. And they expect something to happen legislatively, probably in the next Congress. But if not this one coming up, then the one after in some way because we'll be able to absorb whatever we have to absorb. We'll adjust our operations. We've proven that we can do that. I think the 80% of the hospitals that are not-for-profit in the U.S., a lot of them are going to have a much harder time. And the folks in D.C. recognize that. So it's a wait and see. I can't really predict what will happen. I just think that it will moderate in some way, and we'll be in the forefront there, and we'll take care of that.

Great. And Marc, it's hard to believe it's already been 5 years since you've stepped into the CEO role. How has the company changed over your tenure? And how do you view the competitive positioning of the company today versus 5, 10 years ago?

Yes. I mean, overall, the company is similar. I mean I've been President since '09. So it's been 15 years. And we're pretty consistent in our approach. I did not come into this role really changing anything because it was a continuation of what I was already doing. I think the company is on a good track. I think this latest acquisition puts us in an even stronger position for the next few years and beyond. So we're very excited about where we are, where we're going. And again, our consistent approach continues. And so we have a very positive outlook going forward.

Great. Well, with that, we're out of time here. So let's end it, and thank you so much for joining on stage, and please enjoy the rest of the conference.

Thanks, Andrew.

Thanks Andrew.

Good morning. Thanks for joining us, everyone. I'm Whit Mayo. I cover health care providers and managed care for Leerink. This is day 2 of the Global Healthcare Conference. I'm joined with Steve Hilton and Darren Lehrich.

Steve, you've got an announcement this morning. Maybe we'll just start there and start with the acquisition of Talkspace.

Sure. Yes. So just a few minutes ago, we announced a definitive agreement to acquire Talkspace for $5.25 a share, which equates to an enterprise value of approximately $840 million. We're extremely excited about this acquisition and the opportunities it presents to us.

Those of us who follow us know that really for the last year or 2, we have really been focused on in our behavioral segment, especially building our presence in the outpatient space and have done a number of internal things to accelerate that. But we described in the press release the acquisition of Talkspace as an accelerant to that process. And I really like that term because I think it really is extremely apt in this case.

One of the things that I think has been a bit of an obstacle to growing the outpatient business is just access to therapists who are in great demand today. But by acquiring Talkspace, we're acquiring their cadre of 6,000 therapists, many of whom Talkspace believes have additional capacity as more demand is created, and we believe this acquisition will create more demand.

It is a sort of what I think about as a bidirectional sort of benefit in acquiring Talkspace. For -- again, those who've listened to us in the past, I described the outpatient business and behavioral as sort of having kind of two distinct phenomena to it. One is step down, which has been sort of our historic focus. When patients are discharged, when inpatients are discharged from our facility, they often require additional and continuing care that we call that step down. But some of the challenges in meeting that demand is sometimes the patients don't want to continue to receive that demand on our campus. They live far away. They're just not anxious about making -- they're traveling. So now we have this virtual option that we'll be able to offer, and I think that's a real benefit.

In the case of some of our patient population, particularly the adolescent or I would say, really teenage population, that's a population that I think is really drawn to virtual care. In many cases, I think they prefer that. So now having this option in a much more comprehensive way than we have it today is significant.

And the payer relationships that Talkspace brings, I think, are an extreme benefit to us. They are, as an example, a benefit to Tricare. So I don't know specifically, but if you're with one of the plans that Talkspace is aligned with, maybe Talkspace is on your membership card, et cetera. So if you have a behavioral need, just call a number and you're speaking with somebody and you're able to get assessed, et cetera. And now here's where I think the direction flows the other way. If people need more intensive outpatient, intensive outpatient, partial hospitalization or even inpatient care, Talkspace now has a partner that they'll be able to refer to.

So extremely excited about those opportunities, which are mostly revenue driven. A lot of times when there's an acquisition, people ask about the cost savings. I think there are some small amount of, I'll call them, public company cost savings to the extent we have duplicative public audit costs or SEC costs. Obviously, I think those can be eliminated. But for the most part, the Talkspace infrastructure and technology, which we think is quite an advantage will remain in place. Their team will remain in place. We're very impressed by both their technology and their personnel and their skills. So we're excited about that aspect of it.

The transaction we expect will close in the third quarter. We expect that the transaction will be slightly accretive in its first 12 months. And then as these revenue synergies are realized over the next several years, we'll continue to become more and more accretive.

Our leverage, which I'm often pointed out in these meetings is rather low, will increase by about 0.3x. And I think I take this opportunity. When asked about our leverage levels, I think we often respond that we are comfortable having a lower leverage level because it gives us the ability to respond to opportunities as they arise. This is certainly one of those opportunities. There may be others in the future. But we'll continue to be an opportunistic deployer of capital, meaning if other M&A opportunities arise, we'll evaluate them and respond if appropriate. We'll also continue to be an active acquirer of our own shares, which we think are a compelling investment at the moment.

I'm going to pause if there's anything I should have added. I'll ask Darren to add and then happy to [indiscernible].

Yes, Steve, no, I think you covered it well, Steve. I think the only thing I'd add just as it relates to the last point that Steve made, so leverage moves up by 0.3x. So that brings us to pro forma about 2.1x. That's the low end of the 2 to 3x range that we've been talking to you all about as our target. And I think on that point, it really is kind of a good example of how we're thinking about deploying our balance sheet and our capital to create new earnings streams as we think about the headwinds that we have in some of the out years that you all have been asking us about. And this is a really good example of how we're using that to deploy capital and replace some of those potential headwinds that are down the road and still have a really strong balance sheet position to be able to respond to other opportunities that are in the environment.

Whit, I'm sure you've got questions and I appreciate you letting us break the news here.

I appreciate you making the news here. How do I think about the potential revenue synergy opportunities over time? I know it's early, and there's a lot to evaluate, but any initial thoughts on what that could look like in the coming years?

Yes. I mean so just at the outset, I think Talkspace, their own projections for 2026 revenues were $280 million. So that is roughly a 3.5% increase in our behavioral revenue.

We've not quantified and I think don't intend to quantify the potential revenue synergies down the road. We've really explored them in great detail with the Talkspace team. We think they're significant. Obviously, I think we'll have more to say when the deal closes, when we give our guidance for next year, when they'll, I think, be much more firmly ensconced in sort of this partnership relationship.

But yes, I mean, I think -- and we've tried to walk through, I think, some broadly what some of those opportunities are -- but I think, again, I'll stress what I said at the very beginning, this focus on outpatient growth, which has really been a significant focus of ours, I think, is really accelerated or potentially accelerated over the next 6 months, 12 months, a couple of years by this acquisition.

Yes. And to be clear, there wasn't any consideration for unannounced growth within the guidance that you provided a few weeks ago, correct?

No, no, there was no contemplation of this transaction in our guidance from it a couple of months ago.

Okay. Is this an area that you think you're going to continue to make additional investments through M&A? Or is this a new platform acquisition. We're going to learn from this, we're going to try to grow this. Just how do I sort of square that against sort of the capital deployment thinking over the next few years?

Yes. I mean, so first of all, I think as we sort of often answer the question about acquisitions, generally, I think we are always open to ways in which we can enhance our existing strategy. What I will say about Talkspace is, it's really one of the leading companies in this virtual behavioral health care delivery space with a very nationally recognized brand.

There are 200 million people in the United States and Puerto Rico that have access to the tax-based product through -- mostly through payer relationships, but relationships sometimes with cities and that sort of thing. And we'll continue to invest. I mean, they're investing in technology and we're very supportive of those investments. So we'll continue to invest in their technology yes. So anyway, there may be other acquisitions, but I think we feel like we got the pick of the litter in terms of this virtual space.

Yes, pretty extensive reach. When I look at your legacy behavioral outpatient business today, I mean there is some telehealth virtual engagement. I don't think the percentage is a lot. Where do you think that, that could potentially go over time?

So historically, and when I say historically, I mean this obviously is really the last several years, and I think it was really kind of accelerated by the pandemic. We've used virtual or telehealth largely as a means to supplement the care that we provide in our inpatient facilities. So if we had an inpatient facility that was lacking a therapist or a psychiatrist in psychiatrist therapists from a different geography could Zoom in or Skype in or whatever and help assess patients and help create patient treatment plans and that sort of thing. So mostly what I described as sort of internal.

We did have some capacity to deliver virtual care and therapy on an outpatient basis. but it was relatively limited. And again, the Talkspace capacity really accelerates that to a significant degree. Hard to say again with precision, what the opportunity is, but I think we think it is measurable and one that will continue to realize the benefit for several years to come.

Remind me the kind of staffing model Talkspace, what percent of the therapists are actually employed versus being in their own independent practice and just to compensate presume per session per encounter per visit type of compensation model?

Yes. So the smaller number or a smaller percentage of their therapists are employed or W-2. The much larger percentage are independent contractors who, I think, as your question suggests, are probably either have their own practice or working somewhere else, et cetera.

But again, the perspective that they've offered to us is that they believe that I think many of their therapists have additional capacity to take on more demand if it is offered.

And beyond that, with 6,000 therapists there very adept at recruiting, evaluating, hiring therapists who quite frankly, I think, really like the flexibility of the kind of that more flexible discretionary model that Talkspace offers, you can kind of work when you want and they'll match you with the demand to patients, et cetera, which is a little bit different than, let's say, the inpatient model, which tends to be more restrictive in terms of hours and that sort of thing.

And I would just add to what Steve said. So we've assessed the capacity that they have and feel good about our ability to generate more virtual services as a result of the capacity of the 6,000 therapists that are part of Talkspace.

The overlap is very good in that they're in all 50 states, and so we feel good about that. And then as we've dug into the business and better understand it, therapist turnover is very low. So they have very good satisfaction, not just among patients and consumers, but within the therapists that are on the Talkspace platform. And that makes us feel really good about our opportunity to introduce that virtual access to care to the UHS enterprise.

Might just stop for a second and see if anyone has a follow-up question in the audience as it relates to the transaction. I put everybody on the spot, so I can keep going.

But maybe just to shift to the outpatient investments you have been making over the last number of years, it's been a pretty significant increase in the outpatient capacity. Just maybe talk about where you are in terms of the size of the number of outpatient access points and the growth that you've seen over the last few years?

Yes. So the last couple of quarters, we've been disclosing account of outpatient facilities in our behavioral segment roughly 120 or so. And to be fair, those are not all new. We've not historically reported all of them.

Historically, most of our outpatient facilities have been on the campus or very close to geographically proximate our inpatient facilities, and we have generally not counted those or disclosed those in our counter facilities.

We recently have sort of changed the way we count and report because we want people to know that we're very focused on this outpatient growth. At the same time, we've also talked about really developing kind of freestanding facilities, which is relatively new for us.

And one of the main reasons for that is that we find that people who are entering or what we'd call stepping into the behavioral system often don't want to receive their care on a hospital campus, branded with an inpatient hospital name. They have this I'll call it, fear angst, et cetera, being kind of swept up into sort of what I'll call the inpatient net. While I don't think that's really a legitimate fear necessarily, we acknowledge that it is the way some people feel and they much prefer to receive their care in a freestanding setting, et cetera.

So we've talked about the fact that in the last few quarters, we've talked about the fact that in the last couple of years, we've created this new freestanding segment of the business. We've branded it separately with this 1,000 branches brand we opened, I think, 10 new facilities in 2025, I expect to open another 10 a year for the next several years, and we'll continue to pursue that. I think there's -- we definitely see a need for that.

Again, the nice thing in my mind about Talkspace is now we offer this end-to-end continuum that really offers behavioral services almost of every sort and variety that you can imagine from inpatient to intensive outpatient to partial hospitalization to 50-minute therapy sessions to virtual assessments. There's really, I think, no other provider in the behavioral space that offers the continuum of services that we're now will be able to.

Yes. And you've always said historically one of the larger pain points that you've had and opening up an outpatient clinic has been the availability of therapist. So this sort of opens that up, okay. So I think I get the strategic element of the transaction. So congrats on the announcement this morning.

I wanted to shift to a topic and question that I think has sort of entered the picture of this earnings season for the acute care segment that it feels like many of your peers have cited perhaps a new earnings stream sort of coming into the picture with resiliency and cost initiatives. And I know that you have a lot of things underway. You may not have branded it or called it out as a specific program. But maybe just spend a minute talking about some of the technology, the AI, the things that you're excited about perhaps contributing to incremental growth this year versus prior years?

Yes. We, I think you framed it quite accurately. And I think on the fourth quarter year-end call, Marc, in particular, in his both prepared and responsive remarks, really try to address the fact that in our minds, driving productivity, driving efficiency is not something that just sort of has arisen as a result of the challenges that face us as a result of the Big Beautiful Bill. But it's something we've been ongoing. And I think particularly had ongoing really since the pandemic ended.

And if you look, I think, at our acute results since the pandemic ended, we've driven length of stay, particularly case mix adjusted length of stay to levels that are now below where they were at the beginning of the pandemic. We've really, I think, driven a number of productivity improvements. So if you look at the growth in our salaries and wages in the last couple of years, they've clearly been even less than sort of inflation, so suggesting that we're driving productivity increases. And we're going to continue to do all those things.

And then I think Marc tried to touch on, as your question sort of suggests the ability to use information technology, AI and other technologies to drive some of that productivity. And we've talked a little bit about specific examples of that. we're finding a number of examples in the revenue cycle space in terms of coding assistance, in terms of denials appeals in terms of ensuring that bills are going out has complete with complete documentation, et cetera. So all those things.

And I think there are many other opportunities. One of the things that I think we've reported on maybe in contrast to what others have said that they've seen an increase in payer denials and patient status changes. And just sort of complained about the heightened aggressive behavior from peers. And I'm not suggesting that we haven't seen that. But I think some of the improvements that we've made in the revenue cycle area and the investments that we've made in people, process and technology over the last several years, particularly in the acute space have helped us at a minimum, stay even with the payers because I do think they're getting more aggressive as they feel the pressure on their medical losses, et cetera.

We undertook a significant sort of third-party consulting review of acute care revenue cycle a couple of years ago. We've been implementing a number of improvements since then. And I think it's worth noting that we're undertaking a similar review in our behavioral space this year, and I'm sure that will carry over into next year as well.

Okay. Is most of the revenue cycle opportunity more on yield, improving yield? Or is it eliminating this friction, just the back and forth with the plans and the denials and everything?

So I think it really falls into a few different categories. I mean, one is the nature of revenue cycle processing in our space is it's complicated. It's -- but it's also sort of routinized, it's recurring, et cetera. And in my mind, that's sort of the perfect application for AI technology I'll go back to these denial letters. And again, this is a perfect example of I think where we're just effectively countering what the payers are doing because I think we've had some sense for a couple of years now that payers are generating denials and generating their denial letters through AI technology of their own. And what we've been doing is using a nurse another professional to look at the nil, go through the medical records, create a denial appeals letter get that process started. And on average, that was taking an hour or 2 of a nurse's time for every single denial of which there are many.

And now what we're finding is that AI generates the denial letter, a nurse spends 5 minutes reviewing it, making sure it's complete, making sure it's accurate. And so from a productivity standpoint, we're just doing better. We're using a vendor who uses AI technology to do ER coding. ER coding is much simpler, more straightforward than inpatient coding, which tends to be much more complicated. And again, we found that they're able to do it accurately. We've done a lot of parallel testing. They do it accurately, and they do it quite frankly, more productively than human beings are going to do it.

And so again, another example of that. So I think it does a number of things. It just -- I think AI helps us complete these routinized tasks in a more efficient, productive way. And I think the opportunity is to do that in other ways are significant, and we'll continue to -- one of the challenges I think we have in what I would sort of describe as the early innings of AI development and AI initiatives is prioritizing and choosing the applications that are most practical that can be developed the most quickly that are the most impactful.

And so we have sort of an AI steering committee that spends a lot of time and effort I'm just that aspect of it, making sure that -- because I think the number of potential uses is vast and you want to skinny that down to a manageable number and then sort of decide how you're going to approach it. So -- some of these things we're developing on our own with internal coding capabilities, et cetera. Some were using vendors for who have already developed these applications.

And in some cases, we talked on our call our year-end call that we've invested in a company called Hippocratic AI, which is the company dedicated exclusively to developing AI applications in the health care space. and we've used those as well. So it's a multi sort of tiered approach to really getting the best uses from AI.

Yes. Coming out of the fourth quarter, there was a little bit of noise within the acute care segment, a lot of out-of-period directed payment stuff in 3Q that didn't recur into 4Q. You had an ACO payment. A lot of stuff kind of obscured the growth. Do you want to spend a minute just sort of framing the 3Q to 4Q walk forward and sort of how you're looking about the growth quarter-over-quarter?

Yes. So I think particularly from an acute care perspective, we did get this question post the quarter that it appeared to some people that the sequential results in acute care were actually a sequential decline from Q3 to Q4.

That's not the way we saw it and we analyzed it. We did highlight a number of nonrecurring items in the third quarter, the most significant of which was the DPP program and the out-of-period DPP benefits from the District of Columbia that we recorded in the third quarter.

But I think we also mentioned an opioid settlement, we mentioned some revenue cycle benefits, including discrete settlement with a payer. I'm not sure that we called out precisely the magnitude of each one. But ultimately, when we sorted through it all, we generally view the acute care results between Q3 and Q4 is relatively flat.

Now to be fair, I think most people have expected historically there to be a bit of a step-up in Q4. And I think we attribute the lack of a step-up to relatively soft volumes, not only that we experienced in acute care in Q4, but it seemed to be sort of industry-wide. But otherwise, I think we generally view the Q3, Q4 acute care results is pretty flat and pretty stable.

No. Maybe just turn to the exploration, the subsidies. Maybe it's a little bit too early. I think you've talked a little bit about some of the activity you've seen quarter-to-date, a little bit of softness on HIX volume, and I don't think you can conclude whether or not the -- those patients are going to another payer class yet, but maybe spend a minute there and sort of how you think about the slope of the headwind this year as the year progresses?

So in our fourth quarter call and in our earnings guidance for next year, we have outlined the fact that we've assumed a $75 million headwind in effectively in our acute segment as a result of the expiration of the HIX subsidies. And the two biggest assumptions we made there were that about 25% to 30% of our HIX patients would lose their coverage.

HIX patients, and again, in our acute segment represent currently about 6.5% of our total adjusted admissions. So assuming that 25% or 30% of that is lost. We assumed a small percentage of those people, maybe 10% to 20% would get other coverage largely commercial coverage, either through their employer or potentially by stepping down from a gold plan to a bronze plant, something like that. Using those projections, we play that out based on the utilization patterns of that population, et cetera, and we come up with the $75 million number.

People have asked us appropriately, well, now we've got a couple of months under our belt in 2026. Are we sort of tracking those assumptions. And I think what we've said is the actual reduction in HIX patients is a little bit less than the 25% to 30%, but we expect that number to grow as the next couple of months progress because what we think will happen in a practical way is some people who are sort of believed or supposed to be still having HIX coverage will not make their premium payments or we'll stop making their premium payments, and that number will grow some.

I think it's too early, and I think other providers have made the same comment. A little too early to sort of precisely say, yes, here's where we are. Here's how our assumptions compare with the actual reality I think we'll all have, I think, more insight and more to say at the end of April when everybody reports the first quarter results. But at least at the moment, feel comfortable that the assumptions we've made seem pretty reasonable.

Should we think that this is potentially a headwind that recurs into 2027. I mean I don't know if you spent much time thinking through like beyond '26 at this point.

Yes. I mean that my gut, it is that if you can afford the HIX subsidies or the HIX payments without the subsidies in '26, you can probably in '27. But I mean that's a possibility. But no, I mean, not that we've given guidance for '27 and beyond, but I'm not sure we're necessarily assuming that this continues to compound.

You've had a number of new hospitals that you've opened in the last year or so in opening, particularly one in West Palm Beach. Do you want to maybe talk about how those are tracking versus internal expectations and what the incremental growth could be in 2026?

Yes. So I think as far as new hospitals go, the major assumption that we made is in the second quarter of 2025, we opened Senior Health Medical Center in Washington, D.C., our second hospital in that market, had a number of challenges in terms of delayed Medicare certification and some other challenges.

Lost about $50 million in 2025, lost about $25 million in Q2, $25 million in Q3, the facility pretty much broke even in Q4. We assume the facility will be profitable in 2026. I have encouraged people to think about it as whatever profitability we generate from Cedar Hill in 2026 will be offset by the startup costs and losses at our Palm Beach Gardens Hospital. But broadly, very excited about the Palm Beach Gardens Hospital. That's a very attractive demographic market. The hospital is extremely well located right off I-95 and while I think with most new de novo hospitals other than in Las Vegas will likely be a bit of a drag in its first year will continue to accelerate pretty significantly after that and looking very much forward to the ultimate contribution from that facility.

Okay. We've just got like a few seconds here left. I don't know if there are any questions in the audience.

Well, I think we can just wrap it up. 6 seconds to go. Thank you so much for coming.

Appreciate it.

All right. Well, thank you, everybody, for joining us here on day 2 TD Health Conference. My name is Ryan Langston. I'm the health care services analyst here. Very happy to have Universal Health Services with us. Up here on the day, we have Steve Filton, Executive Vice President and Chief Financial Officer; and Darren Lehrich, Vice President of Investor Relations. Thanks for being here.

So I guess real quick, UHS, one of the largest U.S. health care providers, 29 inpatient acute care hospitals, 340-some inpatient behavioral growing outpatient footprint, insurance offering, physician network, various related services, 39 states, Washington, Puerto Rico, U.K., I'm sure I missed something, but...

I think that's pretty...

Quite extensive. Okay.

All right. We'll jump right in. Maybe a good place to start fourth quarter, maybe help us a little bit with the sequential earnings pattern, certainly on the acute side between the third and the fourth quarter. I think typical seasonality, that's usually up. I think it was down around $45 million, if I have my numbers correct on the EBITDA line. A lot of moving pieces, DC, DPP, flu, other items.

So maybe just walk us through that sort of sequential move in the fourth quarter.

Yes. So I think there were, as you pointed out, a number of...good guys, positive nonrecurring items in the third quarter. When we adjust for those and adjust for any nonrecurring items in the fourth quarter, we come up with a relatively flattish sort of third quarter to fourth quarter performance.

You called out the District of Columbia Medicaid supplemental payment in the third quarter. That was close to $90 million. And I'm not sure that everybody has sort of properly included that. We had an $18 million legal settlement, which was a bad guy in the quarter, but we also had an accountable care organization payment in the $10 million range. I think we had a payer settlement that I'm not sure we even disclosed in detail, also I'm forgetting there that we -- I think we talked broadly about all these things in the third quarter, but I'm not sure we spiked them out.

Yes, that's right. And so to Steve's point, there were a number of good guys. I think if you kind of take those all together between the opioid settlement, some of the RCM improvements that included some other settlements, you've got about a $30 million benefit from those items. And then sequentially, we had about a $70 million sequential step down in supplemental payments. So altogether, about $100 million of earnings that didn't carry into the fourth quarter from the third quarter.

To your point, our EBITDA in the fourth quarter was down sequentially by about $45 million in the acute segment. But as Steve mentioned, the way we look at it, it was relatively flat, maybe even slightly up on an underlying basis. Normally, you would expect the seasonality of the fourth quarter to be a bit stronger. Volumes were, in fact, sequentially higher. But as we pointed out in the call, volumes for us in the fourth quarter in acute were a little softer than what our original planning was, and that was probably the biggest driver of the lack of general uplift that you typically see in the fourth quarter.

Obviously, in the fourth quarter, you set the guidance for the year for '26, included in that for both acute and behavioral volumes, 2% to 3% adjusted admissions for acute, obviously, APD for behavioral. I guess maybe just certainly on behavioral, that's been the focus in my conversations with folks. Maybe walk us through how you're getting to those numbers, what gives you sort of that confidence? I do know you disclosed, I think, 3.5% FTE growth on behavioral. So that probably sets you up nicely. But any other puts and takes that kind of gets you to that 2% to 3% between the two segments?

Yes. So I think in behavioral specifically, it's worth noting that our adjusted patient day growth in every quarter in 2025 increased, albeit incrementally, but we exited the year in the fourth quarter, about 1.5% growth. And so in our minds, we're now within shouting distance of that 2% to 3%. I think the idea of sort of what gives us the confidence that we can make that relatively small or bridge that relatively small gap. And we believe now I'll be the first to acknowledge that 2% to 3% has been an elusive goal for the last several years, but we're within shouting distance. And I think the two things that give us confidence that we can get there in 2026 are one that you mentioned.

We invested, I think, a lot in hiring and improving our staffing in 2025 because that has been a real obstacle for us over the last several years, not having all of our positions filled, nurses, therapists, mental health techs has limited the amount of volume growth that we could engineer. And we invested in hiring, and you alluded to it. We disclosed, I think, in our 10-K that our behavioral headcount, our FTEs increased by a little over 4% in 2025, even though our volumes only increased by a little over 1%.

And I think we were willing to make that investment because we think it positions us well for the 2026 growth. And I don't think our FTEs will -- or I think in 2026, our FTE growth will sync up much more closely to our actual volume growth.

And then the other issue, which we've discussed, I think, at length is continued emphasis on outpatient growth. We believe strongly that over the next several years, outpatient volumes and outpatient demand in behavioral will outpace inpatient demand and I think that's been the case probably certainly for the last year or 2, and I don't think we've necessarily enjoyed that growth, particularly that outpatient growth. But we've really focused on it. We've restructured how we're incenting our people, how we're organized for outpatient growth. We're investing in new freestanding facilities. And while I think some of these things will -- are a multiyear process and we won't enjoy the benefits immediately, but it will take some time.

I do think there'll be enough impact in 2026 that the outpatient growth will outpace inpatient and help us get broadly to that 2% to 3% adjusted patient day growth, which, by definition, reflects the outpatient side of things.

Yes. So is it fair to say maybe behavioral specifically, you think that generally, this has been sort of a staffing issue and maybe now with these FTE increases, kind of set up. Is that a fair way to get...

I think so. I mean we have cited other issues, I think, that more specific issues. But I think broadly, the single most sort of pervasive issue has been a staffing constraint that was really exacerbated during the pandemic, but even coming out of the pandemic in the last couple of years has been and we've always said it's not in every one of our facilities, but probably 1/4 to 1/3 of our facilities have had to limit the amount of patients they see because of a lack of sometimes nurses, sometimes therapists, sometimes the nonprofessional folks that we call mental health technicians.

Got it. On the fourth quarter, too, in the release, there was a fairly large gain -- unrealized gain in the P&L. I think that's related to AI investment that you have. I think you own about 3% of the company. Maybe walk us through that investment, and I'm sure you're leveraging that in your hospitals and your facilities. But maybe just walk us through what that investment looks like.

Yes. So Hippocratic AI is a company that was started by General Catalyst, a venture capitalist. And we were a seed investor, I think, at this point, close to 3 years ago, invest -- became sort of a 3% owner of the company and have kept that ownership percentage with additional investments. And Hippocratic AI, I think, was designed specifically to develop technology applications specific to health care, obviously, the name Hippocratic AI with the health care orientation.

And most recently, particularly AI applications, the gain that you referred to is the last round of funding that we participated in, based on the valuation of that round of funding, our sort of $20 million cost investment is sort of now worth about $110 million based on the latest funding and the instructions that we got from our outside accountants were that we needed to recognize that through the P&L.

So that's the nature of the adjustment. But sort of at its core, our investment in Hippocratic AI allows us to really be on the cutting edge of some of these really sort of recent and cutting edge developments in AI. The one that we talked about publicly and we've implemented and has been successful sort of at the outset is a thing called AI Agentic. It is these AI agents. So in an acute care facility when a patient is discharged within 24, 48 hours in their discharge, they have historically gotten a call from a nurse who we call it a post-discharge call who will say to them, how are you feeling? Are you in -- what's your pain level? Have you filled your prescriptions that you were given on discharge? Have you made the doctor's appointments you were given on discharge or recommended?

And generally, we have found that, that exercise and that process helps reduce readmissions, keep patients satisfied and healthy, et cetera. A number of those calls in the last several quarters are being made by AI agents. And we find that the AI agent identifies itself as such on the call and about 50% of the patients stay on the line, they have a conversation with the AI agent. I've listened to some of those calls, and I'm sort of an old school guy and yet the calls are very seamless.

And so essentially, what we've done there is we've been able to accomplish exactly what we were able to accomplish with a nurse. But now we've freed a nurse up to do something more productive and with still the same level of results. So that's the kind of application and use that I think will continue to be developed over the next several years by Hippocratic AI, by vendors that we use and have contracted with who have AI applications and as well as some internal AI development that we're doing on our own.

You sized the APTC expiration, I think, around $75 million for the year, talking about elusive, it seems to be -- current situation seems to be elusive for most companies. Do you have any insight into what is going on versus that $75 million currently or at least with your sort of building blocks to get to that number in terms of effectuation rates or just behavioral changes, volumes? Anything that you can give us currently on that particular situation? It doesn't even need to be necessarily financial.

Yes. I mean, so the two most significant assumptions that went into that $75 million impact estimate were we've assumed that about 25% to 30% of our current exchange population. And we frame that our current adjusted -- on an adjusted admission basis, a little over 6% of our acute adjusted admissions come from exchange patients. We estimate that about 25% to 30% of those people will lose their coverage. Those estimates are really based on kind of third-party estimates either from the CBO or in like organizations who've tried to frame this.

And then we assume that a small percentage, somewhere between 10% and 20% of those people will be able to get other coverage. Maybe they will go from a gold metal plan to a bronze metal plan. We believe most of them will get commercial coverage through their employer. But it's a relatively small percentage. And the largest percentage of people who will lose that exchange coverage, 75%, 80%, 85% of them will turn into uncompensated or uninsured patients. And we think that's the greatest impact.

So most of the $75 million estimated impact will come from people who've lost their coverage, continue to utilize the hospital, in particular, utilize the emergency room. We will treat them as we're obligated to do both legally and ethically, but we'll do so without any reimbursement. And what was reimbursed a year ago won't be reimbursed now when we convert it to bad debt or uncompensated care.

There's some element of reduced volumes that we've calculated in. But again, we think the greatest impact is on that uncompensated care. Your question is, I think, in January and February, what's our experience been? And what I would say is we've definitely seen a reduction in the number of exchange patients immediately in January and February. I don't think it rises to the 25% to 30% level. But I think we think it still will. And I think we've said and I think others have said that we need another couple of months at least of activity and experience because I think one of the things that everybody acknowledges will happen is that some people that the insurers are still saying are insured under the commercial exchanges will fail to make their payments, their premium payments and will be deemed to be uninsured.

So we think that 25% to 30% will ultimately be the number. But to be fair, we need another couple of months of data as I think does the entire industry to unpack it and to be more precise. But at the moment, we are comfortable that our experience in the first couple of months supports the $75 million estimate.

Got it. Fair to say you might have more commentary on the first quarter earnings call.

Yes. I think we should know more. I don't know that we'll be sort of 100% informed at that point, but I think another 2 months at that point of data will be very helpful.

So on the state-directed payments, I think you guided to a fairly nominal increase year-over-year. Obviously, there are some outstanding programs. You did have some insight last year into the D.C. program. I guess is there anything to comment on certainly in Florida, California, a couple of other states that are maybe more impactful for you?

Yes. So the Florida program, we've kind of identified the potential for that now for several quarters. We've framed the potential benefit is between $45 million and $50 million. And along with all the other providers in Florida, we've been waiting for the program to be approved. The state of Florida has, I think, repeatedly expressed optimism that the program will be approved. I think the fact that it's been delayed as long as it has, while other programs have been approved is an indication that there probably is some objection that CMS has. We don't really know what the specific conversations between CMS and the state of Florida.

We've obviously not included that benefit in our guidance. We've certainly not included in our actual results. And we'll do so if and when the program is approved, and we'll look for any further commentary either from CMS or from the state of Florida. The California program, we know that CMS has had very specific issues and objections to the California program. And as a consequence, we believe that in order for a new program in California to be approved, it will have to be revamped and altered significantly from where they are today.

And so we've made no effort, and I don't believe anybody has made an effort, any other provider has made an effort to quantify the potential benefit there. We think it could be material. It certainly could be beneficial to us. But until there's further clarification, we've been very sort of nonspecific about a potential benefit in California.

Got it. And I think you had talked about the California staffing issue that's going to impact not just you, but other folks. We had heard from a competitor of yours that I think the state association was potentially trying to work with the state to see if they could get some relief there. I guess, is that your understanding? And if so, do we think there's actually a potential that, that could come through at some point this year?

Yes. I mean, look, it's worth noting that the California Hospital Association has lobbied very hard to oppose these regulations. And by the way, it's not just the behavioral hospitals that have lobbied against them. Acute hospitals have been a strong voice against these regulations as well. The concern of acute hospitals is that if there is -- if these regulations result in any sort of capacity constraint in behavioral hospitals, that burden is going to fall back on Acute Hospitals and Acute Hospital emergency rooms. which will wind up having to house behavioral patients for longer than they view as appropriate, et cetera.

So I will say this, I mean, the regulations originally were supposed to be implemented on January 1, and the state agreed to postpone that until June 1. At the moment, however, we have every expectation that they'll be implemented on June 1, and that's what we're preparing for. We've begun to hire particularly RNs in anticipation of that. Obviously, to whatever degree, lobbying efforts continue and the state in our minds becomes more reasonable, we would welcome that.

But we're proceeding along. Obviously, we've included what we believe the negative impact to be in our guidance and are assuming that until we hear otherwise, that the regulations will be implemented on June 1.

On behavioral, you laid out your expectations for 2% to 3% pricing growth in 2026, but you've obviously been running well above that. That might strike some as a bit conservative, prudent, if you will. I guess remind us how maybe historically you've been able to sort of get those rates and maybe why you think at least at this point, the 2% to 3% is the right starting number?

So I think it's a couple of issues, Ryan. I mean one is, I think either you or Darren said that our overall projections for the increase in directed payment program reimbursement next year is relatively flat. I think it's up about $23 million. But it is up more in acute. I think it's up $58 million in acute and down $35 million in behavioral. And that accounts probably for about a 50 basis point boost in pricing on acute and a 50 basis point drag on pricing in behavioral. So that's a little bit of the softness contributor to behavioral next year.

But I think other than that, we've been saying for some time that pricing over the last several years has been stronger, higher than it has historically been in behavioral. And we've talked largely about getting increased pricing from managed Medicaid payers. And I've made the point over and over again that when we talk about increased pricing, in many cases, we're getting a 5% increase from a managed Medicaid payer. But that's after a period of no increases for 3 or 4 years. So I don't want to -- I'm hesitant to describe them as outsized increases. We think they were overdue increases.

But one of the things that we've made the point is if we got those increases in '24 and '25, those benefits would start to anniversary. And at some point, we would see a moderation of our pricing strength in behavioral. Honestly, and I think people who follow us closely know, it's taken longer than we thought. And we've been, I think, sort of conservatively saying we're likely to see that moderation a year ago, 2 years ago, et cetera. But I think finally, we're starting to see it in 2026. But I would make the point that the 2% to 3% pricing in behavioral and the 3% to 4% in acute beside the impact of the DPP, I think once you adjust for that, falls very much in the range of what the historical pricing increases have been in both of those segments.

On the acute side, just in terms of pricing, obviously, during COVID, those rates are not keeping up. Post-COVID, I think you and some of your peers were able to sort of garner a little bit of premium yield. We're sort of at that place now, I think, where some of those contracts or maybe the majority are starting to be negotiated. So the question becomes, are you able to sort of keep that, I'll call it, premium yield maybe versus pre-COVID? Or is that going to sort of normalize maybe over kind of a 2- to 3-year period?

So I think you described it properly. I think beginning -- towards the end of COVID, I'm going to say, late in '22 into '23, as we began to renegotiate acute care contracts at that point in time, I would say before that, during COVID, maybe pre-COVID, our average price increase in an acute care contract was in the sort of 3% to 4% range. Beginning '22, '23, maybe even a little bit into '24, I think that rose to about 4% to 5% on average as we were getting, I think, an acknowledgment from payers that inflation broadly had risen during that period and that wage inflation, I think, in particular, had risen and our rates -- renegotiated rates were reflecting that.

I think as we've begun to renegotiate those contracts, I think you framed the question as they begun to expire we've renegotiated them in '24, '25 into '26, I think we've progressed back to or moderated back to, again, I'll call it, 3% to 4% on average. And I think that's reflected in our pricing. Now we do get the benefit, again, of increased DPP. We get the benefit of steady, albeit small increases in acuity, maybe 1% increase in acuity every year, which boosts pricing, decent Medicare increases. So I think we're comfortable in that 3% to 4% pricing range for the acute business for '26 with all those sort of factors coming into play.

In our January hospital survey, we had a fairly large health system respond and saying that denials activity was really a drag for them on revenue accruals in January. So I guess the question is, what are you seeing in terms of denial activity, medical necessity, just UM maybe in general from the plans, maybe taking into the backdrop that obviously, the plans are sort of struggling, not in a great spot here for at least the last 1 to 2 years?

So I think it's worth noting that I'm going to say 1.5 years ago, we embarked on a process where we hired a third-party consulting firm to review our revenue cycle processes. We have spent a great deal of time and focus and dollars on improving across the board our revenue cycle, particularly for acute care, people, process technology. And to a degree, I feel like at best, maybe what this has done is kept us current or sort of on a level playing field with the payers who, I think as your question alludes to, have been more aggressive in terms of their denials and patient status changes and kind of delays and deferrals and payments.

So I think ultimately, because we've made a significant amount of improvements in our own processes, we haven't really seen a measurable increase in denials, patient status changes the way that some other providers have sort of talked about in the last few quarters or even like you said, as recently as the last couple of months.

And honestly, we're going to embark on a very similar process in 2026 in our Behavioral segment and their revenue cycle. So I think that's helping us to kind of stay even with the payers. But I certainly acknowledge -- I would say when ever anybody asked me this question, if one of our revenue cycle folks was sitting in this chair or -- and we ask them the same question. They would just describe a sort of ungodly kind of daily experience of this slog with the payers. And that is really true. I mean it really is a daily sort of back and forth with payers, et cetera. But I think it's -- when we look at the overall metrics, we haven't seen a significant increase in denials, patient status changes, those sort of leading indicators.

And then just sort of maybe looking into the future, I mean, obviously, the '27 rate update, at least the advanced notice is tepid more than people thought. It looks like the payers could continue to struggle at least a little bit here. I guess what's the expectation going forward? Could be use of AI for increased denials? And maybe just more broadly, where do you expect those relationships with certainly the national payers to go as we move through '26?

Yes. So look, I don't know that anybody -- I'm sure nobody does know this for certain, but I think there are at least some who expect that the final rate from CMS for the Medicare Advantage plans will be better than the initial proposal, which was, quite frankly, I think, disappointing for the MA providers or payers. I do believe that if the rate stands and if the payers are forced to make changes, they certainly will, I think, continue to be aggressive on the utilization management changes.

But I think the main initial way that they'll respond, and we've seen this, I think, to some degree in 2026 is with benefit plan design. And as you know, the way the Medicare Advantage plans have really competed with each other and competed for traditional Medicare Business is in expanding the sort of traditional benefits to include things like dental benefits and vision benefits and those kinds of things, which, quite frankly, don't generally impact us.

So to the degree that those benefits are eliminated in benefit plan design changes to make the product more price reasonable, if you will, for the payers, I don't know that it's going to have an immediate impact on us.

Professional general liability reserve has been a topic certainly in Behavioral. I think you alluded to on the last earnings cycle, a little bit more on the hospital side as well. Maybe walk us through what the accrual activity was in 2025, what's built into guidance for '26. And I think the general question becomes, is that pressure sort of still high but steady? Or do we expect that to be high and potentially accelerate over the next couple of years?

So specifically, I think in 2025, we said that we added about $45 million in expense to our malpractice reserves in 2025, about $35 million of that in the third quarter and another $10 million in the fourth quarter. And we make the point that we have a very formal actuarial review, a third-party actuarial review twice a year on our malpractice reserves and are looking at them even in real time more firmly. And I think it's been a pressure point, not as I think your question suggested, not just for us, but for the industry, I think both the acute and the behavioral industry.

So we've tried to stay ahead of the pressures on professional and general liability expense. I think have done a reasonable job of doing that. But it's going to be something that will be continue to be evaluated in real time. In terms of our guidance for next year, I would say that we've got malpractice insurance expense rising faster than the rate of inflation instead of, I'll call it, 5%, maybe by 10% or 15%. We think and hope that, that's adequate, but we'll continue to reevaluate that with our actuarial studies every 6 months.

Last minute or so, maybe touch on capital spending. I mean the leverage ratio, 1.7x, 1.8x, somewhere in that range. I mean, extremely low versus your competitors, to be fair. We get this question a lot. Obviously, you could buy back a pretty significant amount of shares if you felt you wanted to. There are some assets potentially out on the market. You could build some internally. So maybe last minute or 2, where do you look at capital policy now just given some of that backdrop?

Yes. I mean I think we view the sort of ideal leverage level in the 2x, 2.5x range. So we would acknowledge your comment that we're at a low level. We like to sort of keep the flexibility to respond to inorganic opportunities, M&A opportunities. I think particularly as we build -- in both of our segments, as we built out our outpatient footprint, looking to see if there are opportunities inorganically to help do that and trying to keep the flexibility open to do that.

You said we could choose to be sort of an active acquirer of shares. We've been -- I think we've chosen to be and have been an active -- a very active acquirer of our shares. Probably over the last 6 years, we bought back about 1/3 of our shares. So we consider that to be a pretty active level. And I think we'll continue to be an active acquirer of shares regardless of what other opportunities are out there. But to whatever degree there are opportunities, we want to be able to pursue those as well.

All right. I think we'll have to leave it there. It's all the time we have. Steve, Darren, thanks a lot, and enjoy the rest of day 2 at TD Healthcare Conference. Thank you.

Thanks, everybody.

Thanks.

Good day, and thank you for standing by. Welcome to the Q4 2025 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker for today, Darren Lehrich, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Universal Health Services Fourth Quarter 2025 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then we'll open it up to Q&A.

During today's conference call, we will 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, we recommend a careful reading of the section on Risk Factors and forward-looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2025.

In addition, we may reference during today's call, measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release.

With that, let me now turn it over to Marc Miller for some introductory remarks.

Thank you, Darren. Good morning, everybody, joining our call. Thank you for your interest in UHS. We closed out 2025 with strong results. Revenue growth for the fourth quarter was 9%, adjusted EBITDA net of NCI increased 10% and adjusted EPS increased 20% as compared to the fourth quarter of 2024. For the full year 2025, revenue growth was 10%, adjusted EBITDA net of NCI increased 15% and adjusted EPS increased 31%.

Our fourth quarter and full year performance were highlighted, in particular, by continued strong expense management in acute care, sequential volume improvements in behavioral health, solid pricing across both segments and significant share repurchase activity.

Looking back on 2025, I'm very proud of the progress we've made across the organization in several critical areas. We strengthened our growth agenda with the addition of new inpatient capacity, while also intensifying our focus in the outpatient arena through the addition of new service locations across both segments. We've demonstrated financial discipline by managing expenses well in the face of a dynamic operating environment. And we accelerated the pace of technology adoption to improve clinical outcomes and drive greater operating efficiency.

Speaking first to our growth agenda. Over the past few years, we've opened 2 new acute care hospitals and laid the groundwork for significant new acute care capacity to come online during 2026 with 3 inpatient expansions, totaling 178 licensed beds in Florida, California and Nevada, and a state-of-the-art 156 bed de novo hospital in Palm Beach Gardens, Florida that will open in the second quarter.

In our behavioral segment, we've taken a disciplined approach to new bed capacity during 2025 as we devoted more resources to accelerate our outpatient behavioral strategy. In 2026, we have 2 behavioral de novo projects totaling 264 beds, including a joint venture project with Jefferson Health System in Pennsylvania.

On the outpatient side, we operate 119 outpatient behavioral locations, including 10 new freestanding centers opened under our 1,000 branches wellness brand during 2025. We are on track to open at least 10 more branches locations during 2026. And our team continues to pursue opportunities to accelerate our outpatient behavioral growth rate and diversify our segment, payer mix and service offerings to sustain our leadership position as a provider of choice.

In terms of expense management, our acute care margins improved in 2025 due to reduced contract labor costs and strong supply chain management performance. Labor productivity also improved through a 2% reduction in same facility acute care length of stay, and this remains an area of opportunity for us in 2026.

In our behavioral segment, margins were stable in 2025 as compared to 2024, even as we made investments in staffing capacity to relieve some of our labor constraints that have held back our volume growth in certain markets. These investments position us more strongly for volume improvements during 2026.

Finally, from a technology perspective, we've deployed AI and advanced technologies in 2 primary domains within our business and our operations to impact quality and patient experience and in our administrative operations to increase efficiency. We have a strong team in place. We've demonstrated success in evaluating and deploying technology at scale across both acute care and behavioral health divisions.

On the operational side, we fully rolled out Agentic AI to improve post discharge care and reduce readmissions. In 2026, we are focused on rolling out new patient safety technology and behavioral health. And in acute care, we are deploying AI across several departments and functions [indiscernible] and outcomes.

On the administrative side, we enhanced our acute care revenue cycle operations by deploying AI-based solutions to improve documentation and streamline our claims appeals process. Over the next several quarters, we will be rolling out process improvements and new technologies and our behavioral health revenue cycle operations.

In behavioral health, we are also leveraging AI features in an existing digital tool to streamline the referral and intake process to improve response times to new referrals and improve volumes.

In closing, we are optimistic about the future because we continue to invest in our people, our facilities and in technology that will improve quality, patient experience and operating efficiency. With that, I'll now turn the call over to Steve Filton for more details on the quarter and our financial outlook for 2026.

Thanks, Marc. I will highlight a few financial and operational trends and outline our 2026 financial guidance before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $7.06 for the fourth quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $5.88 for the quarter ended December 31, 2025.

During the fourth quarter of 2025, on a same facility basis, adjusted admissions at our acute care hospitals were flat as compared to the fourth quarter of the prior year. Acute care volumes were impacted in part by softness in the Las Vegas market due to factors that we consider somewhat transitory in nature, including lower respiratory case levels on a year-over-year basis. Excluding the Las Vegas market, our facility acute care volumes would have increased by 1% during the fourth quarter.

Same facility net revenues in our acute care hospital segment increased by 6.9% during the fourth quarter of 2025 on a reported basis as compared to last year's fourth quarter and increased 5.2% after excluding the impact of our insurance subsidiary. Acute care same-facility revenue per adjusted admission increased by 5.4% during the fourth quarter of 2025.

Operating expenses continued to be well managed across labor, supplies and other expense categories. Excluding the impact of our insurance subsidiary, same-facility acute care salaries, wages and benefits increased 4.4% and supply expense increased 1.8% over last year's fourth quarter. Same facility contract labor was 2.4% of Acute Care segment revenue or 20 basis points lower year-over-year. For the fourth quarter of 2025, our solid acute care performance resulted in 10.4% growth in same-facility segment EBITDA and a 50 basis point improvement in same facility segment EBITDA margin to 14.8%. For the full year, Same Facility segment EBITDA margin improved 150 basis points to 15.8%.

Turning to our Behavioral Health segment results. During the fourth quarter of 2025, same-facility net revenues increased 7.2%, supported by a 5.6% increase in same facility revenue per adjusted patient day and a 1.5% increase in same-facility adjusted patient days as compared to the fourth quarter of 2024. Expenses in our Behavioral Health segment increased at a slightly higher pace than revenue due to growth in headcount in certain markets where volumes have been impacted by staffing constraints. For the fourth quarter of 2025, Behavioral segment headcount growth was 3.1%.

Total same-facility labor expense growth, including the increase in headcount was 7.3% per adjusted day in the U.S. Overall, we believe expenses were well managed during 2025, leading to total behavioral health segment EBITDA growth of 6.9% in the fourth quarter and 7.8% for the full year 2025.

Cash generated from operating activities was $1.9 billion for the 12 months ended December 31, 2025, as compared to $2.1 billion during 2024. Cash flows during 2025 were impacted by $50 million related to an increase in receivables at our 2 most recent de novo hospitals and $145 million related to the timing of payments for certain Medicaid supplemental programs.

During 2025, we spent $1 billion on capital expenditures, approximately 35% of which related to the de novo hospital in Florida and major expansions in Florida and California. During 2025, we also acquired 4.65 million of our shares at a total cost of $899 million, including 1.46 million shares purchased during the fourth quarter of 2025. At December 31, 2025, we had $1.425 billion of repurchase authorization available pursuant to our stock buyback program, and we had approximately $900 million in aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility.

Turning to our outlook for 2026. We expect revenue to range between $18.4 billion and $18.8 billion, representing growth of 6% to 8%. We expect adjusted EBITDA net of NCI to range between $2.64 billion and $2.79 billion, representing growth of 2% to 8%. We expect adjusted net income attributable to UHS per diluted share to range between $22.64 and $24.52 representing growth of 4% to 13%. Our guidance assumes same-facility volume growth to be in a range of 2% to 3% for both segments for the full year 2026, although it's likely we'll be below this range during the first quarter due primarily to the winter storms, which we are currently assessing in our Behavioral Health segment and the Washington, D.C. operations of our acute care segment.

We expect capital expenditures in 2026 to range between $950 million and $1.1 billion, reflecting the culmination of spending for several large inpatient projects that will come online during the first half of 2026.

Our guidance includes several assumptions unique to the 2026 operating environment as follows: We assume an adverse pretax earnings impact of approximately $75 million related to reductions in the health insurance exchanges. We assume that exchange volumes will decline by 25% to 30% and approximately 10% to 20% of this volume will shift to other forms of coverage with the vast majority shifting to self-pay or uninsured. The exchange headwind is concentrated in our acute care segment based on historical utilization patterns. For the full year 2025, exchanges represented approximately 6% of acute care segment adjusted admissions and slightly less than 5% of the segment's revenue.

We expect a negative pretax earnings impact of approximately $35 million in our behavioral segment associated with the recently enacted California inpatient psychiatric hospital staffing regulations that will go into effect on June 1, 2026. The regulation is expected to increase labor costs due to the need to adjust the mix of licensed nursing staff at our facility. Our 2026 estimate includes a higher burden of recruiting and training costs and some short-term census disruption as our California operations ramp up to comply with the regulations. Beyond 2026, the ongoing costs are expected to be approximately $30 million after considering a full year of higher labor costs.

Our 2026 outlook assumes a total net benefit from Medicaid supplemental payments of $1.36 billion and includes a new Nevada supplemental program that was approved this month, but does not include any other new programs pending approval. As compared to 2025, we expect the net benefit from Medicaid supplemental payments to increase by approximately $23 million. Our 2026 outlook assumes approximately $50 million of favorability related to improvements at Cedar Hill. We assume that incremental improvements we expect to make at Cedar Hill beyond the breakeven level will be offset by start-up costs associated with our de novo hospital in Palm Beach Gardens.

Finally, we expect a favorable pretax earnings impact of approximately $50 million comprised of 3 smaller and discrete items, including a onetime legal settlement recognized in 2025 that we do not expect to reoccur. Operational improvements in our Nevada health plan with revenue growth at similar levels as in 2025 and modest contributions from behavioral segment M&A completed in 2025, primarily in the U.K.

In conclusion, we're pleased to share our positive growth outlook for 2026, which assumes core growth from our consolidated operations of approximately 5%, underpinned by the strength of our markets, continued expense management and ongoing efficiency opportunities.

Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time.

[Operator Instructions] The first question for today will be coming from the line of A.J. Rice at UBS.

Two things. First of all, just to drill down a little bit more on the guidance for '26. I know you mentioned 2% to 3% volume growth across both the segments. Give us any flavor on what's embedded in pricing? Or is it more of the same what you saw this year across the 2 segments? Are you assuming any change in managed care rates or whatever?

Sure. So A.J., I mean, I think on the acute side, our guidance implies a 3% to 4% pricing increase that's in line. If you look at sort of the 10-year average of pricing increase in acute care, I think it's averaged right around 4%. And I think that continues to be -- that pricing is supported by a steady increase in acuity over that period that we expect will continue.

On the [ payroll ] side, we're expecting pricing in the sort of 2% to 3% range. And we acknowledge that that's somewhat lower than we've been running for the last several years. As you know, we've been expecting that price -- really strong pricing over the last several years would begin to moderate at some point as these increased contract prices began to anniversary, et cetera. And I think we're starting to see that evidence. So slightly lower pricing expected to do in behavioral compared to the last several years, but I think also, again, in [indiscernible] historical rates.

Okay. And I appreciate all the comments that Marc offered on the AI applications, and it does seem like hospitals and health systems are AI risk environment for opportunities. The question I get asked is not an easy one, but how do you think about how that translates into operating performance in terms of financial impact of those applications and over what time frame might we start to see that have an impact on revenues or margins, those type of things that you're calling out?

Yes. So I think as Marc described in his comments, A.J., we have focused -- and I certainly believe we, like most are in the early innings of this AI game. I think our initial efforts have really focused on administrative [indiscernible] efforts like within our revenue cycle management, I think Marc alluded to, claims appeals and coding. And we use that, I think, to great effectiveness. I think really, what we're doing and otherwise, I think you often referred to post-discharge activity. So historically, a nurse would make a post-discharge follow-up phone call with the patient to ensure they're being compliant with their medication and [indiscernible] and follow-up [indiscernible]. And now we're using an AI agent to make those calls in many cases.

And so in both cases, I think we're driving efficiencies. It allows us to reduce head count. It improves the outcomes as measured by revenue cycle metrics or reduction in readmissions, which I think Marc alluded to. So, I think it's impossible to precisely quantify -- either precisely quantify what we've been able to see -- certain precise -- difficult to precisely quantify what the opportunities may be, but we think they're significant.

And our next question is coming from the line of Ann Hynes of Mizuho Securities.

Great. Within our acute care volumes of 2% to 3%, can you let us know what you're assuming surgical volume versus medical volume? And then with the Nevada market, how does that market do in 2025? And how do you expect it to grow in 2026?

And so I think surgical volume in 2025 lagged our overall by a slight amount. It was positive. Our surgical volume growth in Q4 was positive over last year's fourth quarter. So we're encouraged by that. I think that our expectations for next year are somewhat similar that surgical volumes probably don't grow quite as fast as our overall volumes. But I think sync up pretty closely.

As far as Nevada goes, I think Nevada in 2025 has grown in line with the rest of the acute division, I think historically, that market has tended to grow faster. It was a little bit challenged in 2025. There's been much reporting of tourists, the volumes and tourist activity in Las Vegas being down in 2025. And that impacted us, I think, to a small degree. We don't get a lot of patient activity directly from the tourist population, but obviously, it has a cascading effect.

We're encouraged by the fact, however, that employment trends have remained quite stable in Las Vegas. And that historically has been the leading indicator of sort of how we're going to do and how the economy is going to do there. And so -- and the casino or gaming industry reports, I think, pretty bullish prospects for their 2026 convention and conference bookings. So we're assuming that the Vegas market experience is a bit of an uptick in 2026.

And our next question is coming from the line of Justin Lake of Wolfe Search.

This is Anna on for Justin. Can you share what you're seeing on exchange volumes so far given there are a significant number of members that haven't paid their premiums yet? And I know that in Feb and March, the plans don't have to pay the provider on members that don't pay premiums. Are you able to see this information from plans? And what's your level of visibility on the potential bad debt here?

Yes, Anna. So as I said in our prepared remarks, we're assuming a 25% to 30% decline in exchange volumes. That's largely based on CBO and other sort of public projections. We've seen -- we've already seen a decline in exchange volumes in the first couple of months of the year. I don't think quite to that extent. But I think as your question alludes to, we believe that some of the early reporting on how much exchange volume has been lost is understated because the insurance companies won't report exchange volumes down until people start to miss premiums, et cetera.

So, Yes, I mean, that's a challenge for us because we are in the position sometimes of verifying a patient's insurance with a payer and the payer verifying their insurance and then we build the payer, the payer comes back to us and says the premiums haven't been paid and they don't pay -- they won't reimburse the charges at that point. That has always been a risk for us. Obviously, it will be an increased risk in this period where there's a dramatic decline in exchange volumes. But we believe that we accounted for that in our assumptions.

But I think one of the things -- all of us, meaning all the hospital companies have made estimates about what's going to happen with the exchanges, et cetera. But the truth is we're going to need a few more months to really see how this sorts out what the real loss in volume is, how many of these people who lose their exchange coverage, can get other coverage, et cetera. So we've made our best estimates. We feel comfortable with the estimates we've made. But I think we're all going to become -- be able to be more precise over the next few months as we get more and more accurate data.

And the next question will come from the line of Andrew Mok of Barclays.

Steve, you mentioned the $35 million headwind from the new California behavioral staffing requirement for 2026, but also noted a $30 million annual ongoing impact. Can you give us a bit more detail on the nature of the headwind and help us understand why the headwind from the midyear implementation wouldn't annualize into a larger run rate headwind?

Sure. So Andrew, the task before us is that the new California staffing requirements don't necessarily require us to increase our headcount overall. I think actually, we have in excess of the head count that they're requiring. But it is a different mix of staff and is more heavily skewed to licensed professionals, particularly RNs. So we're going to have to change our staffing models in a number of our facilities. We will hire more RNs. We think that there is some sort of upfront investment in doing that, potentially start-up costs, increased recruiting costs, et cetera. There might be, I think, as I indicated in my prepared remarks, in the first couple of months, we may not have all the slots filled and therefore, we're anticipating potential short-term volume disruption.

But once we are fully staffed, which we think we will be at some point in 2026, then I think the ongoing costs are reduced, and we won't have those sort of, I'll call it investment in infrastructure investment costs duplicated in 2027 and beyond, which is why the annual impact in 2027 and beyond or the expected annual impact is actually a little bit less than what we're expecting for a partial year of the regulations in 2026.

The next question will be coming from the line of Ben Hendrix of RBC Capital Markets.

We've heard carriers talk a lot about accelerated behavioral trend for a while now, and it sounds like your outpatient development is addressing that. Can you talk a little bit more about where the demand is on the outpatient behavioral side in terms of the types of services and the types of services that are being offered in the development you completed in 2025 and what you expect for 2026. And then how should we think about the optimal behavioral business mix over the long term between the inpatient and outpatient?

Yes, Ben, let me answer. This is Marc. So our outpatient strategy continues to progress. Right now, outpatient services represent about 10% of our behavioral segment revenue. We expect that to continue to grow. As I said on the prepared remarks, we already operate close to 120 outpatient locations where we offer either step-down services or step in services. So for the step-down location, we have transitional services such as partial hospitalization, intensive outpatient following an acute care -- an acute psychiatric state. And we typically operate these locations and their satellite clinics under our local brand of our inpatient facilities, and they're often close to those facility campuses.

The step-in services are for patients entering behavioral system on an outpatient basis, so people that we've not even had yet as inpatient. The payers continue to look for in-network providers with scale to offer these types of step in services as an alternative in patient care. So we think our stepping model offers comprehensive outpatient services, which would include things like IOP, counseling, virtual care. And we think the demand for that is going to only continue to grow in 2026.

In a number of markets, we've now branded this under what we're calling 1,000 branches wellness. Thus far, we're in development, and we expect to open at least 10 of these branches locations in '26. So I think that we have a good ramp-up already planned, and we expect that there's going to be many more opportunities to expand in all of these areas going forward.

And our next question is coming from the line of Stephen Baxter of Wells Fargo.

Just wanted to follow up on California for a couple of points there. I guess as you're kind of building up to that long-term $30 million run rate impact, does that really just reflect the kind of the changes directly on the incremental staffing side? Or are you thinking that there could be any spillover impacts to your base wage structure potentially related to maybe your consumer or your competitors trying to maybe hire in the same way that you are? And then as you think about potential reimbursement in California, I know California budgets are not exactly flushed at the moment, but is there any prospect for potentially seeing any offset on the reimbursement side anywhere in the near future?

Yes. So Stephen, I think our, again, assumptions were the cost of replacing current staff with a higher license. And we acknowledge, certainly, as we went through this exercise that all acute behavioral facilities in California would have to be going through the same exercise. So we did our best to project what wage inflation might be and what might be required in terms of recruitment incentives and that sort of thing.

Obviously, this is new to all of us. And so we're making certain guesses and estimates. But we think we've been reasonably conservative in our approach. Again, acknowledging that others will be going through the same process as us. As far as reimbursement goes, your point is well taken. We will certainly make every effort to work with all of our payers, whether they be government payers, the medical program in California or our private commercial payers to get them to acknowledge this increased cost on our part. How that will sort out, ultimately, I don't know. We certainly have not forecast or budgeted anything for that, but we will certainly focus our efforts on that.

The next question is coming from the line of Jason Cassorla of Guggenheim Partners.

Maybe just stepping back for behavioral, you're expecting accelerating volumes, but a bit of deceleration in pricing growth. I guess if -- if you look at that 2% to 3% volume and 2% to 3% rate growth as the go-forward status quo, would you still expect that to translate into organic margin expansion? Or has that equation changed in terms of how you think about margin expansion for that business?

Yes. So obviously, those assumptions, 2% to 3% patient day or adjusted patient day growth, 2% to 3% pricing growth, result in 4% to 6% -- 4% to 6% revenue growth projection. We think generally that, that revenue growth level will -- the level of the increase in operating costs. I mean we made the point in our operating -- excuse me, in our prepared remarks that in 2025, our operating costs were a little bit elevated by kind of an investment in headcount and hiring and filling vacant positions in markets where that has been a headwind or an obstacle to reaching our targeted volume growth. I think that headcount increase will clearly moderate in 2026, and leave us at a point where I think wage inflation and other operating cost inflation should not necessarily exceed the growth in revenue, which will allow for margin expansion.

And then I would just also add, following on to Marc's comments about the growth in outpatient, generally, outpatient margins are better than inpatient margins. So to the degree that we're successful in growing the outpatient business faster than inpatient. That should also help margin expansion in behavioral.

Great. And if I could follow up just quickly, I wanted to ask about the acute length of stay opportunity. You flagged it a little bit in the prepared remarks. It looks like length of stay has been coming down a little bit, still slightly above pre-pandemic levels. Case mix has been rising, that probably offsets a little bit. But PAUSE -- maybe can you just help a little bit more unpack in terms of AI technology or other efficiencies that can bring that stat lower and drive better throughput? Just anything more on the length of stay would be helpful.

Yes. So a couple of observations, Jason. I mean, one is I think on an acuity adjusted basis, and I think that's the appropriate way to look at length of stay because the sicker patient is, the longer they're going to have to be in the hospital. But on an acuity adjusted basis, LA is -- LLS is actually below prepandemic levels, and I think reflects improvements that we've made. And you make the point. I mean there's all kinds of, I think, reporting opportunities their technology opportunities, better communication with our physicians. But honestly, I think probably the single biggest obstacle we faced in not reducing length of stay further is the supply of sub-acute capacity, whether that's in skilled nursing facilities, nursing homes, long-term rehab facilities, et cetera.

There's been, I think, a lack or a dearth of capacity in many markets in those areas. And sometimes, we're just holding patients waiting for an available bed or an available spot. We think that will improve over time and will continue to improve. So along with our own internal initiatives, we think the marketplace for self-acute capacity will also expand.

The next question is coming from the line of Matthew Gillmor of KeyBanc.

I wanted to ask about the Medicaid supplementals. We appreciate the transparency you all provide. For the programs that are not yet approved like Florida, and I think maybe California, do you have any sense for where those approval processes stand with CMS. And we were also curious if you had any visibility on the rural health transformation funding and what that opportunity could be?

Sure, Matthew. So our commentary on the Florida program has been pretty consistent, and I think it's been pretty consistent because the commentary from the state of Florida has been pretty consistent. They've submitted a program or kind of a program refinement, they're expecting it to be approved. I think it would be fair to say that it's taken longer to get approved than they expected or maybe than we expected, but they have not changed their view that ultimately, the approval will be forthcoming.

We've quantified the benefit to us as best as we could and to be in that sort of $45 million to $50 million range once approval is obtained. And we haven't recognized it, we haven't included it in our guidance, but would do so once that approval is forthcoming. As far as California is concerned, we've been also reasonably consistent in our comments there. We think that the California program faces more hurdles is not nearly as certain and it's likely to be approved. It may need to be modified in significant ways. And as a consequence, while we think if it is ultimately approved, it could be measurably beneficial to us. We've in no way try to quantify that or predict how successful California will be in working with CMS to get their program modified in a way that ultimately would lend itself to CMS approval.

Yes, as far as the rule program goes, we've lobbied hard and worked hard in -- structure of this program is largely up to the states, and we have worked with the states in which we operate. We think that there could be a potential benefit to us. We acknowledge that it's a relatively small percentage of our facilities carry either the rural or referral center designation. So we don't think that the benefit ultimately would be material. But obviously, to the degree that we could obtain any additional reimbursement, it would be positive, but not expecting it to be materially positive.

And our next question is coming from the line of Philip Chickering of Deutsche Bank.

Excluding the cash received during COVID, your leverage ratio is the lowest that I've seen for well over a decade. Is there any leverage ratio where you say enough is enough and you maintain the leverage and put the rest in the repo? Or do we end the year leverage down another 10% of turn or more?

So Peter, I mean, I think our ideal leverage is in the 2% to 3% range. And to your point, we've been at the low end of that for a while. We've done so with the idea that we wanted to keep ourselves sort of maximum flexibility to respond to any opportunities that might arise. We still think that's kind of a prudent position. We've been, as you know, a pretty active acquirer of our own shares, and will continue, I think, to be so. We think that investing in the repurchase of our own shares is a pretty compelling investment in the current environment. But don't necessarily expect to lever up dramatically in the absence of real compelling M&A opportunities. Don't expect our leverage to go any lower either. I would certainly make that point.

Okay. Fair enough. If I were to stay on that point, leverage keeps sort of coming down, except for sort of 1 large behavioral asset out there, you guys can buy almost anything out there in marketplace without needing to keep leverage is low. I guess, sort of follow-up on the question, I guess, why keep it this low unless there's some large deals that you're looking at?

Yes. I mean, part of the issue in terms of being prepared or having the capacity to do M&A is you don't know when those opportunities are going to arise. You don't know how big they're going to be, et cetera. So I'm not suggesting to you that we're keeping our leverage at a current level because of a 1 specific anticipated potential deal. But I think there are a lot of interesting assets in the marketplace. And as we think about how those assets could fit into our strategy, again, we'd like to keep that flexibility available to us.

Great. And then sort of a follow-up here on just AI. Look, this has been a huge focus for investors, obviously, in the last 90 days. A lot of people talk about rev cycle management and you talked about streamlining your full process. Can you give us like real examples about actual efficiencies in terms of timing, cash collections and efficiencies from cost savings that this stuff can actually achieve for you guys?

Let me jump in here. I mean, I think it's hard to pinpoint exact numbers for you on this. I would tell you that over the past several years, we've done a lot to accelerate our pace of the technology adoption. We were an early investor with hippocratic AI. And we think that they are doing some terrific things in this space. We're one of the primary health systems that they're working with. And so what we get is we get a look at -- at everything they're rolling out, we get an opportunity to pilot different things and give feedback for those different things and it will start to pay off in the coming quarters and years.

Some examples, Steve already talked about post discharge calls and the need ultimately for less staff to do some of these things, and that's certainly already paying off in decreased expenses for us. But I think that as they roll out their various AI solutions, we're going to have a front seat to a lot of those things. And we've just been very impressed with where they're going and what they're doing.

But other things that we're looking at right now, I mean, our entire rounding process that we -- is so important to improving quality, maintaining quality, maintaining safety. We're looking to revamp that with different types of technology that we're testing right now. That could have a significant impact on us going into the future, not just on cost savings, but on our increases in quality, hopefully, honestly, we would be able to impact positively our issues with no practice and some things like that. So patient safety technology is a big part of what we're looking at.

And then just other things like post-discharge, bringing people into the facilities versus with our intake process, especially in the behavioral division, so we think a lot of these things have great promise. It's just hard to pin for exact dollars at this point.

Our next question is coming from the line of Craig Hettenbach of Morgan Stanley.

Going back to the behavioral business, as pricing starts to normalize, I know you've done a lot of work on the hiring front, as you've outlined. Can you just talk about the confidence in terms of getting back into more of a steady cadence on the volume side of things?

Sure, Craig. So I mean I think if you look at the cadence in 2025, we find it encouraging. We've seen sequential incremental improvement in behavioral patient -- or adjusted patient day volume growth in each quarter of 2025. We exit 2025 within what we consider to be shouting distance of this 2% to 3% target growth range that we've set for ourselves for quite some time and have struggled to get there. But feeling confident, particularly when combined with the investments in staff and head count that we've made in 2025, and I alluded to earlier. I think that's what gives us the confidence that, that 2% to 3% target in 2026 is definitely achievable.

Got it. And then just as a follow-up from a capital investment perspective, any key highlights or areas for this year?

Yes. I don't think it's anything extraordinary, and we're [indiscernible] different, I guess, I should say, in the sense that, as we said in our prepared remarks, we've got several big new projects opening this year, a brand-new de novo hospital on the East Coast of Florida, a big tower on one of our Florida West Coast hospitals, a replacement facility in Southern California that will open in the next couple of months, a couple of new behavioral joint venture hospitals opening during the year. And then I think otherwise, we're invested, I think, as Marc indicated in his remarks, in building our outpatient footprint in both businesses, but also expanding the things that are very core and central to our acute inpatient business, which is emergency room capacity, surgical capacity, surgical equipment. None of that, I think, is terribly new or different, but it just continues to be a focus of us.

Our next question is coming from the line of Scott Fidel of Goldman Sachs.

This is Sam on for Scott. Just curious, could you give us an update on your overall assessment of the health care policy risk, including Medicaid work requirements and funding cuts, just your latest overall view?

Yes, Sam, I don't think any of the hospital companies have made an effort to [indiscernible] they haven't made an effort, but they haven't produced any estimates on what the impact of the Medicaid work requirements will be beginning in 2027, because I think it's difficult to do. We don't exactly know what the specific work requirements are going to wind up in every state. We have a sense that it's likely that the people who are eliminated from the Medicaid roles as a consequence of those requirements are likely to be less heavy utilizers of the system. But all those variables, I think, kind of remain unsolved at this point.

My guess is as the year goes on, the picture will get clarified and we'll all be able to make a better estimate. But at this point, I think it's not an accident that none of the hospital companies have really attempted to quantify with any precision what the impact of the Medicaid work requirements will be.

Our next question is coming from the line of Benjamin Rossi of JPMorgan.

Just following up on your 2026 outlook. How are you thinking about cash flow from operations this year. I know you mentioned some of the drag last year from the increase in AR related to the Medicaid supplemental payment programs. Is that just largely timing related with new programs or is this baseline simply becoming larger as you're receiving more from these programs? I guess just curious if there's anything more discrete we should be considering regarding cash flow generation this year?

Yes, Ben. I mean I think that if you go back and take a historic approach to this, historically, our cash flow from operations is equal to about 75% to 80% of our operating income less NCI. That, I think, would be our view for 2026. I don't think -- again, there are always sort of timing issues with receivable collection, et cetera. But I think using that measure consistent with the historical outcomes I think is a safe way to look at it.

Great. And just as a follow-up on supply trends. You have a nice percentage across supply spend as a percentage of revenue during 4Q. How would you characterize your current supply dynamics during the quarter? And then for 2026, I know you have a sizable degree of that supply spend in a multiyear fixed contracts, but do you see any additional room this year for any cost offsets across supply spend?

Yes. I mean I think as we indicated in our prepared remarks, supply costs were probably the most effectively controlled of all the expense categories in 2025. We're not necessarily anticipating significant pressure points. I think [indiscernible] turned out that tariffs, which were concerned potentially a year ago have not really impacted our industry in a measurable way. And I don't think we anticipate that they will. There's always opportunities for us to continue to be more efficient there on most of those opportunities. I would describe as opportunities to work with our clinicians and their supply preference, particularly for the high cost items. And so we remain focused in the area. But certainly, as we think about any potential areas of cost exposure in 2026, supplies are not high on that list.

And the next question will be coming from the line of Michael Ha of Baird.

On behavioral health, over the past couple of years, you've been very vocal about the benefit of DPP, how they made Medicaid volumes and behavioral held much more profitable. And because of that, there's been a strong emphasis on driving more of these volumes. We've seen it materialize for your seller behavior health pricing performance. I know today, you mentioned expectations of that to slightly normalize in '26. But that said, the DPP talent are still here. They don't come down until starting '28. So, no immediate shift. So looking forward, as we enter '28, can you talk about your thoughts on the durability of long-term pricing? Should we think about '28 sort of that starting year more incremental changes lower. Also, how might you plan to potentially shift your Medicaid volume strategy over that time? Could that impact your long-term 2% to 3% volume target? And would any of those declines maybe be met with and offset by your outpatient business, maybe more commercial mix through that end. Sorry, a lot of questions. Overall, how are you thinking about all these different pieces.

Yes. So it's a very comprehensive question, Michael. And I think in some respects, you answered some of the questions you asked. I will say, as you noted, that while reimbursement is scheduled to begin to be reduced in 2028. We still have several -- a couple of years ahead of us where the reimbursement remains intact. And as you know, those who follow our disclosures now has actually been increasing over the last couple of years as either new programs are being approved existing programs are expanding or Medicaid utilization is expanding. And so we intend to largely try and take advantage of that benefit while it's out there, while at the same time, thinking about and planning for a scenario in which that Medicaid business is not as profitable as it might be today.

And as you suggested, one of the major ways we will do that is on the outpatient side. I mentioned earlier in response to a different question that outpatient margins tend to be better than inpatient margins. And one of the reasons for that is the outpatient payer mix tends to be much more weighted to commercial than it is to Medicaid. So yes, as we continue to grow and focus on our outpatient initiatives, we both Marc and I have spent some time on describing, I think that will be a natural hedge to some degree against the DPP reduction risk that faces us in a few years.

And our last question will be coming from the line of Ryan Langston of TD Cowen.

Behavioral FTEs grew, I believe, 3.5% to 4% in 2025. You've talked in the past about particular job classes being more difficult to fill. I guess how should we think about that 3.5% to 4% growth in some of those more difficult categories of the growth rate and how that translates into the 2% to 3% outlook for behavioral health growth?

Yes. We've made the point in the past, Ryan, that the behavioral staffing challenges are really different in every market. And in some markets, we're challenged with hiring sufficient nurses in other markets, it could be therapists and in other markets, it could be the nonlicense professionals, the people that we call mental health technicians. It really varies. And frankly, in many markets, we're fully staffed and don't face those challenges. So I don't necessarily have a breakdown in front of me at the moment in terms of the headcount increase in 2025, exactly which staffing categories that involve -- my guess is it's sort of across the board because we hired where we needed to in each individual market.

But I think the important thing from our perspective is we made a conscious decision in 2025 to really ramp up the hiring in those markets where staffing vacancies were an obstacle to further volume growth and now having hired and filled not all, but many of those positions, I think it gives us greater confidence in meeting that 2% to 3% patient day volume growth target in 2026.

Thank you. And I would like to turn the call back over to Darren for closing remarks. Please go ahead.

Thanks, Lisa. Thank you, everyone, for participating in today's call and for your interest in UHS. Have a great rest of your day.

This does conclude today's conference call. Thank you so much for joining. You may now disconnect.

All right. Good morning. My name is Justin Lake. I cover health care services here at Wolfe Research. Very pleased to kick off the last day of our Wolfe Healthcare Conference with UHS. We've got the company's CFO, Steve Filton here. We've got the company's new VP of IR, Darren Lehrich as well. Before we jump into the Q&A, Steve, maybe you give us a couple of minutes of your reflections on the year-to-date positive-negative surprises and how you view the company's positioning into 2026?

Sure. So obviously, our third quarter earnings release just a few weeks ago. And I think from our perspective, things have been going largely as expected. I mean there were a couple of sort of nonrecurring items in the quarter. The biggest positive was the $90 million roughly of annual DPP payments from Washington, D.C. that we've been waiting for, waiting for CMS to approve for some time, offset by a couple of onetime expenses, malpractice expense and legal settlement, et cetera.

But I think in terms of the cadence and trajectory of our 2 businesses, largely performing as expected and as we expect going into 2026, I think -- we think that we are truly now in sort of a post-COVID environment in which the businesses are operating in accordance with models that are much more historically normative maybe than they've been for the last several years; revenue -- same-store revenue growth, mid-single digits. I think on the acute side, something in the 5.5%, 6% range, split pretty evenly between price and volume. On the behavioral side, maybe 6%, 7%, skewed a little bit more towards pricing. We've struggled, I think, in the last few years with our behavioral volumes or getting our behavioral volumes to the targets that we anticipated they could be at or should be at. We're now talking about adjusted patient day same-store growth in the 2% to 3% range, probably in the nearest quarters closer to the 2%, but longer term, maybe closer to the 3%.

So a little too early. I'm always hesitant when I appear anywhere in the fourth quarter before the holidays to really give any updates on trends because they can change pretty dramatically around the holidays. But again, I think the model or the metrics that I outlined, we certainly feel are achievable and will form, I think, the basis for our 2026 guidance, which we will, as we always do, give in detail at the end of February when we do our Q4 earnings.

Thanks, Steve. Before we get to the fundamentals, of course, we'll go through all of the DC-related changes. So maybe first off, you're the only company in, at least the hospital space that's talked about or put numbers around the potential impact of the exchange subsidy expiration. I think you've talked about $100 million in that ballpark of a headwind if that goes away. Maybe you could break that down for us, for instance, you've talked about 6% of adjusted admissions in the acute business being on the exchanges. What kind of a decline do you kind of build into that $100 million? Maybe you could bootstrap it for us in terms of what kind of decline in exchange admissions do you see? How many of them go to commercial, for instance? Let's start there.

Yes. So I think the biggest variable and assumption that companies have to make in estimating the impact, as you described it is how many of those patients who currently have exchange coverage would lose that coverage if the subsidies are not renewed in some form or fashion. As you suggest, and we've said our most recent data point is about 6%, 6.5% of our acute adjusted admissions are exchange patients. We have not given a number on the behavioral side. We think it's a much smaller, more negligible number largely because from the beginning of the ACA, the exchange products have always or have generally borne a pretty significant co-pay and deductible load that renders them a lot less relevant for behavioral admissions and behavioral coverage.

So then the question is, so if those people were to lose their coverage, what's going to happen to them? Some of them might be able to go on Medicaid or get Medicaid. Some of them might be able -- some of them are working and might just return to their employer plans. Some of them might be able to afford lesser metal plans going from a gold to a bronze or whatever. And the truth of the matter is nobody exactly knows how it's going to play out. We've never really experienced this before. We've assumed, and I think that seems relatively consistent with what some of our peers have sort of talked about is that roughly 1/3 of people would lose their coverage.

And as we've sort of looked into this and delved into the details on that exchange population over the last couple of years, I think we've largely determined that their utilization behavior is reflective of or more sort of, I'll call it, sympathetic with a Medicaid population than with a, I'll call it commercial or Medicare population, meaning that their utilization is very ER focused. They tend to use the ER when they have health care needs. They don't necessarily have private physicians. They don't do -- we don't do a lot of elective procedures in that population, et cetera. So we take that 1/3 of the business that we think would lose their coverage. We evaluate to what degree they use the emergency room, and we assume that they'll continue to use the emergency room and emergency procedures at the same rate and the same cadence, but now we won't get paid for them. And that's how we generally get to that number.

But I think we've stressed, and I think honestly, as you suggest, we're the only company that I think has really put that number out there. I think the first time we put it out, that was at your conference last year. And I stressed at the time that it really was a guesstimate. And I'll say that again. I mean I think we gave the number, and I wanted to give it last year because people were estimating numbers that were well beyond anything we were sort of contemplating, and I felt it was helpful to ring-fence it. And I still think that's true. I couldn't tell you that $100 million is a precise estimate, but I think it's a decent ballpark based on what we know.

Got it. And I appreciate the comments on the shift in utilization to the ER and Medicaid versus -- is there a rule of thumb that you would think about if an exchange person is using 1 unit of hospital volume. Does it go down by -- I think HCA was talking about something in the neighborhood of goes down by about 1/3 to 1/2. Is that a reasonable ballpark? Do you think it goes down more?

I just want to be clear, the point they're making is they're not -- they don't utilize the system as much as a Medicare commercial patient...

Meaning that the exchange patient when they lose their coverage will utilize less, like you said, it will be more ER related. We're just trying to think about what is the step down in terms of maybe a percentage basis that you think that...

And again, speculating here. But I think our view is people use the emergency room when they have to. And to the degree that whatever pace they're currently using the emergency room, they will continue to do so. Now it's true that some people use the emergency room for nonemergent procedures. And again, I think that's largely true in the Medicaid and exchange population. But the assumptions we've made is that they'll continue to use emergency procedures at the same rate that they had been.

Got it. And then the percentage of revenue that's tied to the exchanges, you said 6%, 6.5% of volume. Is it a little bit higher on the percentage of revenue?

Yes, not for us. And I know this is a little bit of a difference between what we say and what some of our peers say. So we find that our average exchange reimbursement is closer to Medicare. And I think what some of our peers have said is that their exchange reimbursement is somewhat better and maybe closer to commercial or at least somewhere between Medicare and commercial.

I think, and again, it's worth noting that the biggest chunk of this exchange population resides in a couple of states, it's in Florida and Texas. Our 2 biggest public peers, Tenet and HCA tend to have, on a relative basis, a bigger footprint in Florida and Texas than we do. And my guess is they probably have more negotiating leverage in those states, which is probably why their rates are somewhat better. But yes, so our view is that 6.5% -- 6% to 6.5% of volume is also reflective of their revenue contribution as well.

And just to put a bow on this, you talked about 1/3 of members -- 1/3 of the exchange membership loses coverage. You mentioned that some could go to commercial or Medicaid. Any thoughts on how much of that 1/3 does go to commercial and Medicaid that you've assumed in that 100?

Yes. So again, I think the way we've tried to do the projections is sort of assume that if 1/3 just loses their coverage and the remaining 2/3 have some sort of similar coverage. And again, now those are broad assumptions, and we acknowledge that. But I think we're, in my mind, sort of capturing the heart of the impact and the way we've done this.

And then moving over to the provider tax benefits. You talked about -- you talked about that picking up a bit. I think you talked about something in the $1.3 billion range in the current run rate. That was up about $140 million versus the previous. And again, you're the only company giving us an estimate on what you think the 5-year impact will be in terms of the cuts. We all appreciate that. I thought it was interesting that while the benefit was up $140 million, the cut was up a little bit less than half that, right? I'll call it half that, at about $65 million, $70 million. I'm curious in terms of why the cuts wouldn't go up by a similar amount, right, given this is going to transition off. And I -- the 2 things I can think about is, one, I know you've given us a 5-year window. And maybe there are additional cuts beyond that $65 million, $70 million incremental that go outside the 5-year window? Or you think that you're keeping some of it? And if so, I'd love to understand kind of the mechanics there.

Yes. So this is obviously a complicated issue. So I think it's helpful to sort of kind of frame it for everybody. So as you suggest, in our third quarter 10-Q, we have reestimated what we think our net benefit will be from Medicaid supplemental payments in 2025. That's the $1.3 billion that you alluded to. And we also give an estimate, which we've updated-- based on the OB3 cuts or proposed cuts to these Medicaid supplemental payments, which would begin in 2028 and then go over 10 years, we give an estimate that what would those cuts amount to in 2032, 5 years into the cuts. That's the $420 million to $470 million that you alluded to.

The cuts continue -- well, first of all, we assume that the cuts will occur ratably, so they'll begin in 2028, and they'll largely sort of progress ratably getting to, we'll call it this $450 million number, $445 million number in 2032. We don't project beyond that, because we don't really project anything beyond 2032. But the cuts do -- they decline, but they will go on beyond that.

The issue of why -- when there's additional benefit, why the cuts are not in the exact same proportion is really a function of the cuts by state are not proportional. They really -- the cuts are really driven by cuts to the provider tax rate in the state and cuts to the average reimbursement in the rate. And so depending on what the provider tax rates are in the state, depending on whether the state is an expansion state or not an expansion state, depending on what the average reimbursement is under the state's program, the cuts are varying. And so yes, I mean, any time there's going to be an addition to this, we'll likely update the impact of the cuts, but it's not going to always be exactly proportional.

Again, I would suggest that over time, the cuts are about 1/3 of our total in total. And I think if you want to think about it and model sort of ups or downs in the overall benefit, I think the overall cut would be in that sort of 1/3.

Got it. That's helpful, Steve. And then CMS put out a letter on provider taxes last Friday. I think everybody who's read it in this room and on this webcast has probably gotten multiple headaches, and I don't know that anybody has been able to figure out exactly what CMS was trying to say here. But there was a phrase there that a lot of people have kind of latched on to around provider tax programs that are enacted and imposed, right? I know you have a -- that's kind of the language they're talking about in terms of the -- of grandfathering, right, for these provider tax programs. So I know you guys have one of the smartest people on the street that I've talked to at least on the provider tax side. I know you've run this by them. How are you interpreting that? And how do you think that there is an impact at this point to your estimates on provider taxes?

Yes. So first of all, I think your description of the proposed rule is a fair one. It was not all that easy to interpret. It's not all that clear exactly what CMS is sort of trying to get at. I think our initial read is that of the $1.3 billion that we expect to get in Medicaid supplemental payments this year, we don't believe that this proposed rule will have any material impact on that. Again, I would stress the idea that it is a proposed rule and they will go through the rule-making process. And we would hope that in the final rule, some of the questions and some of the nuances that you've alluded to will be clarified.

And I really don't know what the clarification will be. But to your point, so -- if a state has passed or submitted a revised plan that has been approved by CMS, the notion, I think, from a provider perspective is that, that is a plan that would be grandfathered. Whether this imposed, enacted sort of language nuance means just passing it is not good enough, they have to have collected the tax or build the tax or we don't know. We don't really know what -- whether in fact, CMS really is trying to kind of parse the language and say that impose is something different than enacted. Again, the notion is, I think, that, that will be clarified in the final rule, I think what -- again, we would say at the moment is the $1.3 billion that we're projecting for this year, we don't think would be materially affected by the rule.

Got it. What did your provider tax guru, so to speak, have a view of what that might mean for stuff that's been proposed, but not either collected or approved by CMS? I'm thinking, think of Florida, for instance.

Yes. So I think it's more in the new programs, which, for the most part, any program that's been proposed that is sort of pending CMS approval, we've not included in our estimate in that $1.3 billion. Florida, probably maybe the most notable among those. And yes, so I think there would be an argument about whether the Florida program, which I think a few months ago, people assumed would be grandfathered. And I think we still assume may will be grandfathered is going to meet the CMS definition. And again, my sense is that CMS will have to clarify that in the final rule.

Got it. And just to put a bow on this, the -- in terms of provider tax programs that are out there, I think Florida, Georgia, Virginia, et cetera, can you give us an estimate of what that could be for the company outside of the $1.3 billion?

Yes. So if...

Everything proposed...

No, I understand. I was going to say if it doesn't give you a headache and you want to read through our 10-Q disclosure on the DPPs, I think we give a lot of that detail. We talk about Florida and have talked about Florida. Georgia is a moot point for us. Georgia, we only have behavioral operations in Georgia and the Georgia DPP program does not include behavioral.

So yes, I mean, I think we land -- the state, I think, that we often get asked about and that we don't provide a tremendous amount of detail is California. California has proposed an expansion of their DPP program. California has historically struggled with CMS approval. CMS has issues, structural and I think technical issues with California -- programs in California and New York, New York is relevant for us.

And so we've never tried to quantify what the benefit would be if the California rule is adopted or if it's changed and modified. But I think we do clarify the potential benefit from Florida in the kind of $45 million to $50 million. I think California could be a significant additional benefit, but we sort of prefer to wait and see how that gets resolved between California and CMS.

And if I just press you one time on that, if California -- would California be closer to Florida or closer to D.C.?

Yes. And I'll be absolutely honest, Justin, I mean honest -- not -- they feel pressed, I think the reason we've not tried to quantify it is we really don't know. We think the program would have to be modified to meet the CMS requirements. And obviously, not knowing how the program will be modified, it's very difficult for us to provide any estimate.

Got it. Appreciate that. So we'll close out that section of our Q&A here, and we'll talk a little bit about fundamentals. The -- you gave us a little bit of a view of how the quarter is progressing, right? Specifically, you talked about, I think, behavioral patient days were up about 1.3% in the third quarter. You thought you could get to the low end of that 2%. You've seen October kind of past by now, you're halfway through November. How is that kind of trajectory look versus that 2% target with the caveat that we know the holidays could throw a wrench in there?

Yes. I think the point that we tried to make on the call was that we thought that 2% to 3% same-store adjusted patient day growth in behavioral was a reasonable target in, I'll call it, the short to intermediate term, getting to the higher end sort of the more time passed. I don't think we were in any way sort of trying to guarantee or sort of strongly suggest that we can get to the 2% in Q4, we might. But as I said, I'm always often hesitant to give sort of intra-quarter updates, but always in the fourth quarter hesitant to do it because so much can change around the holidays, for better for worse. And obviously, it's the same every year, meaning we see these dips particularly in kind of elective and child and adolescent admissions on the behavioral side. But it can vary year-to-year based on timing, I think based on some other factors. So we'll see.

But again, I'll just reiterate that we're comfortable that, that 2% to 3% behavioral range that we gave is reasonable and not an overly optimistic projection in the, I'll call it, near to intermediate term.

Okay. And some of that more positive view and kind of confidence seem to come from a tick up on the employment side, you talked about on the third quarter call. I know you've given us some interesting metrics there in terms of turnover over time, new starts. How would -- maybe you could put some numbers around that employment change and how you think it benefits you?

Yes. So I think we've really talked about the upside potential in behavioral volumes. And again, we're not -- you've sort of run through the numbers. We're not talking about seismic increases in our ability to meet demand. We're talking about going from 1.3% in Q3 to something closer to 2% in the next couple of quarters. But we think the biggest potential for continuing that growth is making additional improvements and incremental improvements in our staffing. We still say that somewhere between 1/4 and 1/3 of our behavioral facilities struggle with filling all of their labor vacancies, that can be nurses in some cases, it can be therapists. And in many cases, it can be nondegree professionals, the people that we call mental health technicians or aides, who are sort of critical to the behavioral clinical process and care process.

And we continue to make progress. We measure that both in terms of hires. We measure it in terms of reducing turnover. And those metrics have been improving. But to be fair, they've been improving in a pretty incremental way, not as quickly as we'd like. It's challenging. But I think we're making progress, and I think we'll continue to make progress.

And then the other area that we've talked about, particularly, I think, in the last few quarters is, I think we've seen an uptick in the shift of patients from the inpatient setting to the outpatient setting in behavioral. This is not a new phenomenon. Obviously, we've seen that phenomenon in the -- on the acute side of the business literally for decades. But we're really seeing more and more payers, more and more government entities, really trying to move patients where they can to a more efficient setting of care, whether that's partial hospitalization or what we call intensive outpatient. And these are not sort of individual therapy sessions. People often, when we talk about outpatient behavioral care, people often think about the 50-minute session that an individual might have with a therapist once a week or twice a week. And while that's obviously an important component of behavioral care, it's not really the core of our business.

So when we talk about outpatient care, a lot of our focus is on, again, inpatient -- intensive outpatient, partial hospitalization. These are people who are getting 4, 5, 6 hours of therapy a day. They're just not staying over in a facility, and they may be getting that care 5 days a week, 3 days a week, but that's -- so in any event, we're doing a number of things to build up our sort of internal referral network. So as we discharge patients, we capture as much of that as is appropriate for patients who need continuing care and a lot of patients who do get discharged from an inpatient facility do need continuing care.

And we're also really starting an initiative of standing up these freestanding outpatient facilities, which really have not been a significant focus of ours historically because we do know that there are patients who require that sort of care, but don't want to receive it on a hospital campus and in a facility associated with a the hospital because they have fears, whether they're founded or unfounded that they're going to be sort of swept up in that sort of inpatient dynamic. So we've been talking about standing up 10 or 12 of these freestanding facilities a year for the next several years.

Got it. And what percentage of your behavioral revenue is outpatient right now?

Yes. So today, it's a pretty small percentage. I'm going to say it's in that 10% to 15% range. And again, as you know better than I do, you're more familiar with payer commentary, but a lot of payers have commented in the last few quarters that some of their increase in medical loss ratios and utilization is really coming from behavioral care. And a lot of times, they're citing outpatient and the growth in outpatient. And we just feel like historically, we haven't captured our fair share of that. And we have a lot of advantages that should allow us to capture more of it. We tend to be an in-network provider with most providers in most of our markets. We tend to have strong referral relationships with hospital emergency rooms and military bases and school systems and all those components should allow us to garner a significant share of that outpatient business, which historically, we just have not really focused on.

And what's the growth rate of that 10% to 15% of the business running versus the inpatient side?

Yes. So I don't give the exact numbers, but I mean, we made the point in Q3 that of our 1.3% adjusted patient day growth, clearly, outpatient grew faster than inpatient. And I would expect that will be the trend for the foreseeable future that we're going to see faster growth in outpatient than we do in inpatient.

Got it. Maybe we wrap up with a discussion of AI and how that's impacted your business, specifically on the revenue side. I think in the third quarter, you mentioned that maybe a 1% to 2% pickup in pricing came from better collections, right, on the acute side. And you mentioned the payers, right? They're all complaining that sepsis is up 50% or 100%, right, and that hospitals are utilizing AI to code better, right? No one is saying that the coding isn't correct, right? No one is saying it's fraud or anything. Just you guys are doing a better job of coding. So curious how that's impacted your business. Would you kind of attribute that 1% to 2% to AI? And what are kind of the initiatives out there?

Yes. So I would say beginning a number of years ago, we really began to focus particularly in our acute segment on improving our revenue cycle performance, basically our billing and collections. And to be fair, again, part of that initiative was really in response to the fact that we felt like payers were getting more aggressive, and they were using -- and when we think about it, when we think about these improvements, we think about it as people, process and technology, and I think I feel like we've been improving all 3. But again, in response, we think that payers have been using technology to generate denials, to generate patient status changes, whether a patient is an inpatient or an observation patient on the acute side, that sort of thing, in managing length of stay on the behavioral side.

And so we're responding to that. And so yes, we talked about, I'll call it, pricing improvement or revenue per adjusted admission in acute care being at 5% in the last quarter, whereas we think kind of a sustainable number is maybe in the 3% range. And I think a lot of that gap or a lot of the difference is some of those improvements that we've made. Some of it's in technology, making sure that when a bill goes out, it's clean, it's complete, that reduces delays, et cetera. It reduces the ability of the payer to sort of bounce claims, even if it's a temporary sort of kind of thing. We believe that payers have been using AI for years to generate denials. And now we're using AI to generate denial appeals, et cetera, making it more efficient, making it more complete.

So yes, I mean, I think -- and we'll continue to do that. I think in terms of some of the coding things, et cetera, honestly, I feel like we've been doing that for years in terms of having outside parties review our coding and doing some of that work that maybe the not-for-profits are just sort of getting into.

Got it. Do you think that -- I don't want to put a number around it in the quarter, it was 1% to 2%. But do you think that kind of tailwind is durable? Or do you think it's kind of going to bounce around and you're going to see -- I know there's all kinds of accruals around collections and when you recognize them. Do you think it's going to bounce around? Or do you feel like this is something that's durable and you feel like could be a tailwind for a year or 2?

Yes. So honestly, I think we've been getting that benefit. If you go back and look, our acute pricing has been strong now for quite a while. So I think we've been getting that benefit, which is why I think as we sort of suggest going forward, pricing probably moderates at some point closer to that sort of 3% range. But obviously, we're going to continue all this focus on all those initiatives. And honestly, we're shifting to do this now on the behavioral side, where I don't think there's quite as much opportunity because I think billing and collection on the behavioral side is not as complicated as it is on the acute side. But I think there are opportunities. We're just -- we're not nearly as centralized and I think as efficient on the behavioral side as we are on the acute side, and we'll get there in the next year or 2.

Got it. Steve, Darren, I want to thank you for your time. I appreciate you being here with us today, and thanks, everybody, for joining us.

Thank you.

Thanks, Justin.

Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Darren Lehrich, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Universal Health Services Third Quarter 2025 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations.

With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then we'll open to Q&A.

During today's conference call, we will 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, we recommend a careful reading of the section on Risk Factors and -- forward-looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended June 30, 2025.

In addition, we may reference during today's call, measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS which are non-GAAP financial measures information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release.

With that, let me now turn it over to Marc Miller for some introductory remarks.

Thank you, Darren. Good morning, everybody. Thank you for your interest in UHS. I also want to take this opportunity to welcome down to the UHS team. We look forward to having him in a dedicated Investor Relations function for our company. .

Turning to our third quarter 2025 results. We reported adjusted net income attributable to UHS of $5.69 per share representing a 53% increase from the third quarter of 2024. Revenue growth for the third quarter of 2025 was 13.4% year-over-year. Our third quarter performance reflects continued growth in our acute care operating environment, modest volume improvement in our behavioral health segment and solid pricing across both segments. The third quarter included $90 million of net benefit from the recently approved supplemental Medicaid program in addition of Columbia.

Steve will cover the details of this approval and other supplemental Medicaid program updates. Based on our operational performance year-to-date and the increased supplemental reimbursement in the District of Columbia, offset somewhat by additional professional and general liability reserves, we are increasing the midpoint of our 2025 adjusted EPS guidance by 6% to $21.80 per diluted share from $20.50 per diluted share previously.

During the quarter, we experienced progress in our 2 most recent acute care hospital openings, West Henderson Hospital in Henderson, Nevada and Cedar Hill Regional Medical Center in Washington, D.C. Specific to Cedar Hill, we achieved accreditation in early September. As a result, the financial drag from our certification timing delay and start-up issues began to subside during the third quarter, and we expect to exit this year at breakeven or better. putting us in a stronger position at this facility heading into 2026. We believe the long-term outlook for Cedar Hill remains favorable due to demand for services and strong support within the community. as well as our long-standing presence in the district at the George Washington University Hospital.

Our next de novo acute care hospital opening will be the Alan B. Miller Medical Center in Palm Beach Gardens slated for 2026 -- slated for spring of 2026. This project remains on track, and we are encouraged by significant interest in the new medical campus by members of the community and the health care professionals that serve patients within this fast-growing market. We have a long track record of expanding presence in core markets with new state-of-the-art hospitals and are excited to build on our existing presence on the East Coast of Florida.

Separate from these new hospital projects, we've also been active on the outpatient side within our acute care segment, where we operate 45 outpatient access points, including freestanding emergency departments, surgery centers and other ambulatory services. On a year-to-date basis, we've opened 4 freestanding EDs, bringing our total to 34 and we believe our [FDD] strategy is highly complementary to our acute care operations by allowing us to capture incremental higher acuity outpatient volume within our markets.

Within our behavioral health segment, we've taken a disciplined approach to new bed capacity growth which has allowed us to focus on the highest potential expansion and de novo projects while we increasingly devote resources to accelerate our outpatient behavioral strategy.

On the outpatient side of our behavioral segment, we operate approximately 100 access points, including step-down programs closely aligned with inpatient and residential operations as well as step-in programs that allow us to reach patients in convenient community settings. We are on track to open 10 of these step-in programs this year under local brands, as well as our new 1,000 branches wellness brand in a model that supports outpatient services through both virtual and in-person settings.

Our strategies are designed to accelerate our outpatient growth rate, diversify our payer mix and allow us to be the provider of choice within the behavioral marketplace that continues to have strong demand across the continuum. The behavioral health care we provide serves an important need within the health care system and our society more broadly.

With that, I will now turn the call over to Steve Filton, for a financial review of the third quarter.

Thanks, Marc. I will highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $5.86 for the third quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $5.69 for the quarter ended September 30, 2025.

We recognized approximately $90 million of net benefit during the third quarter of 2025 from the District of Columbia supplemental Medicaid program, which covered the time period from October 1, 2024, through September 30, 2025. Approximately $73 million of this benefit was recognized in our acute care results while the remaining benefit was recognized in our behavioral results.

During the third quarter of 2025 on a same facility basis, adjusted admissions in our acute care hospitals increased 2.0% and over the third quarter of the prior year. Acute care volumes were consistent with trends in the first half of 2025 with solid growth in both inpatient medical admissions and outpaced services during the third quarter and surgical volumes that increased slightly as compared to the prior year. Same facility net revenues in our acute hospital segment increased by 12.8% during the third quarter of 2025 on a reported basis as compared to last year's third quarter and increased 9.4% after excluding the impact of our insurance subsidiary and the prior period net benefit from the District of Columbia supplemental Medicaid program.

Acute Care same-facility revenue per adjusted admission increased by 9.8% during the third quarter of 2025 on a reported basis and increased 7.3% after excluding the impact of our insurance subsidiary and a prior period impact of the District of Columbia supplemental Medicaid benefit.

Operating expenses continued to be well managed across labor, supplies and other expense categories. We have not experienced any noteworthy impact from tariff trade policies. Total operating expenses per adjusted admission increased by 4.0% on a same facility basis over last year's third quarter after excluding the impact of our insurance subsidiary.

For the third quarter of 2025, our solid acute care revenues, combined with effective expense controls, resulted in a 190 basis point increase year-over-year in same-facility EBITDA margin to 15.8% after excluding the prior period impact of the District of Columbia's supplemental benefit.

Turning to our behavioral health results. During the third quarter of 2025, same facility net revenues increased 9.3% on a reported basis and were up 8.5%, excluding the prior period impact of the District of Columbia supplemental Medicaid program. Same-facility revenue growth was driven by a 7.9% increase in revenue per adjusted patient day as compared to the prior year.

Excluding the prior period impact of the District of Columbia supplemental, same revenue facility revenue per adjusted patient day increased 7.1% during the third quarter 2025.

Same facility adjusted patient days increased 1.3% as compared to the prior period's third quarter with volume growth modestly improving as compared to 1.2% in the second quarter and 0.4% during the first half of 2025. We expect further volume improvements during the fourth quarter, although we now believe a reasonable expectation for same facility adjusted patient day growth should be in the 2% to 3% range with our near-term expectations at the lower end of this range.

Expenses in our behavioral health segment continued to be well managed with relatively stable margins during the third quarter leading to a 7.6% increase in same-facility EBITDA as compared to the third quarter of 2024 after excluding the prior period impact of the District of Columbia supplemental benefit. We continue to experience labor tightness in some markets, although hiring trends have improved steadily throughout the year.

Our cash generated from operating activities was approximately $1.3 billion during the first 9 months of 2025 as compared to approximately $1.4 billion during the same period in 2024. We expect to collect the $90 million of District of Columbia supplemental payments during the fourth quarter of 2025.

During the first 9 months of 2025, we spent $734 million on capital expenditures, close to 30% of which related to the new hospital in Florida and a replacement facility in California. During the 9 months ended September 30, 2025, we also acquired 3.19 million of our own shares at a total cost of approximately $566 million including 1.315 million shares purchased during the third quarter of 2025.

Today, our Board of Directors authorized a new $1.5 billion increase to our stock repurchase program, bringing our total authorization to $1.759 billion, including amounts remaining under the previous authorization. Since 2019, we have repurchased approximately 36% of the company's outstanding shares and paid approximately $340 million in dividends to shareholders.

In the absence of compelling acquisition opportunities over the near term, we expect to continue to prioritize our excess free cash flow for share buyback and dividends. As of September 30, 2025, we had approximately $965 million of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility.

Turning to an update on Medicaid supplemental payment programs. Our current projected 2025 full year net benefit from various previously approved programs is $1.3 billion. This figure includes amounts recorded during the third quarter for the previously mentioned district of Columbia program and additional amounts related to this program that are expected to be recorded in the fourth quarter of 2025 and but it does not include programs pending CMS approval.

As we discussed during our second quarter 2021 earnings call the OB3 legislation includes several significant changes in the Medicaid program, including changes to state directed payment programs and provider taxes. At this time, assuming no changes to our Medicaid revenues or other changes to related state or federal programs, we estimate that commencing with the 2028 fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro rata basis by approximately $420 million to $470 million in 2032.

This cumulative impact range has been increased to reflect recent supplemental program approvals. Given various uncertainties, including the evolving state-by-state interpretations and computations related to this legislation, our forecasted estimates are subject to change potentially by material amounts.

Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time.

[Operator Instructions] Our first question comes from Justin Lake with Wolfe Research.

Steve, appreciate all the details. I was hoping you could give us an update in terms of I know there's a couple of states pending approval, Florida, I believe, Nevada. Maybe you can give us some color on the potential DTP there. that could benefit the company if those are approved?

And then maybe give us a quick rundown on -- or an update on where the exchange contribution looks like? What's the kind of run rate on the exchange volume in revenue year-to-date. And any updated thoughts on if those subsidies expire, what do you think that estimate is?

Sure, Justin. So as far as any new potential Medicaid supplemental benefits, we've been disclosing for I think several quarters that there is approval of a pending plan or expansion of the pending plan in Florida that we estimate would result in about a $47 million annual benefit to us. As I said, that program remains pending CMS approval of the state of Florida seems confident that it will be forthcoming at some point.

Additionally, I think we learned this quarter, and we'll include this in our to be filed 10-Q for the quarter, that there's another maybe $30 million approximately of Nevada DPP increase, again, pending CMS approval. So on a combined basis, these 2 states would represent somewhere in the $75 million to $80 million range. To the best of our knowledge are no other material programs or approvals pending.

As far as your second question about exchange contribution, the percentage of our total adjusted admissions, acute care admissions that are exchange patients is in the 6% to 6.5% range. That number has been ticking up. Most of those patients are in 2 states in Texas and Florida. And so I think all the public companies have been reporting increases and we have a smaller footprint in those states than some of our peers, but our numbers have been picking up as well. We have previously given an estimate assuming that the exchange subsidies don't get extended about $50 million to $100 million negative impact on us annually.

Given the increase in exchange volumes, we're probably trending towards the higher end of that range. As far as, I think, sort of any prediction about how the exchange subsidy issue is to be resolved. I don't think we have any particularly pressing an insight into that and what we're watching how this develops in Congress, along with everybody else.

Our next question comes from Jason Cassorla with Guggenheim.

Great. Just wanted to check in on 25 guidance. You increased the midpoint by a little over $90 million. Can you just walk through the bridge to the updated guidance, how that's split between the 5 quarters of [indiscernible], the malpractice reserve increase, the legal settlement in the quarter and outperformance? And then you have about a $50 million guidance range at the low and high end, not significant range by any means, but just thoughts on what you need to see to trend towards the high end or the low end of guidance at this point.

Yes. So Jason, I think you largely captured the components of the guidance increase, as you said, at the midpoint in the $90 million to $95 million range. that's made up of $140 million of increased DPP. The biggest chunk of that, of course, is the DC number. That's $90 million that we recorded in the third quarter and another $25 million that we expect to record in Q4. So that's $15 million of new DPP. There's another $25 million of miscellaneous increases across a variety of space, none of which are singularly materials to get to the 140% increase in DPP.

And then we deduct from that the $35 million malpractice increase that we described in our press release and another $18 million in a legal settlement that we described in an 8-K that we filed a few weeks ago and that gets you to that sort of low to mid-90s number. effectively meaning that we're assuming from a core business perspective, the trends that we when we increased guidance last quarter, we'll continue when you talk about sort of what it takes to get us to maybe the higher end of that. We're talking about, I think the 2 businesses running same-store revenue increases in the 5% to 7% range. And what gets us to the higher end is if we land at the higher end of that range, either through volumes or pricing. So I think all that is pretty consistent with what we've said previously.

Okay. Maybe just as a follow-up, just checking in on managed care activity and state budgets in relation to your behavioral health business. I mean it looks like behavioral health length of stay continues to hold on. Pricing remains favorable. I guess are you seeing any different behavior as it relates to managed care at this juncture for behavioral. And we're hearing multiple states and acting budgets that are reducing behavioral rates just any thoughts on the state budget situation across your markets stepping into 2026 would be helpful.

Yes. I mean I think we have consistently found that managed care players are aggressive in their utilization management and their management of length of stay and their management of where patients are treated, meaning in inpatient or outpatient settings I don't know that that's changed materially. As you point out, our length of stay has remained fairly constant.

A lot of that is I think a function of our aggressive behavior in terms of documenting the medical needs of patients, et cetera, which we are very much focused on -- and so we, again, have not seen, I think, significant changes in payer behavior to date. We understand that payers are under -- or any number of payers are under some pressure, but we also understand that their subscribers do need behavioral treatment and I think given our market presence, given our clinical reputation, et cetera, we continue to be, I think, a preferred provider for many of those managed care companies.

As far as state budgets are concerned, the only state budget that I'm aware of where there have been actual Medicaid cuts is in North Carolina for behavioral. It's not a state that's material to us. I think about 2% of our behavioral beds are in the state of North Carolina. Other states have talked about state budget cuts for Medicaid, and we're sort of tracking that. But at the moment, I've not seen anything that affects us in any sort of material way.

Our next question comes from Whit Mayo with Leerink Partners.

I'm just curious how West Henderson less Henderson is performing now and any cannibalization of that on overall volumes within the quarter? And then my second question is just on Cedar Hills whether or not you think it can offset the headwinds. So if it was, let's say, a $50 million drag with start-up losses this year, that $50 million will reverse itself, but any thoughts on maybe the growth next year?

Yes. So I think as Marc commented in his remarks, West Henderson has been performing well. It's had positive EBITDA really ever since it opened, which is really quite remarkable for a startup hospital. It does, I think, affect our same-store numbers and particularly our same-store volumes that we've talked in the past that there's probably -- and again, this is difficult to quantify precisely, but we would estimate maybe a 50 or 60 basis point impact on our same-store adjusted admissions meaning without Henderson or West Henderson in the mix, our same-store adjusted admissions might be 50 or 60 basis points higher because of the cannibalization because some of their admissions or adjusted admissions are coming from our existing hospitals in the market. The West Henderson is doing well, and we would expect we'll continue to improve into 2026.

Cedar Hill, as we identified last quarter, lost $25 million in the second quarter, we projected they would lose $25 million in the back half of the year. They did lose that $25 million in the third quarter. And I think as Marc pointed out, we expect them to break even in Q4 and improve into next year.

So obviously, the $50 million loss that we incurred in 2025 should be a tailwind going into 2026, assuming that worst case Cedar Hill breaks even. We assume they'll do better than that, and they will be profitable in 2026, although I think our general sense and we'll give more detail on this when we give our guidance in February is that any incremental improvement over breakeven will largely help to offset any opening and start-up losses from the ABM Medical Center in Florida.

Our next question comes from Ben Hendrix with RBC Capital Markets.

I appreciate your commentary on your outpatient surgical initiatives. I was wondering if you could give us a little bit more color on what you're seeing in terms of surgical trends, both inpatient and outpatient. And what case mix is looking like in the quarter? And just how that's contributing overall to the volume growth for the acute care hospital segment?

Yes. So I think in our prepared remarks, we made the comment that outpatient surgical trends increased slightly over the prior year in the quarter, and that actually was an improvement over the first half of the year when I think they were actually down. So we're encouraged by that. And I think we've noted that I think some of the, call it, surgical softness or softness in surgical volumes I think it's been difficult comparisons with prior years where we were seeing some benefit from the catch-up of deferred and postponed procedures that have been deferred and postponed during COVID.

I think we're starting to anniversary that and we kind of get behind us. And it feels to us like surgical volumes are returning to sort of more normal levels. Again, I'm sorry, was there a second part to your question? Okay, case mix was up slightly in the quarter, not a big driver of improvement, maybe 30 basis points.

Our next question comes from Raj Kumar with Stephens.

Just on the BA side, maybe just trying to kind of understand overall supply/demand dynamic. You've seen kind of like SWB growth of high single digits on a same-store basis or while volumes have kind of been slightly negative to slightly positive throughout the year. So maybe just trying to understand what the dynamics are in terms of your kind of increasing staffing and we should expect kind of better volume growth kind of in subsequent quarters. Or is this kind of more just in order to maintain capacity that you're kind of push into these SWB trend?

Yes. Raj, I mean, I think that we talked at some length in previous quarters. If there are 2 broad sort of overarching dynamics that I think had muted behavioral volumes. One, as I think we mentioned in our prepared remarks, there's been a labor scarcity issue. It's not pervasive. I think it exists and maybe quarter to 1/3 of our hospitals where we struggle to fill all of our vacancies, whether that's nurses, whether that's therapists, whether that's nondegree professionals, the people that we described as mental health technicians, but I do think that in those specific facilities, volumes are often muted.

I think as we said in our prepared remarks, our hiring numbers are increasing incrementally albeit. And I think you see a little bit of that in the salary and wage data that you're referring to. I think the other piece of this is what we're finding, and I think we read through what a number of the managed care companies say is that behavioral utilization broadly and nationally, is up across the board. A lot of that seems to be on the outpatient side.

And I think that's being delivered in a very -- I'll describe it in a sort of fragmented way, meaning those that outpatient care is being delivered in all sorts of settings, including hospital emergency rooms and urgent care centers and retail pharmacy clinics and mom-and-pop operations. We think we can do a better job of capturing more of that outpatient activity through, frankly, better focus as well as new and additional dedicated outpatient facilities.

Obviously, that focus and those facilities require additional staff, and we've been staffing up for that. So to some degree, I think the increase that you're alluding to in salaries and wages is something that's preparing us to be able to treat and absorb more patient volume.

Great. And then maybe as a quick follow-up. You had a step-up in kind of acquisition spend in the quarter, and I'm assuming that's kind of more on the outpatient behavioral acceleration that you've kind of spoken to. So maybe what could we kind of expect forward from a capital deployment on M&A on that front?

Yes. So the acquisition spending that you referred to is actually mostly it's about $35 million or $40 million in the U.K. in the quarter, and that's mostly only on the inpatient side. I think we've talked about the fact on the outpatient side in the U.S. creating a greater presence in the outpatient space really doesn't require a tremendous amount of new capital. It's probably $1 million or $2 million on average to create one of the step-in outpatient clinics.

So again, I think the bigger challenge in those places is finding the appropriate number of therapists more than it is a significant capital spend.

Our next question comes from A.J. Rice with UBS.

Maybe a couple of quick things here. I think in your updated guidance, there's about $25 million of sort of miscellaneous DPP payments and it seemed like in the back half of the year that are incremental, is that more in the third quarter? Or was that something that will be booked in the fourth quarter? And on the litigation, settlement in Nevada, was that booked in the third quarter? Or is that going to be booked in the fourth quarter?

Yes. So the litigation settlement was recorded in the third quarter. and it's reflected in our non-same-store acute results. The additional DPP, I think, is spread pretty ratably between the third and fourth quarters. .

Okay. I know you -- your pricing on both businesses, actually, even if you ex out the DPP payments was pretty strong by historic standards. Anything to call out there? Any -- is that a sustainable level of year-to-year pricing gains? Any thoughts on that?

So taking it segment by segment. I think on the acute side, we said that our revenue per adjusted admission was close to 10% increase half of that, I think, is DPP related, which means 5% is sort of from core results. That's on the high side for sure. I think we think that sustainable acute care pricing is more in the 3, maybe 3-plus percent range.

I think the excess in the quarter is a result of some revenue cycle initiatives that we've undertaken to ensure that our billing is clean and complete that are denial appeals are as appropriate and aggressive as they should be dispute resolutions with a number of payers, all that sort of stack.

There's a few small onetime items in terms of an opioid settlement, and we've disclosed our accountable care organization profits, but yes, I think our general sense is that acute care pricing in the 3% range is sort of that sustainable level.

On the behavioral side, we've been in the 4% to 5% range when you adjust out I think the DPP impacts. We've been running that and probably in the quarter, we're again at the higher end of that range. because of, I think, some of the things we've discussed already, some pressure for Medicaid state reductions. I think we believe that the sustainable level of behavioral pricing is probably a notch below that, maybe 3.5% to 4.5%. But still it should continue to be quite positive and a good tailwind for that business.

Our next question comes from Craig Hettenbach with Morgan Stanley.

On the behavioral side, you mentioned kind of a slight improvement in hiring you just talk about more broadly how you think about capacity versus demand behavioral and kind of what that means for volume growth?

Yes. I mean we've said that I think we think a reasonable level of volume growth in the behavioral business in the intermedium and long term is sort of 2% to 3% adjusted patient day growth. We're still a little shy of that and feel like there's a chance we can get there exiting this year.

But if we don't, I think it's a reasonable target for next year, particularly at the lower end of that range. To get there, we need to continue to be able to fill our vacancies and reduce our turnover things that have been happening, and I think we can improve, but I think we can see that, that process has been somewhat slower than we expected, but we continue to make incremental progress and expect that we'll continue to make incremental progress.

Got it. And then just a follow-up on capital allocation on the back of the increased buyback authorization. Your net leverage is at kind of the low end of history. Just how you're thinking about that? And any targets there and how that might influence capital deployment going forward?

Yes. I mean we've been an active acquirer of our shares for a number of years now. We said in our prepared remarks that since 2019, we've repurchased more than 1/3 of our shares -- we continue to view share repurchase, particularly at the current stock price levels as a compelling use of our capital. We have seen an elevation in our activity in share repurchases largely, I think, tied to the increase in our free cash flow.

And I think our expectation is that at a minimum, we'll continue to devote most, if not all, of our free cash flow to share repurchase absent any other compelling opportunities. Might we choose to increase that and lever up even more to do that. We might -- it's something that will make that judgment as we move along.

Our next question comes from Kevin Fischbeck with Bank of America.

Great. Maybe I'll ask a behavioral question again, maybe slightly differently. I guess like when we've historically thought about this long-term supply-demand imbalance within behavioral, we set a competitor who is growing very quickly now. It seems like they're slowing, they're closing down capacity in certain locations. Is there anything else that you're seeing more broadly, because 2% to 3% isn't a herculean number, I don't think, but it also is easier to underwrite when someone else is growing much faster. Is there a competitive dynamic that's going on that's maybe skewing things [indiscernible] we don't see every day. or anything else that you would kind of point to that might say that the broader market is, in fact, growing faster than we can see from the outside?

Yes. I mean, so Kevin, the first thing is it's difficult for us, I think, to comment on operating trends and a competitor. We just don't have access to enough detail to really have, I think, useful insight in that regard. In terms of sort of what maybe I'm rephrasing a little bit, the question you asked in terms of what gives us confidence that there is increasing demand out there. I did reference before.

I think I'm not going to say every single managed care entity, but a great many of the managed care entities over the last several quarters in explaining an increase in their medical loss ratios and utilization have cited behavioral care as a significant chunk of that. And we obviously don't have access to their data, but we do have access to claims data and things that we look at fairly carefully.

And what we see is increased behavioral utilization, as I said earlier, on the outpatient side, in particular, being delivered in a lot of -- I'm going to sort of call them nontraditional, some not necessarily dedicated behavioral facilities, but in emergency rooms and urgent care centers and nursing homes, et cetera.

And I think given the clinical product that we can offer in our in and outpatient facilities, given our in-network position with many of these managed care companies, et cetera, we believe that there is an opportunity for us to capture an incremental amount of that. And as you point out, it's not a Herculean effort. We're at 1.3% patient day adjusted patient day growth in the quarter we're sort of targeting 2%. That's obviously not a huge gap to fill.

Let me just add also, Steve made the point -- I mean some of the limitations have been on staffing and as that stabilizes, we do think that there are significant opportunities that we can take advantage of. We've been very responsible for the last few years in our growth. and other competitors, multiple competitors have been a little bit more aggressive and now probably didn't make sense.

Some of the moves that they've made, and they're having to temper that and go backwards. So we're on the same path that we've been on. We've been responsible in the way we've looked at it. We've held on some supply increases. So adding beds because of maybe a lack of staffing in some of those markets. And as that stabilizes, we're going to have even more opportunities to grow going forward. So we feel really good about where we are with that.

Okay. Then maybe just then follow-up on the outpatient side of the equation because to your point, you do have some advantages here as far as your in-network location position and contracts and things like that. But it sounds like you're not capitalizing or haven't capitalized on it historically. Can you talk a little bit about the barriers? Is it just lack of focus?

Are there markets where you are doing it well and that are blueprint? I mean, how can we get confidence that you're going to get that if hiring has been the issue because hiring has been kind of an issue for a while now. Why will you be able to kind of capture that volume going forward?

So what we've talked about, I think in the last couple of quarters, Kevin, is I think 2 things. One is just an increased focus. We have conceded that for most of our decades-long history as a behavioral health provider, it has been a very inpatient-centric business. And while we have always had in most of our markets, outpatient programs, they just haven't been a focus.

And what we've done, that I think will wind up thing quite effective, we reorganized such that throughout the organization now, there's really dedicated personnel or personnel that are dedicated to developing clinical programs, business development, referral sources, et cetera, that are dedicated outpatient focused.

And I think that's going to make a big difference because historically, when you have inpatient-centric facilities that have sort of on the side, outpatient programs, the outpatient programs just don't get the attention that they need. So I think focus reorganization personnel, et cetera, will be a big help in that regard.

The second piece, which we've talked about quite a bit in the last few calls is there's really 2 components of behavioral outpatient. One is what we describe as a step-down business. These are folks who are generally discharged from our facilities, but we require follow-up care, either partial hospitalization or intensive outpatient therapy. We've always had that.

And again, I think that business will benefit from increased focus. But where we haven't really had much of a presence historically is what we described as step in business. These are patients who enter the behavioral system in an outpatient setting and often are not comfortable doing that and entering the system on a hospital campus, they much prefer to get that care in a freestanding outpatient setting.

And I think that's where Marc was referring in his prepared remarks to our 1,000 branches, branded program we brand it that way because we don't want to necessarily associate it with an existing inpatient hospital, but again, as you said and repeating what I have said, we have advantages. We already have existing referral relationships, referral storage relationships. We have existing managed care contracts, et cetera, that should help us establish a footprint in that step in freestanding business a lot faster than a competitor might be able to do.

Our next question comes from Matthew Gillmor with KeyBanc.

I wanted to ask about the acute performance. As you think about the volume trends and the expense trends that Steve discussed, is there any geographic variation to call out to highlight, particularly in some of your larger markets like Las Vegas?

Yes. I mean, obviously, there's always some variation in performance we've been asked, I think, about the Vegas economy in the last couple of calls. I think it's fair to say that our Vegas or the results in the Vegas market are very similar to our overall results.

And again, as we pointed out, I think West Henderson in particular, is ramping up quite nicely. We do acknowledge that there's been a lot of data that suggests that tourist volume is down in Las Vegas. It's something we're watching. If that decline in tourist volume starts to have a ripple effect on the Vegas economy and unemployment rises, et cetera, that I think could be challenging in the future.

At the moment, we're not seeing those impacts. Unemployment honestly, I think it's remained relatively stable at the moment in Vegas and again, I think our performance in that market is remaining pretty stable and pretty consistent with our overall portfolio in the acute care business. Other than that, no, I don't think there's anything real significant from a geographic perspective.

Okay. Fair enough. And then a quick follow-up on the pending SDP approvals. You mentioned Florida and Nevada. Is there a way for us to think about how that breaks down the net benefit between acute and behavioral?

Well, first of all, I would say that the Las Vegas number is predominantly acute. I don't have a breakout in front of me, Matt, for the Florida number. We can provide that in the future. .

Our next question comes from Benjamin Rossi with JPMorgan.

Just wanted to touch on operating cash flow development. You noted that some of the drag due to date has been coming from unfavorable changes in AR. I know you're expecting to get some of that back next quarter as you collect on the DC approval, but do you have any theories as to the drivers behind this unfavorable trend. And then is it fair to attribute some of this to a broader payer utilization management trends?

Yes. I think our belief, Ben, is that the increase in AR is almost exclusively a function of the $90 million of DC -- DCP that we intend to collect or expect to collect in the fourth quarter. and then the new receivables, both in D.C., we didn't get our Medicare certification and ability to bill until early September. So there's virtually no collections in at Cedar Hill in the third quarter and even West Henderson, as its business continues to grow, if AR continues to grow.

I think once we sort of factor in those dynamics, we're finding our days and receivables to be quite consistent with historical levels.

Okay. Appreciate the confirmation. I guess just a follow-up on some of your acute volume commentary. Specific to your self-pay category, how did volumes trend during 3Q? And then how your self-pay volumes developed year-to-date relative to your expectations coming into the year?

I think as we said in our previous comment, the one sort of identifiable change in payer mix as we saw an increase in exchange volumes that seemed to come at the expense or as a shift from Medicaid to exchange volumes are up a little bit on an overall basis and Medicaid volumes are down. In terms of our other payer classes, Medicare, commercial and self-pay that you're asking about specifically. We haven't seen any major changes in the other payer class.

Our next question comes from Stephen Baxter with Wells Fargo.

You touched on this a little bit. So just hoping you could elaborate more on the change in surgical you saw in the quarter going to be down slightly as of last quarter to upside this quarter. I guess where are you seeing that improvement come from? And I think this has kind of been danced around a little bit, but just wondering if you feel like there's been any kind of pull-forward evidence we've seen of that for maybe like exchanges, other populations or coverage loss, there's been a concern going forward?

Yes. I mean I think we've seen the improvement in surgical volumes relatively across the board. I would say, cardiology and cardiac services has been particularly strong. as far as sort of pull through, which I think the crux of that question is, does it seem like exchange patients are sort of accelerating care in anticipation of potentially losing their coverage.

I don't think we -- I don't think that we're really seeing that. I think we've made the comment before that, that exchange population seems to behave or their utilization behavior sort of mirrors is more closely tied to the Medicaid population, meaning it tends to be emergency room centric as opposed to a lot of elective cases. So I don't -- we don't think I think that there is this significant pull-through impact.

Our next question comes from Michael Ho with Baird.

On behavioral volumes, I just wanted to confirm, you're now expecting 2% to 3% growth in fourth quarter, but closer to the low end. And then should we expect next year to be consistently in that 2% to 3% range? And then on acute pricing strength, even excluding the DC DDP, 5% is pretty strong, especially off the tough prior year comp. I know, Steve, you mentioned case mix, revenue cycle initiatives, other one-timers, but how much did exchange volumes contribute to pricing? And I know you mentioned 2% to 3% is still a pretty good long-term target. Just to confirm, you're still confident on 2% to 3% even in the face of exchange volume declines over the next couple of years?

Yes. So you're at a lot of numbers, Michael, I'm not sure that I follow all of them. Again, I'll repeat I think that our view of the sustainable acute care model is 5%, 6% revenue, same-store revenue growth pretty evenly between price and volume, so 2.5% to 3% price, 2% to 3% volume, I think on the behavioral side, maybe 6% or 7% same-store revenue growth, 2% to 3% volume, 3.5% to 4.5% price. .

Our next question comes from Ryan Langston with TD Cowen.

I appreciate the commentary on capital deployment, but the leverage ratios just keep coming down despite the share repurchase activity. I know you mentioned the new Florida medical center. But have you sort of contemplated any additional areas you could increase capital spending or sort of absent M&A and again, additional spending? Are you just kind of comfortable letting those ratios decline?

Yes. I don't think we anticipate our leverage ratio is getting any lower than they currently are. obviously, we're not looking for ways to spend capital just to increase our leverage ratios, whether that's acquisition-type opportunities or CapEx, we'll continue to invest where we think we can earn a compelling return.

I think we've intentionally kept our leverage ratio is low in an environment where there has been some level of uncertainty at the sort of policy, regulatory legislative level, I think that's been a prudent approach. As I think we sort of start to experience and hopefully, we do start to experience more certainty, we may be more comfortable increasing those leverage levels.

Our next question comes from Joshua Raskin with Nephron Research.

Yes. I guess one that just left maybe an updated view on where you think margins can trend in the next few years, sort of think about prepandemic levels versus the progress you guys have made since the pandemic? And maybe specific areas where you think there's opportunity to expand margin in each segment?

Yes. I think just sort of mathematically, Josh, the general sense is if we can achieve the revenue targets that I just outlined in my last response, 5%, 6% on the acute side, 6%, 7% on the behavioral side. Clearly, costs at the moment are not rising faster than that. They're rising more at the 4% range.

And so as I think has been the case with the historical model for these 2 businesses for many years, there should be an opportunity for EBITDA growth and margin expansion and again, in an environment of relatively stable operating costs and I think relatively stable demand and pricing. We're looking at margins in both businesses able to continue to improve.

And maybe the follow-up, and it's probably a silly question, but how do you go back -- I know let's exclude some of the government segments that are paid. But when you're negotiated with managed care companies, if you're seeing that revenue number, I think the core acute number of 5% that you guys are throwing out, if you're seeing numbers in that ballpark and costs are not going up as high what's sort of the conversation with the payers and the justification around above-average rate increases that we've been seeing lately?

So the point that I would make on this is not exactly what you pointed to. But when we sit down with these managed care companies, we've got much better information these days than maybe we had years ago. So even though we feel like we're doing well in a number of our areas, we still see some of our pricing lagging competitors in certain markets. And that's what we really point out and hone in on. And that's where we're able to have a positive effect for ourselves, because we're still behind what they're paying some of our competitors. So that's 1 big area that we bring up in our negotiations.

That concludes today's question-and-answer session. I'd like to turn the call back to Darren Lehrich for closing remarks.

Thank you, everyone, for participating in today's call and also for your interest in UHS. Hope you have a great rest of your day. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Okay. Thank you, everyone, and welcome. My name is Michael Ha, the managed care and health care facilities analyst at Baird. And our next session -- our first session is with Universal Health Services, an operator of acute and behavioral health care facilities. And I'm very pleased to have with us today, Chief Financial Officer, Steve Filton. So thank you very much for being here.

My pleasure.

Great. And with that said, Steve, do you have any introductory comments or...

Happy to jump right in.

Perfect. Okay. So policy. So from our end, incredibly focused impact on hospitals. Now we have our upcoming panel in a few hours to talk about it. But maybe to spend the first maybe a handful of questions on policy. You've been one of, if not the only publicly traded hospital to really help us size the impact of enhanced subsidies, Medicaid supplemental payments. But there is one more policy impact that I'm not sure if you've sized for us, which is work requirements. It's biannual reverification of expansion.

I understand on the behavioral side, you're more insulated given the fact that you have optionality on your patients. But on the acute side, a bit more exposed. I think Medicaid is only 15% of your revenue and expansion is probably even smaller sliver. So I was wondering if you have any initial estimate or at least a way to frame up how to think about that impact?

So I think the reason that none of the other companies have tried to -- or I shouldn't say tried, but have not sized the potential impact from Medicaid disenrollment and the work requirements, et cetera, is because it's very difficult to do. There's a lot of varying estimates about how many people could be impacted. I've seen 7 million or 8 million. I've seen 12 million, 13 million. And who's impacted and sort of what their utilization patterns are equally as important. And again, at the moment, I think this is all almost speculation or almost all speculation.

So the argument, I think, that the Republicans made during the BBB debate was, look, they weren't really eliminating -- work requirements weren't really eliminating anyone who needed coverage. They were largely young, healthy males et cetera. Now if that's true, and I don't know that we have the macro data to really support that. But if that's true, I don't know that it has an enormous impact on us as hospitals. Those are not people, young, healthy males who you would presume to be significant utilizers of the hospital systems. So I think we're going to have to wait. And in the bill, the work requirements don't begin until 2027.

Some states apparently are anxious to implement them earlier. We'll see how many do so. But I think the hospitals are going to have to wait and see until we get a better sense of exactly who's impacted. To your point, on the acute side, there's really not a great deal that we can do to react to that. In other words, the vast majority of our Medicaid as well as our uninsured population comes to our acute hospitals through hospital emergency rooms. And we're obligated both legally and morally to treat those people, and we do and we will. As you suggest, on the behavioral side, we have more optionality about the patients we take, which is why when you look at the financial statements of the 2 segments compared to each other, there's far less uncompensated care in the behavioral segment than there is in the acute segment because of that optionality. There's maybe 20% of the uncompensated care in acute care or 20% compared to the acute segment in behavioral.

So we'll see. I mean, I think the Medicaid work requirements remain to be seen. I think one of the things that we're expecting a little bit similar to what we experienced a couple of years ago when coming out of the pandemic, there was this push for Medicaid disenrollment that had been delayed for a number of years during the pandemic is that the initial disenrollment was muted in the sense that a lot of folks who were disenrolled were disenrolled for what I would describe as administrative reasons. They hadn't updated their address or their income data, et cetera. And when we work with those folks, a lot of them were able to reenroll. And I think there's an expectation that we may see some of that same dynamic here.

Great. And on the supplemental payments, you sized that at $360 million to $400 million by 2032. And I guess how does the breakdown the cadence of that reduction look starting in '28 and ramp into 2032? In other words, what do you anticipate? Is it starting '28 impact? How does that move up to 2032 over time? And I know Marc has mentioned this is the worst-case scenario. Could you please expand on what he meant by that? Trying to get a better sense on areas of conservatism within this range that you could point to?

So your first question, which is more of a mathematical question, we didn't give the breakout by year. It's relatively ratable. It does accelerate each year sort of, if you will, it compounds, but it's not a significant difference. So especially if you're doing 5-year projections that really don't even begin until 2028, if you do it ratably or you do it in a way that just sort of ramps up incrementally each year, I think that's a fair estimate. I think Marc's comment on our Q2 call was referenced to the fact that it seemed to us and I think to the industry that Congress purposely delayed these cuts for several years. These direct-to payment cuts don't begin until 2028 and then they play out over 10 years.

And the notion was, I think, twofold. I mean, one, Congress was acknowledging that these cuts could and would be meaningful, particularly to rural hospitals, smaller hospitals, hospitals that were already operating at razor thin margins. I think these are largely public not-for-profit hospitals. And it felt like they wanted to give themselves some room to potentially modify or find ways to mute or mitigate the cuts in the future. Certainly, no guarantee of that.

But as the hospital industry was lobbying during this process and Marc happens to be the President of the for-profit Federation of American Hospitals this year. So I think he's even more attuned to this than he might normally be. We were hearing from a lot of legislators that, look, some of these cuts may not be fully implemented, et cetera. And again, like I said, no guarantee. But I think he was just referencing this idea that keep in mind that this time frame is quite elongated and things could potentially change during that time.

Got it. Helpful. And you've spoken at a high level about things like shifting revenue sources, cost-cutting initiatives to help offset the impending cuts to supplemental payments. Wondering -- I know we're still years ahead, but if you have any more concrete thoughts and plans on what these efforts could look like? And should we expect these initiatives that you're planning and preparing to implement to fully offset the $360 million to $400 million?

I mean I think it's too early to make a statement like that in any sort of precise way. I think what we have said and we have cited and it's by no means a perfect analogy, but we've talked about the way that the industry collectively and specifically UHS responded to the COVID -- the advent of COVID back in the spring of 2020 and that was a much more sudden something we didn't really have time to prepare for, but we responded very quickly. There was really an immediate reduction in our revenues and in the way people -- their utilization patterns, the way they were visiting their physicians, the way they were visiting hospitals.

And if you go back to that time period, you'll see that hospitals in general, UHS specifically, we froze hiring. We had a number of headcount reductions. We froze salaries. We froze 401(k) matches. We reduced capital spending. We froze vendor increases. We did a great many things. Now honestly, I don't -- obviously, we'll have a lot more time to react to these impending cuts if, in fact, they are all fully implemented.

And so we'll be -- I think we'll be able to be quite frankly, a little more thoughtful. But we cite, I think, that experience, which is only a few years ago as an example of the, I'll call it, the agility, the flexibility that the for-profit operators have generally had and that I think we've demonstrated, and we'll certainly do that. And then on the behavioral side, and you alluded to this a little bit earlier in one of your questions, we talk about having a scarcity of capacity, not so much a scarcity of physical capacity, but largely driven by some labor scarcity. So we can't always in some of our hospitals, treat all the patients who are presented to us because we simply don't have enough staff.

So in an environment where we are already capacity constrained and turning away patients, there's more optionality about what patients we take or don't take. So if Medicaid in a particular geography becomes a lot less profitable as a result of either disenrollment or DBP cuts or whatever it may be, we can think about managing the patient population in a way that helps us. We can focus on programs perhaps that are less Medicaid-centric and more Medicare or commercial centric.

So again, lots of optionality. We're talking about all these things, planning all these things, not doing anything immediately because as we already alluded to, most of these cuts don't even kick in for a year, 2 years, 3 years. So -- but we'll certainly be prepared if and when they do.

Got it. And last one on policies. So state budgets, they're coming under pressure, provider tax reductions. I mean we're already hearing some states have lowered or exploring lowering provider rates. I was wondering if you've had conversations with states on this topic. Any thoughts on really their ability to manage budget pressure while also implementing all these new policies in the years ahead? And are there different ways you think states could explore to even potentially supplement the Medicaid program? If so, what might that look like?

Yes. And I should have mentioned this, I'm going to go back just to an earlier question you had about Marc's comment. I think the other point that Marc was trying to make on the call was that, as people know, there are -- the bill, the big beautiful bill allows programs that they call them preprints, these applications for either new or modified DPP programs to be grand filed and approved. And the biggest one for us is the Washington, D.C. program. We've been waiting for months and months and months for that program to be approved. Late yesterday, we heard from the District Hospital Association that the program, the preprint had been approved. We have not yet seen the documents that would verify or validate that. Hard to imagine the Hospital Association would get it wrong.

But as an example, we expect that our DPP reimbursement will increase over the next few years before it begins to decrease according to the big beautiful bill. As to the direct question that you asked, are we having conversations, and I would say that as collectively as an industry with states about they're providing some relief, et cetera? The answer is yes. I think the industry state hospital associations are having all those conversations.

States, as you might imagine, are reacting to some degree, the way that I was sort of talking about Medicaid disenrollment, et cetera, saying, well, let's see how this plays out. We're not going to make any commitments. They listen, they acknowledge that the reduction in directed payment programs could have a pretty significant impact on many of their hospitals. And so they're, I think, open to the idea of finding other ways to support them within their budget constraints.

But again, nothing specific at the moment because I think the states are essentially taking that wait-and-see position, which I think makes sense. We don't -- none of us really know exactly how this is all going to play out. So they say, "Well, we'll plan, we'll think about, we'll consider, but give us some time to see how this all plays out."

It's great to hear, especially in the DC DPP approval. Could you remind us on the benefit that you're expecting? Is that $85 million, if I'm not mistaken, in flow all through earnings? And can you recognize that this year, do you think?

So the program we're expecting will be approved effective October 2024. So in our third quarter, we should, in theory, have a year's benefit. We've estimated that benefit previously in our SEC filings to be in the $85 million to $90 million range, as you suggest. Again, we haven't seen the specific documents to verify those numbers, although we're not expecting them to be materially different. But presumably, in our third quarter filings, we'll have all that detail.

That's great to hear. And should we expect all of that to -- or most of it to flow through to earnings? Is that reasonable?

Yes. Yes. There's really no -- when we give these DPP benefit numbers, we've historically given them as a net benefit, net of any provider taxes.

Great. And then on the topic of D.C., I think last week at Wells Fargo, you mentioned Cedar Hill that you might get deemed status in the coming days or even early this week. So any quick update there? Did you receive it? And in thinking about that $25 million headwind embedded in your guide, do you have a specific date? Or as long as it's approved by third quarter, then you're tracking to $25 million? Trying to understand that better.

Yes. So what I said last week at another conference was we had seen the paperwork from the Joint Commission who does the survey that they had written a letter to CMS recommending that we receive our deemed status as of last week, I believe, as of September 4. We haven't actually gotten the documents from CMS, but anticipate again that they generally accept that and that we will have our deemed status as of September 4.

As to your question, we had a $25 million negative EBITDA from Cedar Hill in Q2. We projected in our revised guidance another $25 million negative loss in the -- in this back half of the year, probably heavily weighted to the third quarter. We didn't really have an absolute specific date in that, but assumed it would be within this time frame. So I think we're comfortable with that $25 million in the back half of the year is a reasonable estimate.

Hopefully, we do better than that because now that we have our deemed status or presumably have our deemed status, we'll begin to sort of ramp up, accept more patients. We'll importantly begin to be paid for all of our patients. So hopefully, the turnaround can be executed pretty quickly.

And sort of a similar topic, different, the Proposition 35 in California. I know you have a pretty sizable presence. Has there been any update on the benefit there? I know that there's been lots of conversations, but not much movement. Any sense on magnitude timing. Could you actually recognize that this year? Is that pretty unlikely? Any new developments?

Yes. So I think the way you frame the question is correct. So Prop 35 was a measure passed in California that presumably makes available significant incremental funding for behavioral hospitals in particular. But very nonspecific. We've had lots of conversations with the county and city governments in which we operate behavioral facilities about the way that -- about ways in which we could improve access for behavioral patients in those areas, et cetera. If there was increased reimbursement or if there was funding for capital improvements or capacity expansion.

But really, I don't believe there's been any objective, definitive sort of developments there. So no, I certainly don't think there'll be any impact of node in 2025. And whether there would even be sort of something like a material impact in 2026, I think it's very much up in the air at this point.

Okay. And now switching or flipping to volumes. I guess any update on intra-quarter volumes, how are you tracking through third quarter behavioral, everyone is focused on that 2.5% to 3% adjusted patient day growth. I know on the acute side, we've seen some cannibalization in West China, some softer surgical volumes, but you're also entering the third quarter with relatively easier comp prior year comp. Would just love to hear an update on volumes.

Yes. So on the acute side of the business, we have said that we think that a sustainable acute care model at this point is mid-single-digit revenue growth, 5%, 6%, 7%, I'll call it, 6% at the midpoint, split pretty evenly between price and volume. So on the volume side, roughly kind of consistent 3% adjusted admission growth. We've been hitting those numbers, honestly, or candidly, our, I think, adjusted admission growth in Q3 was actually a little bit better than our peers. It feels to us like that's a reasonably sustainable number.

I know some of our peers continue to talk about an environment in which they believe acute care volumes may grow sustainably at a higher rate. And this is one of those issues, and I hope they're right. But I think we're comfortable with that kind of 3-ish percent growth rate that we've talked about. And nothing in the third quarter would suggest that, that becomes more or less reasonable. I think we're tracking to a number pretty close to that. On the behavioral side, patient day or adjusted patient day growth has been slower than we've anticipated for several years. It has improved incrementally, but as I said, slower than we expected.

What we've talked about is the original goal for patient day or adjusted patient day growth for 2025 was 2.5% to 3% for the full year. At this point, it's clear to us we're not going to be able to get to that number, but have said that, we think we should be able to exit the year at something close to that number. And again, continue to believe that's the case. Just reminding people that probably the 2 biggest issues, I think, that we've discussed are labor scarcity issues. These were, of course, predominant during the COVID epidemic, they've certainly improved since then. But still in probably, I'm going to say, 1/4 to 1/3 of our facilities, we still struggle to some degree with filling all of our vacancy and that could be nurses in some cases, it could be therapists, counselors, psychologists, in some cases, and in many cases, it's -- the folks that we call mental health technicians.

These are nondegree people, but they're critical to the treatment patients in a behavioral setting. And sometimes we can't hire enough of those folks. So I think we're making incremental improvement in that regard, which is helping improve our volumes in behavioral. And what we talked a lot about in the last couple of quarters, is the sense that a significant amount of the demand growth broadly in the behavioral space is in outpatient and I'll call them more alternative settings. And that hasn't been a huge focus of ours in the past. And it's -- I think it will be a greater focus in the future, both in terms of the patients we discharge from our inpatient facilities who need continuing outpatient care as well as patients who enter the system in an outpatient setting.

These are more freestanding outpatient providers. We've really not played in that space in any sort of significant way, but we'll do so in the future. And I think we have not been getting what I would consider to be our fair share, our fair market share of that outpatient growth. And I think that will be a big contributor to getting back to that sort of 2.5%, 3% target that we've been citing for some time.

Great. And I'd love to stay on that topic on staffing and then outpatient. So I know you mentioned 1/4 to 1/3 of your facilities still experience shortages and still high turnover. I think if I'm not mistaken, turnover has been as high as 50% in recent years. Is it still at that level? Have you made improvement? Do you have a hard target on that turnover rate improvement? I guess, where was it pre-COVID? Just trying to get a sense on maybe internal metrics that you're looking at daily, weekly, get a better sense on internal goal posts.

Sure. So yes, I mean, I think during the pandemic, turnover rates, and I always make the point because I think it's important that this is not a UHS-specific issue, quite frankly. I don't think it's a behavioral specific issue. I think it's a broadly subacute issue, meaning behavioral facilities, nursing homes, skilled nursing facilities, home health facilities struggle with keeping and filling all their physicians. And it's because, I think, in large part, nurses, in particular, always have the option of working in an acute setting, in an acute hospital setting. And honestly, probably at a higher salary, probably at a higher base salary. Now this dynamic was exacerbated greatly during the pandemic when acute hospitals were paying -- I would say you hear these apocryphal stories, but they really weren't apocryphal. They were very true.

Nurses were making $10,000 a week during the pandemic, working in a COVID unit or an acute ER, et cetera. Certainly, those dynamics have passed. But there's still that opportunity. There still is, I think, a relatively tight labor market for nurses. And again, for other therapists and even for the mental health techs. But that turnover rate certainly has diminished significantly. It's, I think, below 50% today in most cases. We tend not to sort of publish that on a routine basis, et cetera, because the numbers can be distorted.

In other words, a lot of times a nurse will leave our full-time employment, but continue to work for us as what we would call a per diem nurse that is they sort of work when they want to be on call, et cetera. And so we really haven't really lost that nurse in that sense. And there are other things where one nurse will leave one of our hospitals and go to work in another and whether we count that as a termination and turnover, all these things -- the statistics aren't perfect. I think they are consistent internally, which is important to us, and we certainly have made improvements. But the turnover rate is still high. I would say it's at least in the 40s, and that's an incredibly inefficient rate to be losing people to have 3 or more of your workforce turnover every year.

So lots of our -- during the pandemic, quite frankly, a lot of our focus was on recruiting and bringing enough nurses into the pipeline. I think post pandemic, we're much more focused on the retention piece of it, that once we bring a nurse or another employee into the fold, are we providing them the appropriate level of orientation and education? Are we providing them educational opportunities to want them to stay? Are we providing them the mentorship so they feel needed and wanted? All these things are quite important. And again, I think we're making progress, but it is certainly incremental.

Great. And anecdotally, I've heard year 1 turnover is much higher. But after they make it past year 1, and then it diminishes drastically. I was wondering, is that true? And are there ways financially that you're incorporating into compensation guaranteed like 2-year packages, if not to help drive that retention? Are those things you're considering?

So it's very true. Our retention rates once a nurse or quite frankly, an employee behavioral employee has been at work for more than a year, goes up, I'm going to say, exponentially. And part of it is, particularly in nursing schools today, many nursing schools really don't have any behavioral specific education. So a nurse might come to work for us out of nursing school, never having worked in a behavioral facility before and find that he or she -- this isn't what they kind of imagine, this isn't what they want and what they like. So we're doing a lot of different things. I mean, number one, we're partnering across the country with nursing schools to provide that opportunity for nurses to get an on-site work experience in behavioral to understand what it's like.

So there's a better match that the nurses who do join us are nurses who understand what the environment and the milieu is like and that's what they want and the nurses who don't and provide that opportunity. But also, I think like during the pandemic, we were so desperate for nurses that nurses were coming and we were orienting them as quickly as possible. And sometimes I think that was a bit overwhelming for them. And I think we're much more deliberate today about how we're orienting and educating our nurses who come in, particularly those without behavioral experience to make sure that when they go out on the floor and when they begin to see patients in a live setting, et cetera, that, again, they have the right mentorship, somebody is partnered with them, they feel more comfortable, much more likely to not throw up their hands and say, I'm not really prepared for this.

So yes, I mean, a big part of our emphasis is on that first year of experience, making sure that nurses are appropriately oriented and prepared.

Great. And in the last couple of minutes, I think we'll focus on behavioral outpatient. It just seems like such an attractive market, how fragmented it is, the market share grab opportunity. I mean managed care companies are coming out and saying how elevated the trends are. So I understand your focus here has started about a year ago with opening 10 facilities, and now you're planning on 10 to 15. But if these trends continue to inflect higher, stay elevated, just given how healthy your balance sheet is, would you consider levering up or shifting it higher in your deployment priorities or just allocating more dollars to de novo builds, getting to more than just 10 to 15 per year?

So just to make a point or clarify the point, when we talked about adding 10 or 15 facilities a year, these are new, as you suggest, de novo freestanding outpatient facilities. We do have a larger outpatient presence than that. We probably have somewhere in the 70, 75 outpatient facilities around the country. Many of them are -- what we would describe as step-down facilities. So when a patient is discharged from -- an inpatient is discharged from a behavioral hospital, they are often done so in need of continuing care. We call this intensive outpatient care or a partial hospitalization. This is not just an hours therapy a week with a therapist. This is 4, 5, 6 hours a day.

It essentially mirrors the treatment that they were receiving in many ways in the inpatient setting, but they're not staying overnight. They've reached a point in their recovery where they don't need to be cared for 24 hours. And so we have a bunch of those facilities. So the new facilities we're talking about are more of these freestanding facilities that we have not had as much emphasis in. And the limitation, Michael, is really not a CapEx or facility one. Probably the biggest challenge going back to the theme that I described before, is finding the number -- the right number of therapists and making sure you have the right number of therapists. And so it's really not a question of the capital.

The capital required to put up a freestanding outpatient facility is somewhere between $1 million and $2 million. So that's not a big hurdle here. It's making sure you have the right number of therapists. But to your point, we do, I think, have significant advantages as we open these things. We already have established referral sources who know us to understand our outcomes, et cetera. We have relationships with payers. We are -- and one of the things you talked about payers citing behavioral care as an increasing part of their medical losses. One of the things they've cited is a lot of out of network here, which means that they're sending patients to out-of-network facilities when we're largely, in most cases, an in-network provider. So again, that's another advantage to us as we move forward to this area.

Perfect. Well, that's time. Thank you so much, Steve, and thank you so much, everyone. Have a great rest of your day.

Thank you.

Okay. Good morning, everyone. I'm Steve Baxter, the health care services analyst here at Wells Fargo. So very pleased to have Universal Health Services with us today. As I'm sure you know, UHS operates a portfolio of acute care hospitals and behavioral assets. And from the company, we have CFO, Steve Filton. Steve, thanks again for being here. Did you want to make any opening remarks or should we just get right into the questions?

Just jump right into it.

Okay. Then maybe we will start on the policy side of things as I'm sure you've gotten a lot of questions in your meetings thus far. And the most front and center issue seemingly in front of the acute care hospital industry, in particular, is the potential expiration of enhanced subsidies. I think you still remain the only company that's been willing to put an estimate out there about the potential impact of enhanced subsidy expiration. Maybe update us on your latest thinking there and just remind us the assumptions that go into developing that type of estimate that you put out.

Sure. Well, I think it's worth noting that, I mean, in the last couple of days, there seems to be increasing reporting at least suggesting there's a potential for some sort of extension of the subsidies, either as part of a continuing resolution or as a separate bill. But certainly no assurance. And I think part of the reason that we decided to try and frame what the impact was is that when we were talking to investors, it seemed to us that they were overstating or often overestimating what the potential impact could be.

Now to be fair, I think the most important assumption to be made in sort of doing the analysis of what the impact could be is exactly how many people would lose their coverage, whether they would be able to get other coverage, et cetera. And when we first did the analysis, I think we used sort of a smaller estimate than maybe some third parties had used, et cetera, and we came up with a number in the kind of $50 million range.

I think last quarter, we suggested that based on what we were seeing from other third-party estimates of how many people would lose their coverage, we're increasing our estimate to about -- from $50 million to about $50 million to $100 million. And this is, for us, mostly or almost exclusively in the acute care division because we really don't feel like we get a substantial number of exchange patients in the behavioral division, largely because so many of these exchange products carry with them a significant co-pay and deductible that generally render them sort of irrelevant or not terribly useful or efficient for use in a behavioral hospital.

Once we sort of hone in on a number of people who would lose their coverage, then the analysis becomes somewhat easier because we do know what our exchange population is. We do know what their utilization patterns are. We've made the point that it appears to us that, that, I'll call it, the exchange population tends to behave more like what I'll call the Medicaid population than, let's say, the Medicare and the commercial population, meaning they tend to use the hospitals, the acute hospitals mostly from an emergency room perspective and not use them terribly significantly for elective procedures, et cetera.

So what we do is we identify whatever elective procedures that population would use and assume that we would not have access to those anymore. They would not have access and we'd lose that profits from those, but we do assume that they would continue to use the emergency room in the same patterns that they had been. Only now, they would be nonpaying patients rather than paying patients. And that's the way we ultimately arrive at our guesstimate. Again, I'll stress the guesstimate piece of it because I'm still not convinced than really anybody fully understands exactly who and how many would lose their coverage.

And then just in general, is there a way to think about how much volume you think moves to another type of payer versus becomes uninsured versus just doesn't occur going forward in your thought process?

Yes. So like I said, roughly, we have said that about 6% of our adjusted acute admissions are exchange patients. That's somewhat lower than our big public peers like Tenet and HCA and I think that's a question of geography. Tenet and HCA tend to have a bigger footprint in states like Texas and Florida, which tend to have a greater percentage of exchange patients. And again, the notion is or our assumption is we would lose some volume but not much because these patients tend not to do a lot of elective or have a lot of elective work, et cetera. And that the main impact would be volumes would remain the same, particularly ER volumes would remain the same. Only those would become now uncompensated rather than compensated.

Okay. And as the company approaches this potential headwind, do you feel like there's areas of either cost efficiencies or other programs you can drive that might be able to offset some or maybe all of this as we think about planning for next year? I guess, what are you doing to potentially respond?

So we've been asked that question both in the context of the loss of exchange volumes or exchange patients as well as the further loss further out of some of these Medicaid supplemental payments, the directed payment programs, which would start to be reduced based on the Big Beautiful Bill starting in 2028. And while I don't know that we, and honestly, I don't know that any of our peers have very specific plans to offset those revenue reductions, I think and we point to, and I think it's a legitimate sort of analogy, it's not perfect by any means but I think it's a useful analogy to what we were able to do with the onset of COVID back in 2020 and the spring of 2020.

And all of you will remember, that was a much more dramatic occurrence. It happened very quickly with only a few weeks, really, notice of what was happening and a very dramatic decline almost overnight in the amount of revenue and demand, et cetera. And we did a great many things, both we as an industry but UHS specifically. We reduced headcount and made productivity improvements. We froze wages. We froze 401(k) matches. We reduced capital spending amongst a host of other initiatives.

I don't know that we would really need to do all those same things and certainly to the same degree. We'll have more time to react here. The numbers are not as great. But I think what it demonstrated is a flexibility and agility to react to modify the cost structure, et cetera, of the company to fit the operating environment or I'll call it the regulatory environment. And we certainly sort of have kind of that menu of options out there unwilling to sort of commit to a specific plan because we don't really know what the need is going to be but certainly are prepared to react to whatever pressure sort of play out over the next few years.

Okay. And then just on Medicaid supplemental payments and I guess we'll see what happens or doesn't happen when we get out to 2028, but in terms of the near term, there's definitely been some focus about whether additional programs could get across the finish line before this kind of grandfathering provision kicks in. What's the latest company expectations around like what else you might see on Medicaid supplemental payments?

Yes. So for us specifically, I think there are 3 programs that, all 3 of which we've disclosed in our most recent 10-Q, that are pending approval from CMS. One is a new program in Washington, D.C. that we've been disclosing for a while now and has been waiting approval for some time. And the District of Columbia continues to anticipate that, that approval will be forthcoming. We've sized that benefit to us in the kind of $90 million to $100 million a year time frame.

And then expansions to existing programs in Florida and Texas, and again, we've outlined both of those in our most recent 10-Q. I believe that the approval of the Texas expansion actually came through in the last day or 2. Florida is expecting that theirs will come through as well. And I think on a combined basis, those 3 programs add another $150 million, $200 million of annual benefit to us if they are all approved.

There are, I think, supposedly some other states that have also submitted programs or what they call preprints under the deadline of the Big Beautiful Bill. I don't know that any of those are material to us but could incrementally improve our Medicaid supplemental payments as well.

Okay, that's great. And then if we were to pivot to volumes, I guess as we look and compare your results across the group, I mean, you probably have the steadiest volume trends in the second quarter as we compare them to the way you report it out in the first quarter. I guess, how would you characterize demand in your markets? Any color across different payer types? I guess, just remind us how you're thinking about the sustainability of those trends into Q3 and I guess the back half of the year?

Yes. So I think we have generally described the operating environment in 2024 and now in 2025 as really the first kind of clean, if you will, post-COVID years. And I think our sense, particularly in the acute business, has been that we would return to -- again, what we would describe as sort of a historically normative growth model, and that is same-store revenue growth in the 5%, 6%, 7% range. We'll call it 6% at the midpoint, which would be split pretty evenly between price and volume.

And as you suggest, Steve, I think we -- those were close to the numbers that we ran in the second quarter and I think they are sustainable numbers. One of the dynamics, I think, that has stood out, both for us and for some of our peers is that surgical volumes within that growth rate have been somewhat soft, surgical procedural volumes. I think we largely attribute that to a challenging comparison that in '24 and certainly in '23, we were seeing hospitals emerging from the pandemic, more importantly, patients emerging from the pandemic and returning to some of their pre-pandemic patterns of utilization, and we saw kind of a surge in, again, procedural and surgical volumes.

So when we're now comparing our current procedural and surgical volume to the prior year, prior 2 years, it seems a little bit soft. I think that as we get away from those sort of catch-up volumes, if you will, again, this 6% growth rate split pretty evenly between price and volume and including surgical volumes returning to kind of a more normative level is definitely sustainable.

Okay. And do you think the surgical volume, like do you think that the back half can get better or do you think it's more likely that it remains kind of closer to the first half trends?

Yes. I mean, I'll say I think in the third quarter, I don't know that we've seen trends change dramatically. I think they'll begin to incrementally appear more positive as we get to the end of the year and certainly as we get into next year.

And then you have a pretty sort of chunky new hospital impact on the P&L this year with Cedar Hills. Can you maybe give us an update on where Cedar Hill stands, both in terms of, I guess, licensing status and how you're thinking about the financial progression of that business over the next couple of years?

Yes. So Cedar Hill is a new hospital in Washington, D.C. that was built by the district and is leased and operated by us and opened, I believe, in April. And we discussed at some extended length in our Q2 call that getting what's described as deemed status from CMS after a Joint Commission survey had been a slower process than we originally anticipated. We did not get that approval in the second quarter and it led to a loss of about $25 million EBITDA loss in the second quarter, basically because effectively, you're not getting paid for the patients you're treating. You're not getting paid by Medicare or Medicaid nor most of your commercial payers.

That deemed status still has not been obtained but we have had our Joint Commission survey in the last couple of weeks. Joint Commission raised some issues and cited some issues, which is a relatively normal part of the routine. We've responded with plans of correction, et cetera, and believe that we should be getting our deemed status within the next couple of days, maybe early next week.

As a consequence, what we had said in Q2 or in our Q2 conference call was we had this $25 million EBITDA loss in Q2. We estimated in our guidance for the rest of the year, there'd be another $25 million loss in the back half of the year combined. And I think we feel like given the timing of the deemed status approval, et cetera, we're tracking that and should see improvement in the Cedar Hill performance as soon as we get our deemed status very quickly and should ramp up very quickly.

Okay. Is there a way to think about for Cedar Hill, I guess, what's the progress towards maybe more like a breakeven? And is there a way to think about like what you might think the long-term potential of the hospital is just to think about the swing over the next couple of years?

Yes. I mean, I think that we generally have the view that the only reason we would build and open and invest in a new hospital is that at a minimum, it would run at sort of divisional margin averages, et cetera. So see, if you think of Cedar Hill as a 100-bed hospital within -- generally, it takes 18 to 24 months for a hospital to ramp up to what we would describe as full occupancy, something in the 65%, 70% range and generate kind of the normal divisional margin from that.

So maybe we're a little bit elongated. Instead of 18 to 24 months, maybe we're trending more in the 24-month period. But yes, the general notion, I think, is that this would be a hospital operating in a market where we already have a hospital. We've had George Washington University Hospital for many years in that market. We have a nice network now that within 2 years of opening, so April of 2027, should be operating at something close to divisional margins, divisional averages both in terms of occupancy and margin percentage.

Okay, that's helpful. And as we think about where you are with cost, obviously, it feels like things have stabilized a lot. Maybe spend a minute about what you're seeing on the labor side. It feels like some of the macro data points out there suggest that maybe things are slowing a little bit and maybe there's like less pressure on quit rate and things like that, that have driven up labor in the past. I guess how are you thinking about the labor side of the business? And if there are any pressure points, where are they on the cost side?

No. I think that labor has generally stabilized. What we had seen during the pandemic was both a pretty dramatic increase in wage inflation, acceleration in wage inflation as well as difficulty in some cases and just even hiring and filling all of our vacancies that I think was more of a challenge on the behavioral side than on the acute side, but challenging, honestly, in both segments. Again, I think those pressures have eased dramatically since the height of the pandemic.

I think wage inflation is much more kind of running at more normative levels, I'll call it in the sort of 3% to 4% range depending on the market. And I don't think we're feeling any really sort of significant pressure points. Now some have sort of asked if there's some evidence of a softening economy and if that's really even further decelerating wage inflation. So that I don't know that we've seen yet.

I think the other issue we sometimes get asked in conjunction with sort of wage inflation in salaries, although I think it is a separate issue is professional fees, physician fees, mostly physician fees related to the physicians that we describe as hospital-based physicians. These are physicians who provide emergency room care, anesthesiology, radiology.

Effectively, these are patients -- or these are doctors who see patients in the hospital. They don't have their own roster of patients outside the hospital, et cetera, and hence, the term hospital-based physicians. The industry broadly saw significant increases in those professional fees in '23 and '24, particularly amongst emergency room and anesthesiologists -- emergency room physicians and anesthesiologists. We've said and continue to say that we've seen that pressure kind of level off. We're seeing those cost increases going up by roughly, I'll call it, an inflation rate, 5% or 6%, maybe slightly higher than the overall inflation rate, but not seeing much.

Now we are seeing more radiologists asking for subsidies, et cetera. But I will say that when it comes to solving, I'll call it, the radiology coverage problem, hospitals have more optionality than they do with anesthesiologists and ER docs, meaning I think AI can play a role in providing radiology coverage. Radiology coverage can be provided remotely. Radiologists don't have to be at a facility to read X-rays and MRIs and CAT scans, et cetera, which is a different dynamic than any ER doctor, an anesthesiologist who has to physically be present at a facility to do his or her job. So yes, not so much. I think we've seen the pressure ease on those professional fees as well.

That makes sense. And then just on the rate side, thinking about commercial in particular. You've had a years now of above-trend updates on the commercial side to reflect the wage pressure the industry went through. It feels like we could be getting to the end of kind of lapping some of those larger increases. How do you think about the outlook for commercial rates and whether you might be able to sustain this? Or should we think about something that's closer to maybe the pre-COVID norm is the right way to think about the next couple of years?

I think that you've described it fairly, Steve. I mean, I think we think about going forward, price increases or contractual price increases in the 4% to 5% range from payers. I think over the last couple of years, we've seen probably that number elevated a little bit, as you suggest, I think largely to acknowledge and compensate hospitals for the fact that wage inflation was increasing at a faster rate than that.

The other question I get, which you may be getting ready to ask is whether we're seeing any real change in payer behavior not so much just from a contractual rate perspective but also from what I sort of call their day-to-day payment behavior. Are they paying more slowly or are they denying more claims? Are they not approving as many denial appeals? Are they putting more pressure on the behavioral side on length of stay than they had been?

And to be fair, while I think we've always had the view that payers pursue pretty aggressive techniques and initiatives in their payment policies, et cetera, I don't think we've seen that change in a material way in the last few years or even the last few quarters. I would note that I think we, ourselves, have focused on broadly what we would describe as our revenue cycle procedures, the way that we code, the way that we get bills out, the way that we get preauthorizations, the way that we appeal denials when we get denied, all those sort of things.

And I think we've become more efficient. We've used technology to be more efficient, et cetera. So it may well be that the payers have gotten somewhat more aggressive in the last -- or in the recent past, but I think that we've probably counted that as well so we're at least not seeing an impact from that in any sort of material way.

Okay. I guess, how much more do you think there is to do with, I guess, advanced technologies and improvement to revenue cycle? Like do you think that at some point, this becomes actually a net positive rather than it's just becoming like an offset to increased pressure and friction elsewhere in the system?

Yes. Look, I think we are in the early stages of leveraging technology. Some of that's AI, not all of it. But yes, I mean, I think there is continued opportunities. From a revenue cycle perspective, there's just a lot of things that are done kind of routinely or by rote that I think can be done more efficiently through technology, making sure that we've got our preauthorizations, making sure that claims go out, as we describe them as clean claims, I think that can really be aided by technology.

On the clinical side of things, I think there are productivity improvements to be made. One example that I've cited is we have sort of AI agents making what we'd describe as post-discharge calls. So after a patient is discharged a day or 2 later, they often will get a call from what historically has been a nurse to make sure that they've done whatever they're supposed to do. They've filled their prescriptions. They've changed their diet. They've made follow-up physician appointments as appropriate. They want to see if they're -- the patients are experiencing any sort of distress, discomfort, pain, et cetera.

We've started to do that now through AI technology, an AI agent making that call. And I've actually listened into a number of them. And actually, I'm kind of stunned at how seamless the AI agent identifies itself as one right at the beginning of the call and yet people have a very seamless conversation, et cetera. And again, it's just an example of a relatively sort of routinized activity that used to require a nurse or a fairly highly skilled professional. Then now we free that nurse up to do other activities.

Same thing, ER coding. We use a third party who in turn uses AI technology now to do a significant amount of our ER coding and again just is something that I think is just more efficient. The company does it more cheaply, more efficiently, less mistakes than quite frankly, we were doing it using a human being.

Okay. And then just to pivot to the behavioral business and I guess maybe starting with volume. You did see an improvement in the same-store adjusted patient day growth in the second quarter. It's still below the range that you'd hope to deliver on over a longer period of time. How are you thinking about growth as we move into the back half of the year?

And I guess, 1 thing that's come up among some of the companies, there's just been a continued sort of pressure on Medicaid enrollments across the industry. Do you feel like you're seeing any kind of impact from that? Is that hampering your ability to deliver on volume improvement at all in the back half?

Yes. So it feels to me like in the last couple of quarters, there have been 2 sort of overarching dynamics that we've discussed at length as it relates to behavioral demand and our ability to meet that behavioral demand. The first, which is not really a new topic, is the issue of labor vacancies, the inability to hire all the labor that we need, not in all of our behavioral facilities but in a measurable number of them.

I'm going to say, 1/4 to 1/3 of our behavioral facilities continue to experience shortages of often nurses but also sometimes therapists, psychologists, counselors, and honestly, also in a number of cases, nonprofessionals, the people that we describe or we call mental health technicians. These are non-degreed people who are providing a critical aspect of the behavioral treatment plan, really keeping track of patients. Keep in mind that behavioral patients are generally physically healthy. They're up and about. They're moving around. They're participating in activities much different than an acute care patient who's often in bed for most of their stay.

The behavioral patient, quite frankly, shouldn't be in bed other than to sleep. And the mental health technician is playing a critical role in making sure that they're where they should be. They're in therapy. They're in other supervised activities. They're not where they shouldn't be. They're not consorting with people they shouldn't be, all that sort of thing. So that's critical.

And while I think recruitment and retention has improved dramatically from the height of the pandemic, it still remains a challenge and we continue to believe there's room for improvement there. I think we're making steady room for improvement, and that improvement will allow us to see and treat more patients and grow our patient days or adjusted patient days.

The other aspect, and I think this has really been highlighted by this sort of disconnect of as many of you know, payers, I don't know that it's all the payers, but many of the payers in talking about their increased medical loss payments and medical loss ratios, have cited or attributed some of that growth to behavioral care and behavioral treatment. And yet, we're not seeing really many of the public companies that provide behavioral care, UHS, Acadia in terms of inpatient care but even the providers of outpatient sort of consumer -- direct-to-consumer care, the Talkspaces and LifeStances of the world, they're not necessarily reporting significant increases in volumes.

And so as we have tried to reconcile that or square that circle, if you will, we're seeing to the degree that we have access to databases that report on this, et cetera, that care is being delivered in a lot of very fragmented ways and a lot of very fragmented spaces. If an urgent care center can employ behavioral therapies, they can deliver care. Nursing home is going to deliver care. These mom-and-pop outpatient providers can deliver care, et cetera.

So we believe that we have an opportunity to capture more of that, particularly outpatient care, but more of that care that's being delivered in a very fragmented way. Based on our relationship with referral sources, based on our relationship with payers, we ought to be able to capture a greater part of that market share and have a number of focused initiatives to do that. And then honestly, the ability to do that is also tied with our ability to recruit and retain because part of the -- what hampers our ability to provide that care up to now is that we simply haven't had the people to do it. So as we get better at doing that, we'll get better at delivering care in, I'll call them, alternative sites or alternative means.

As far as your question about are we really -- is the softness in -- or our inability to get to the behavioral volume targets that we've set for ourselves, is it a function of people being disenrolled from the Medicaid program, I'm going to say not much because if you think about what we're saying, which is the biggest challenge we have is that in a number of facilities, we can't treat all the patients that are being presented to us. To the degree that there are fewer Medicaid patients in theory, there are other patients, either other Medicaid patients, Medicare patients, commercial patients to take the place of those Medicaid disenrollees as long as we have the means to treat them.

Okay. And then just the outlook for rates on behavioral and just give us an update there. I guess it's been a pretty strong few years there. But starting to see, especially on the Medicaid side, some interest in -- from the states of potentially making fee schedule changes to kind of help improve the overall sustainability of their Medicaid budgets. I guess what's the latest that you're seeing as you look across a broader portfolio of states?

So as we think about the sustainable model, growth model for the behavioral business, we think about a same-store revenue growth target in the 6%, 7%, 8% range. Again, I'm going to say 7% at the midpoint. On the behavioral side, we think about that as sort of 4% to 5% price, 3%, 3.5% volume growth. The 4% to 5% price aspect of it, quite frankly, as you know, Stephen, I think your question sort of alludes to this, we've been largely exceeding that number for much of the last several years.

Even excluding the benefit that we've had from some of these Medicaid supplemental programs, I'll call it, core behavioral pricing has been, over the last couple of years, in some periods and some quarters as high as 7% or 8%, maybe even higher. I think we've always said that we're likely to moderate to sort of a 4% to 5% pricing environment. That's kind of where we were in Q2. I think we think that's a pretty sustainable level.

And again, part of the reason that it's sustainable at that level, which may be a little bit higher than it's been historically is because of the limited capacity not just for us but in the industry. So if a payer wants to be guaranteed access for their subscribers, their enrollees, they're going to have to be an in-network provider. They're going to have to pay what we consider to be a competitive in-network rate, et cetera. And I think you're seeing some of this dynamic.

If the scarcity issues really become much more alleviated over the next few years, then I think you might see pricing decline from that 4% to 5% target that we're talking about now. But I think you'll see, obviously, volumes grow to offset that. So I think broadly, we have a view that, again, 7% revenue growth model is a sustainable model. It remains today a little bit more skewed towards price than the volume. Over time, I think much like we saw on the acute side, I think those numbers will even out a little bit more.

Okay. And then maybe just the last question. We could talk about capital deployment. At one point in the company's history, M&A was a much bigger use of capital than maybe it's been over the past few years. I guess how do you think about the outlook for maybe doing more M&A over the next few years? Is that realistic? If you thought about that, what would you kind of be targeting and if not, like priorities for capital?

So I think the answer to that question is different for the 2 business segments. On the acute side, where the most attractive M&A historically for us has been to acquire a not-for-profit hospital that is underperforming, has been undercapitalized, has not been running efficiently, we've had a number of those examples over the years. But as you suggest, not many in the last 5 or 10 years.

There haven't been many examples of those sorts of transactions in the acute space or at large. Whether some of the pressures that we've talked about from the potential lapsing of exchange subsidies or reduction in Medicaid supplemental payments will create some further financial pressure on acute, not-for-profit acute hospitals, that remains to be seen. We are still certainly in the market for those opportunities if they come to the fore.

On the behavioral side, I think it's been a little bit different there. There have been a number of what I would describe as niche providers. In many cases, these are sort of private equity-sponsored providers of sort of, I'll call them limited care, could be telehealth. It could be specific diagnoses like eating disorders or autism, this or that. The challenge for us has been those transactions have often gone off at multiples of 13x, 14x, 15x EBITDA. And for a company like us that's trading at 7 or 8x or maybe even a little bit less than that at the current moment, that's been a difficult economic sort of equation to make work.

Again, I think in the current environment, whether we'll see some of those transactions going off at more reasonable rates, I think that's possible. I don't know that it's guaranteed. Again, we'd certainly be interested if the prices for some of those opportunities to start to come into a more reasonable realm.

Okay. I think it's a great place to leave it. I think that's about time for today. Thanks so much for being here, Steve.

Thank you. Thanks, everybody.

Good day, and thank you for standing by. Welcome to the Q2 2025 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Steve Filton, Executive Vice President and CFO. Please begin.

Thank you, and good morning. Marc Miller is also joining us this morning. We both welcome you to this review of Universal Health Services results for the second quarter ended June 30, 2025. During the conference call, we'll be using words such as believes, expects, anticipates, estimates and similar words that represent 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-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended March 31, 2025.

We'd like to highlight just a couple of developments 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 second quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule included with the press release, our adjusted net income attributable to UHS per diluted share was $5.35 for the quarter ended June 30, 2025. During the second quarter of 2025, on a same-facility basis, adjusted admissions to our acute care hospitals increased 2.0% over the second quarter of the prior year and surgical volumes were down slightly. Still, same-facility net revenues in our acute care hospital segment increased by 5.7% during the second quarter of 2025 as compared to last year's second quarter after excluding the impact of our insurance subsidiary.

We note that West Henderson Hospital, which opened in late 2024, has had a certain cannibalization impact on the division's same-facility volumes and revenues. Meanwhile, operating expenses continue to be well managed. 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 second quarter of 2025, our solid acute care revenues, combined with effective expense controls resulted in a 10% increase in same-facility EBITDA. During the second quarter of 2025, excluding the impact of the Tennessee Medicaid directed payment program, same-facility net revenues of 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 million to $909 million during the first 6 months of 2025 as compared to $1.076 billion during the same period in 2024. We expect to collect the $58 million of Tennessee directed payment program receivables in the third quarter. The new hospitals in Las Vegas and the District of Columbia contributed $35 million to the receivable increase.

In the first half of 2025, we spent $505 million on capital expenditures, 25% of which related to the 2 new/replacement facilities in California and Florida, both set to open in the spring of 2026. During the first half of 2025, we also acquired 1.9 million of our own shares at a total cost of approximately $332 million. Since 2019, we have repurchased approximately 34% of the company's outstanding shares. As of June 30, 2025, we had approximately $1 billion of aggregate available borrowing capacity pursuant to our $1.3 billion 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 2028 state fiscal years and primarily phased in over a 5-year period through 2032, these program changes will limit both the level of payment and the amount of provider tax assessment that states are permitted to utilize to finance the nonfederal 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 2025 full year net benefit from previously approved state Medicaid supplemental programs is approximately $1.2 billion. At this time, assuming no changes to our Medicaid revenues or other changes to related state or federal programs, we estimate that commencing with the 2028 state fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro rata basis by approximately $360 million to $400 million in 2032. Given the various uncertainties, including the evolving state-by-state interpretations and computations related to the legislation, our forecasted estimates are subject to change potentially by material 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 the call over to Marc Miller, President and CEO, for closing comments.

Thanks, Steve. So based primarily on the increased DPP reimbursement, we are increasing our midpoint of our 2025 EPS guidance by 7% to $20.50 per diluted share, up from $19.20 per diluted share previously. Medicaid supplemental programs in Washington, D.C. and other potential programs that are not yet fully approved are not included in our revised 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 start-up 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 2026. In addition, we are also continuing to grow our Signet behavioral health network in the U.K., which has added 6 new facilities and 137 beds so far this year.

At this time, we're pleased to answer your questions.

[Operator Instructions] And our first question will be coming from Pito Chickering of Deutsche Bank.

I just want to circle back on -- I think you said $360 million to $400 million of net impact in 2032 with the current law in place. I just want to make sure that those numbers make sense. And if you're sort of talking about sort of losing of $380 million of 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?

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, et cetera. Additionally, obviously, there could be, as we noted in the remarks, new DPP programs approved during that time. And finally -- well, maybe not finally, but I think it's also possible, as we noted in our remarks, that some of the changes are not 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 revenue sort of sources of revenues, particularly in the behavioral division, cost-cutting initiatives, et cetera. And I'll remind I know some of our peers have made the same point. Five years ago when the pandemic hit and did so very little notice, we -- specifically, and we as an industry pivoted fairly quickly and fairly dramatically in terms of headcount reductions, capital spending reductions, et cetera, and a whole host of initiatives to react to what at the time was an extremely dramatic and largely unexpected reduction in revenues. So 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.

Let me just add on. Let me -- Pito, let me add on to this as well. So Steve laid out in his prepared remarks, the worst-case scenario and which we obviously 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 will pivot and we'll make moves that are necessary.

In talking with all of the folks down in D.C., representatives from many of the states that we cover, they are starting to recognize even right now. What they passed simply can't be left as is because the effect on some of the 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 2032. We're going to do a lot to make sure that we don't hit these numbers that we just talked about. So I just wanted to give a little context and perspective to that.

Great. 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 and what you assume for the back half of the year and kind of how you're going to be improving the outpatient side of behavioral?

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 have 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 over, we've talked about this, I think, in our last couple of conference calls, is a significant focus of ours, made some progress in Q2 and anticipate making further progress in the back half of the year and quite frankly, years to come after that.

Our next question will be coming from Andrew Mok of Barclays.

Question on Cedar Hill. You called out $25 million 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 the ramp to mature profitability now?

Yes. 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 deem status or Medicare certification. They're not able to build for 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. But awaiting the Joint Commission survey, we believe it is imminent, could occur this week, could 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 Marc 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 million loss or EBITDA drag in Q2. Embedded in our guidance in the back half of the year is another $25 million drag for the back half of the yes. 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 12 or 18 months of additional operations.