Image source: The Motley Fool.

Date

Tuesday, July 29, 2025, at 9 a.m. ET

Call participants

  • President and Chief Executive Officer — Mark Miller
  • Chief Financial Officer — Steve Filton

Need a quote from one of our analysts? Email [email protected]

Risks

  • The One Beautiful Bill Act will reduce the annual Medicaid supplemental program benefit by approximately $360 million to $400 million in the 2032 state fiscal year, with the majority of impact in the behavioral segment; management identified this as the "worst-case scenario" if implemented fully.
  • Cedar Hill Regional Medical Center incurred a $25 million EBITDA drag in Q2 2025, with an additional $25 million EBITDA drag included in guidance for the remainder of 2025 due to accreditation delays and startup costs.
  • Cash generated from operating activities declined by $167 million to $909 million in the first six months of 2025, compared to $1.076 billion in the same period of 2024.

Takeaways

  • Net income per diluted share: GAAP net income attributable to UHS per diluted share was $5.43 in Q2 2025; adjusted net income attributable to UHS per diluted share was $5.35 in Q2 2025.
  • Acute care hospital same facility admissions: Increased 2.0% on a same facility basis for adjusted admissions to acute care hospitals in Q2 2025 compared to Q2 2024, while surgical volumes declined slightly.
  • Acute care same facility net revenue: Rose 5.7% after excluding insurance subsidiary impact in Q2 2025, driven by favorable payer mix and pricing.
  • Same facility EBITDA: Same facility EBITDA grew 10% in Q2 2025, attributed to acute care revenue performance and expense controls in the second quarter of 2025.
  • Behavioral health same facility net revenue: Increased 5.4% in Q2 2025 excluding Tennessee Medicaid DPP; revenue per adjusted day advanced 4.2% with adjusted patient days up 1.2%.
  • Operating expenses (same facility, acute care): Increased 3.1% after excluding insurance subsidiary impact in Q2 2025.
  • Cash flow from operations: $909 million in cash generated from operating activities in the first six months of 2025, a decrease of $167 million compared to $1.076 billion in cash generated from operating activities in the same period of 2024, partly due to a $58 million Tennessee receivable expected to be collected in Q3 2025 and working capital changes from newly opened hospitals in Las Vegas and DC.
  • Capital expenditures: $505 million in capital expenditures in the first half of 2025, with 25% allocated to new or replacement facilities in California and Florida scheduled to open in spring 2026, based on capital expenditures in the first half of 2025.
  • Share repurchases: 1.9 million shares repurchased for $332 million in the first half of 2025; since 2019, approximately 34% of outstanding shares have been repurchased.
  • Available credit: Approximately $1 billion of borrowing capacity remains on the $1.3 billion revolving credit facility as of June 30, 2025.
  • 2025 EPS guidance raised: Midpoint increased by 7% to $20.50 per diluted share for fiscal 2025, excluding unapproved Medicaid programs.
  • Cedar Hill startup losses: Management confirmed a $25 million loss in Q2 2025 and expects an additional $25 million EBITDA loss in the second half of 2025, with profitability ramp forecast into 2026.
  • Behavioral health de novo growth: Opened three U.S. facilities year-to-date—one in Michigan, one in South Carolina, and one set to open in Pennsylvania—plus six new UK facilities that have added 137 beds so far this year.
  • Outpatient behavioral initiatives: Management plans to open 10-15 new U.S. outpatient facilities annually, targeting both step-down and step-in business models.
  • Market impact of West Henderson Hospital: West Henderson Hospital, which opened in late 2024, had a cannibalization effect on the division's same-facility volumes and revenues, with management estimating a fifty to sixty basis point drag on same-facility revenues and admissions in Q2 2025.
  • Behavioral revenue growth model: The long-term expectation for the behavioral business is 6%-7% revenue growth (4%-5% price, 2.5%-3% volume); recent performance in Q2 2025 has been skewed toward pricing over volume.
  • AI and technology deployment: Investments include adoption of Hippocratic AI, use of third-party vendors for emergency room coding, and AI-driven patient engagement for post-discharge follow-up.

Summary

Universal Health Services(UHS -0.42%) reported higher same-facility revenues in both core segments and higher same-facility EBITDA in acute care in Q2 2025, with acute care benefiting from price and payer mix, and behavioral health revenue was up primarily due to rate increases. Management raised 2025 EPS guidance by 7% to $20.50 per diluted share, citing increased Medicaid DPP reimbursement, while excluding unapproved programs from the outlook. The company faces a multi-year headwind from Medicaid supplemental program changes, potentially cutting aggregate net benefit by $360 million to $400 million annually by 2032, beginning with the 2028 state fiscal year, and is actively strategizing mitigation measures.

  • Approximately 34% of outstanding shares have been repurchased since 2019, as free cash flow supports continued buybacks and capital deployment into new facility openings.
  • Filton said, "$380 million is about 60% behavioral and 40% acute, representing the estimated annual net impact in 2032 from the One Beautiful Bill Act as discussed by management," quantifying the future Medicaid legislation risk by segment.
  • Management described ongoing labor shortages as a constraint on behavioral volume as of the Q2 2025 earnings call, affecting both therapists and non-clinical staff, and indicated retention remains a key focus.
  • Direct quote: Filton stated, "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."
  • The company maintains approximately $1 billion in borrowing capacity as of June 30, 2025, pursuant to its $1.3 billion revolving credit facility, while executing a $505 million capital plan in the first half of 2025, with 25% allocated to new or replacement facilities in California and Florida scheduled to open in spring 2026.
  • Management noted that cannibalization from newly opened hospitals and regional economic softness in Nevada moderated same-facility growth in Q2 2025, but overall ER volumes in Las Vegas remain stable.
  • The use of AI in revenue cycle and clinical follow-up is intended to improve efficiency as payer behavior becomes more aggressive in denials and status changes.

Industry glossary

  • DPP (Directed Payment Program): State-specific Medicaid supplemental payment program supporting provider reimbursement via targeted funding mechanisms.
  • EBITDA: Earnings before interest, taxes, depreciation, and amortization; a measure of operational performance.
  • Adjusted patient day: Metric that normalizes patient volume, accounting for both inpatient and outpatient services.
  • Step-down business: Transitional care for patients discharged from inpatient behavioral settings into less intensive outpatient programs operated by the company.
  • Step-in business: Patients entering behavioral care via outpatient programs, often freestanding and not located at main hospital campuses.

Full Conference Call Transcript

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 continued to be well managed. Other operating expenses on the same facility basis increased 3.1% over last year's second quarter, again, after excluding the impact of our insurance subsidiary. For the 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 at our behavioral health hospitals increased by 5.4%, driven by a 4.2% increase in revenue per adjusted day. Adjusted patient days were up 1.2% compared to the prior year second quarter. Our cash generated from operating activities decreased by $167 million to $909 million during the first six months of 2025 as compared to $1.076 billion during the same period in 2024. We expect to collect the $58 million of Tennessee direct payment program receivables in the third quarter. The new hospital 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 two 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 five-year period through 2032, these program changes will limit both the level of payment and the amount of provider tax assessment that states are permitted to utilize to finance the non-federal share of their respective Medicaid supplemental payments. The legislation provides for different limits depending on whether states have previously expanded their Medicaid eligible population as permitted under the Affordable Care Act. We cannot predict, among other things, whether the 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 Mark Miller, President and CEO, for closing comments.

Mark Miller: 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 DC and other potential programs that are not yet fully approved are not included in our revised guidance. We remain pleased with the performance of West Henderson Hospital, which produced a positive EBITDA in the second quarter. At the same time, we acknowledge the significant drag created by the recently opened Cedar Hill Regional Medical Center in Washington DC.

Timing of hospital certification and other startup issues proved a bit more challenging than we anticipated, but demand, especially for emergency services, has been very encouraging. Although recovery to expected results will continue into the back half of this year, we remain confident in the positive long-term prospects for the facility. That prompted our development partnership with the District of Columbia. De Novo growth continues in our behavioral segment. We recently opened a 96-bed behavioral hospital in Grand Rapids, Michigan, which is a joint venture with Trinity Health Michigan, and a 41-bed substance use disorder and dual diagnosis treatment center in Mount Pleasant, South Carolina.

In addition, we are developing a 144-bed behavioral health hospital in Bethlehem, Pennsylvania, which is a joint venture with the Lehigh Valley Health Network and is expected to open later this year, as well as a 120-bed behavioral health hospital in Independence, Missouri, which is expected to open in late 2026. In addition, we are also continuing to grow our Cigna behavioral health network in the UK, which has added six new facilities and 137 beds so far this year. At this time, we're pleased to answer your questions.

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

Pito Chickering: Hey, good morning, guys, and thanks for taking my questions. 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 we're sort of talking about, you know, sort of losing sort of, you know, sort of $380 million sort of EBITDA that over the or that time period, you know, just curious, you know, what your views are to offset that with core ops and how you view that impacting your sort of core growth rate with those headwinds.

Steve Filton: Yeah. So, you know, Peter, obviously, those reductions don't begin as we know materially until 2028. So, you know, we certainly have time to think about strategically how we might alter our business approach, particularly in the behavioral business where, you know, we can alter the structure of our programs, you know, not necessarily cater to as many Medicaid-centric programs as, you know, etcetera. You know, additionally, obviously, there could be, as you know, we noted in the remarks, new DPP programs approved during that time. And finally, well, maybe not finally, but I think it's also possible, as we noted in our remarks, that some of the changes are not ultimately implemented.

You know, we believe or some have speculated that Congress, you know, 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, you know, we certainly feel like there are things that we can do both from, again, shifting revenue, sort of sources of revenue, particularly in the behavioral division, cost-cutting initiatives, etcetera. And, you know, I'll remind that I know some of our peers made the same point five years ago when the pandemic hit and did so with very little notice.

We specifically and we as an industry pivoted fairly quickly and fairly dramatically in terms of headcount reductions, capital spending reductions, etcetera. And a whole host of initiatives to react to what at the time was, you know, an extremely dramatic and largely unexpected reduction in revenues. So, you know, again, I think we have great confidence in our ability to shift and be flexible, especially with several years of notice and preparation that we'll have this time around.

Mark Miller: Let me just add on. Let me, Leo, let me add on to this as well. So Steve laid out in his prepared remarks, you know, the worst-case scenario. And which we obviously, you know, want to be transparent, and that's what the numbers are today. I don't expect that'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 DC, representatives from many of the states that we cover, they are starting to recognize even right now what they passed simply can't be left as is because the effect on some of the health care programs in their state, and not just at a place like UHS, but these not-for-profit hospitals in their state 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 there 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.

Pito Chickering: Great. Thanks so much. Then just for a follow-up here looking at behavioral. Can you sort of talk about the split between the hospital patient days, behavioral versus outpatient? Sort of what you saw this quarter, what you assumed the back half of the year, and kind of how you're going to be improving the outpatient side of behavioral. Thanks so much.

Steve Filton: Yeah. So, you know, in the table towards the back of the press release, you know, we disclosed year-over-year growth in ABC, 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 two and a half to three percent adjusted patient day target that we've been talking about for some time, I think we believe that growth in outpatient is a significant opportunity for us. A number of the insurance companies, as they've been talking about their increased 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, you know, we are determined to get a larger share of that, I'll call it, outpatient pie as we go forward. So focus on outpatient.

And we've talked about this, I think, 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.

Operator: Thank you. And one moment for our next question. Our next question will be coming from Andrew Mok of Barclays. Your line is open, Andrew.

Andrew Mok: Hi. Good morning. Question on Cedar Hill. You called out $25 million of startup losses in the quarter. Can you update us on the latest accreditation status of that hospital? What's baked into guidance for the back half of the year? And how are you thinking about the ramp to mature profitability now? Thanks.

Steve Filton: Yeah. So, again, I think our mistake when it comes to Cedar Hill was we were too optimistic about how quickly we'd obtain Medicare certification. And, you know, just as a little bit of background for people who may not fully understand, until a hospital gets what's called deemed status or Medicare certification, they're not able to bill for or collect from Medicare, and a number of commercial payers generally follow that. And, honestly, and usually, Medicaid follows that. In the case of Cedar Hill specifically, we've already gotten the District of Columbia to agree to pay us back to when they deemed us to be ready for the joint commission survey, which results in Medicare certification.

So we have been getting paid for Medicaid, rather. But awaiting the joint commission survey, we believe it is imminent, could occur this week, could hopefully occur next week. Once we get that certification, then that becomes the effective date that we're able to bill. It'll take us some time to, you know, get the bills out and collect. But that becomes the effective date. The delicate balance that a facility gives through sort of in these early times is we're not necessarily trying to promote all the surgical elective procedural business that we might otherwise because we're not, you know, necessarily getting paid for it.

So most of the activity at the facility right now is emergency room activity, which, as I think Mark noted in his comments, has been quite busy and encouraging that there is great demand for the hospital 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. We have a $25 million loss or EBITDA drag in Q2. Embedded in our guidance in the back half of the year is another $25 million drag for the back half of the year, so some improvement. But, you know, recognizing that there'll be a ramp-up once we get our certification.

And then I think, you know, the general sense is that by the time we get to 2026, the facility will be back on a course of ramping up to kind of divisional-wide profitability after twelve or eighteen months of additional operations.

Andrew Mok: Great. And maybe just a quick follow-up on that. Like, outside of the discrete items related to state-directed payments in Cedar Hill, the EBITDA guidance looked largely unchanged. One, do I have that right? And two, what are the offsetting positives allowing you to keep the underlying EBITDA intact despite the soft behavioral quarter? Thanks.

Steve Filton: So I think if you, you know, go through the math, there's roughly $185 million of new DPP revenues in that $1.2 billion that I alluded to earlier from our last disclosure, you know, last quarter. Offsetting that is roughly $50 million in the Cedar Hill drag, the $25 million in the second quarter and the $25 million in the back half of the year. And then a bit more of a drag in terms of scaling back our behavioral projections for the back half of the year largely because we are falling short of that volume target that was originally embedded in our guidance. I mean, those are basically significant pieces of the guidance revision.

Operator: Great. Thank you. And one moment for our next question. Our next question will be coming from Jason Casolera of Guggenheim. Your line is open.

Jason Casolera: Great. Thanks. Good morning. Maybe just a piggyback on the outpatient behavioral commentary. I mean, you were talking about getting a bigger share of the outpatient pie. I guess, how would you see that unfolding? Is this more de novo build-out? You've got less than two times leverage ratio currently. You've talked about a number of de novo builds and JVs in your prepared remarks. I guess, just hoping you can give us any color on a pathway to grabbing more outpatient care. Thanks.

Steve Filton: Yeah. And we've talked about this, I think, in some detail in the last couple of calls, but happy to revisit the issue. Generally, we generate outpatient revenues in behavioral in two very broad ways. One is step-down business. We refer to it as step-down business. These are patients who are inpatients in our facilities. But when they are discharged, they require further less intense care and will go into programs that we either describe as intensive outpatient or partial hospitalization. And often, you know, those programs are offered by us on our campus, etcetera. And as you might expect, we control or are able to refer many of those patients to our own programs.

Although many of them also leave and go elsewhere, and we're focused on keeping as many of those patients in our programs, both because we think clinically that's most effective for them. There's a lot of continuity with our medical professionals, etcetera. So that's something that we can do immediately and just do a better job of controlling that patient flow. But the other aspect of outpatient revenue in behavioral is what we described as step-in business. These are patients who enter the behavioral system in an outpatient program. Very often, it's a freestanding outpatient program, not located on the campus of an acute behavioral hospital.

We have found that there's a large number of patients who are often not comfortable with their first experience in behavioral care being on the campus of an acute behavioral health hospital. And so we are establishing a larger footprint in freestanding behavioral hospitals that are located, you know, generally not on the campuses of our existing hospitals. Those hospitals, the capital investment in those outpatient facilities is not great. They're generally, you know, leased facilities in a storefront or that sort of setting. You know, maybe there's a, you know, a million dollars of capital on average in each of those.

You know, the bigger issue is just really staffing them with the therapist and creating, you know, a flow of patients. So, you know, we intend to open ten to fifteen of those, you know, new outpatient facilities a year over the next several years and increase our presence both in the step-in business and do a better job in the step-down business.

Jason Casolera: Okay. Got it. Thanks. Helpful. And maybe just as a follow-up. For the acute care business, can you talk about volume growth trends across payer cohorts in the quarter? And what type of volume growth you saw again, you know, for commercial, Medicare, Medicaid, exchange. And if payer mix was a benefit in the quarter, would you expect that, you know, where your payer mix kind of came in this quarter, would you expect that to persist at least through the remainder of this year, or are there puts and takes there? Any color would be helpful. Thanks.

Steve Filton: Yeah. You know, what I would first say is that we said in our prepared remarks that acute care revenue exclusive of our insurance subsidiary grew by 5.7% year over year in the second quarter. That's pretty much spot on with what our guidance presumed. We talked about five, six, seven percent. You get revenue growth of six percent at the midpoint, we're kind of running right there. I think without the cannibalization of our state facility revenues that we're getting from West Henderson, we'd be, you know, right there, maybe in the low sixes. So we're, I think, you know, kind of right where we thought.

The second quarter, I think we were skewed a little bit more to pricing than to volume. But, you know, generally, spot on. To your point, I think the pricing benefit in Q2 was a bit better mix driven. As I think a number of our peers have commented as well, we saw a little bit less Medicaid volume and a little bit more commercial exchange volume in particular, and I think that drove somewhat more favorable pricing.

But again, I'll make the point that we probably were a little less bullish about how some of the we considered, you know, sort of extraordinary acute care revenue growth numbers that we and others have been putting up over the last several years would start to moderate. I think that's been true in the first half of this year. And so in our minds, the acute business is sort of growing, you know, very much in line with our expectations.

Jason Casolera: Okay. Great. Thank you.

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

Benjamin Raskin: Hey. Good morning. Thanks for taking the question here. So behavioral pricing continued to outperform during the quarter. And growing just under 7% for the first half of the year versus your original growth range that you previously outlined in the 4% to 5% range. Is there any way to frame the breakdown here between rates, acuity, and contributions from incremental supplemental payments? And then what does your back half guidance regarding growth as you progress towards your now revised goals on the volume side?

Steve Filton: So in our prepared remarks, I said that excluding the Tennessee impact, and we exclude Tennessee because I think that's an incremental benefit in the quarter. We don't exclude the other $43 million of DPP in the quarter because if you go back to the second quarter of last year, there was a $35 million unexpected benefit in the states of Washington and Idaho. And so those two, in our minds, offset. But excluding the Tennessee directed payment, we said that revenues increased by 5.4%. And that's basically broken down between a 4.2% increase in pricing and a 1.2% increase in adjusted patient days.

As you know, I mean, we said in our guidance that pricing, you know, we assumed would be in that 4% to 5% range. We've generally been outpacing that. The second quarter moderated a little bit.

Benjamin Raskin: Great. Appreciate the color. Just as a follow-up, look at your average length of stay in acute, seeing that down both annually and on a Just walk us through some of the drivers of that deceleration and maybe where you see room to bring that down further? And then are you seeing any variation in length of stay trends across your payer classes? Between Medicaid, Medicare, and commercial, particularly among your exchange populations?

Steve Filton: Yeah. I mean, obviously, length of stay peaked during the pandemic when it was driven much higher by the high acuity of COVID patients in particular, and it's been coming down steadily since then. I think we believe that there still is some room for length of stay to be further reduced. I think probably the biggest challenge we have in reducing length of stay further is the placement of patients into subacute facilities, that could be skilled nursing facilities, nursing homes, home health programs. Often, there is a sort of a scarcity or a lack of availability in those programs. I don't know that it really varies, you know, by payer.

I think sometimes it's an obstacle for us because the payers don't have all of the subacute providers in a geography in their networks, and that can be challenging. But yeah. I mean, I think we continue to believe that length of stay has some room. I'm not going to say, you know, a material amount. But some incremental room to improve from where it currently is.

Benjamin Raskin: Great. Appreciate the comment.

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

Craig Hettenbach: Yes. Thank you. Just following up on behavioral, and I know there's been kind of back and forth with the payers on kind of price and access. I'm just curious on just a longer-term basis, do you think some of that normalizes in terms of the contribution between volume and price, or how are you thinking about that?

Steve Filton: The way we think about the long-term model of the behavioral business is that six, seven, eight percent, I'll call seven percent at the midpoint, is the reasonably expected revenue growth rate. And that would be made up of, you know, four to five percent price and, you know, two and a half, three percent volume. And, frankly, in most periods, exceeding the price targets. It's the volume that has been the bugaboo for us. We've improved, as I said, from the first quarter. But again, I'll call it that six and a half, seven percent revenue growth skewed a little bit more to pricing than to volume.

As sort of being the model that, you know, we're expecting in the behavioral business for, I'll call it, the intermediate future.

Craig Hettenbach: How are you thinking about just kind of leveraging technology and AI? Kind of where are things today and how could that kind of ramp?

Steve Filton: Sure. I mean, obviously, as efficient and productive as possible. And to the degree that's technology, whether that's AI or other kinds of technology, can help us do that. We're certainly open to that. You know, we can, you know, the AI discussion, I think, you know, could be a whole separate discussion and a separate call. But I'll just briefly say that, you know, we're experimenting with uses of AI and things like revenue cycle, where certain tasks like denial management and denial appeals, etcetera. We know that the payers for some time have been using AI to generate things like denials and patient status changes, etcetera.

And I think, you know, we're developing some countermeasures to that using AI more productively, etcetera, than I think, you know, humans can actually do that. From a clinical perspective, you know, one of the early experiments we've done is using AI to follow up with patients on their post-discharge instructions. So, you know, an AI-generated entity will call a patient and make sure that they've followed up with the appropriate doctor appointments and they filled their prescriptions, and they're following their diet, you know, whatever the post-discharge instructions are. And we have found in the early stages that's been very well received and efficient.

And then again, it frees up a clinical person, you know, generally a nurse who would otherwise be making that call. So yeah. I mean, I think that AI and general are certainly one way that we envision becoming more productive.

Craig Hettenbach: Helpful. Thank you.

Operator: And one moment for our next question. Next question will be coming from A.J. Rice of UBS. Your line is open, A.J.

A.J. Rice: Thanks. Hi, everybody. Maybe a couple of questions. First on, obviously, the managed care space has been quite disrupted the last few years and culminating this year. Just wondering if you see that impacting discussions with the MCOs at all on either Medicare Advantage, commercial, whatever. And I'd ask them both from the behavioral perspective and the commercial perspective. You know, where are you at and is rate updates consistent terms that you're seeing being asked for? The percent of business getting done for this year, next year, and the following year?

Steve Filton: A.J., I mean, I think, you know, our experience has been in the end, I think it's been alluded to in some previous questions, John, behavioral side, we've gotten pretty strong added share increases over the last several years. Largely, I think, because the payers, you know, are struggling with access to the facilities. I think there's a chance to be particularly an inpatient behavioral bed that payers are challenged by where I think, you know, we probably feel the impact of the managed care industry's challenges the most is in sort of the day-to-day, you know, revenue cycle interactions we have with payers.

You know, we can, we, I don't know if we've seen them in more increase in the level of denials or patient status changes. But if you talk to anybody who works in, you know, our revenue cycle and even the Hager or HQ, they'll just describe to you what is sort of a daily slog of having to, you know, counter aggressive behavior on the part of payers all the time and denials and denial of appeals and pay and appeals of patient status changes, that sort of thing. We've invested, I think, a lot.

We've had some pretty significant third-party consulting reviews of our revenue cycle practices to allow us to improve people, process technology, so that, you know, we're trying to, you know, be able to counter the payers in sort of the aggressive behavior we have found in those areas. I don't know that it incrementally more, you know, materially different than it has been. But it's certainly been this way for some time now.

A.J. Rice: Okay. Maybe just also ask you about labor. Any updated thoughts on both lines of business with respect to things like wage rates, use of contract labor, turnover, etcetera. And I know particularly with behavioral, your biggest challenge you talk about in trying to get back to your or get to your growth targets there has seemed to be getting the staffing any update or thought on that.

Steve Filton: Yeah. So I mean, I think from a labor wage inflation perspective, obviously, wage inflation has decelerated significantly from its peaks during the pandemic. Maybe decelerated is not the right choice of words, but it's accelerating at a much lower rate than it had been during the height of the pandemic. I think we find that in both of our segments. I think we find the use of temporary traveling nurses to be lower again in both segments. But you are correct that, you know, we continue in the behavioral business in certain geographies and certain markets to be hampered or for at least our volumes to be hampered by our inability to hire all the staff that we need.

And it's not often nurses, but sometimes that could be therapists. Therapists, I mentioned earlier, could be or hiring a therapist to be an obstacle to building out outpatient. But it also can even be the non-professional people, people we call medical technicians. So we've done a great deal in the last several years to improve our recruiting, but also, and I think almost probably more importantly, the recruit law retention to make sure that when we hire people, they feel properly trained, we feel that they're properly trained to maximize the safety and but also to, you know, prevent to feel they're wanting to stay at the facility for longer periods of time, etcetera, and longer tenure.

We'd be also longer tenured employees. So we continue to bet. That remains a challenge. It's still a tight labor market. And, again, I do think while it is not the pervasive issue that it was at the height of the pandemic, your staffing, you know, scarcity continues to be an issue in some markets and some geography.

A.J. Rice: Okay. Maybe just if I could squeeze one more in there. Of the your DPP come as you had, I know a lot of states or there are some states scrambling to still get credit under the big beautiful bill before the window shuts. And Washington DC was a big one for you that was still pending. Any update there? And then with respect to your long-term impact of the big beautiful bill, you said $380 million exposure. Any way to break that down between acute and behavioral exposure?

Steve Filton: Yeah. So the $380 million is about or was at the midpoint of the range that we gave, which is $380 million, is about 60% behavioral and 40% acute. As far as your other question about other programs, the DC program has been pending approval for a number of months now. We don't necessarily have any inside information. We do get periodic updates from the district in itself where the district provides it to the hospital association and we get through them. And they say they continue to have ongoing conversations with CMS. I think it's fairly typical, meaning CMS adds some questions, asks for data, they provide it, they sometimes reach out to us.

Hospitals for helping provide that data. We provided data. The district continues to believe that the program that they've submitted meets the criteria of CMS in other programs that have been previously approved. And they continue to expect the program to be approved. Although, you know, they don't really estimate a time frame. There are other states that we understand that either submitted preprints or, you know, intend to think it's worth noting that the bill doesn't preclude new programs. It just suggests that any new programs after the passage of the bill are subject to the caps in the bill, whether they're the provider tax caps or the reimbursement caps.

But it's entirely possible that there are states who can still submit, you know, new programs even now that the bill has been passed.

A.J. Rice: Okay. Alright. Thanks so much.

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

Matthew Gillmor: Hey. Thanks. Steve, you made a comment about West Henderson cannibalizing some of the same store growth on the acute side. Are you able to quantify what that impact would be or just give us some sense for the drag on the same store?

Steve Filton: Yeah. Hard to do in an absolute precise way, Matthew. But I think the way we look at it is we look at the ZIP codes that West Henderson is getting patients from and sort of try and triangulate and say, you know, these are the likely ZIP codes that prior West Henderson opening would have gone to either Henderson, Haas, or one of our other hospitals. You know, we think that impact is maybe fifty, sixty basis points from an adjusted mission perspective. And a similar impact on revenues. You know, so again, best guess, you know, that's not a perfect or, you know, completely precise estimate, but that's our best guess.

And then following up on some of the expense management discussion, I wanted to see if there was anything to report with respect to professional fees and physician expenses. I think you had most recently said that you were expecting that to be up 5% and it was stable, but just curious, are there any, you know, progress there or sort of incremental pressures to certain specialties?

Steve Filton: Yeah. I mean, I think that, you know, you as you, in our guidance, we assume that after fairly dramatic increases in those physician expenses in the last couple of years, that our assumption in 2025 was that they would increase by, you know, roughly the overall inflation rate, 5% or 6%, something like that. And I think that's been the case. You know, we continue to feel pressure from, you know, different physician groups around the country.

I think, you know, a number of our peers have suggested that after the initial pressures over the last several years have come from ER doctors and anesthesiologists, more recently we're seeing more radiologists asking for increased subsidies, something that quite frankly we hadn't seen in years. We've seen that same dynamic, although we've been able to continue to operate within that sort of, you know, 5% growth dynamic that's not really changed.

Matthew Gillmor: Got it. Thank you. And our next question will be coming from Sarah James of Cantor Fitzgerald. Sarah, your line is open.

Sarah James: Thank you. You've talked a lot about the opportunities for growth and outpatient behavioral. Given what that implies for Mick, the two and a half to three percent adjusted admission for behavioral volume still the right long-term target? Or the right target for 2025 given the year-to-date performance? And can you speak to how inpatient behavioral specifically has been doing year-to-date versus your expectations?

Steve Filton: Yeah. I mean, so I think Cloudera is obviously what we're seeing, I think, in behavioral is payers trying to shift more patients from the inpatient setting to the outpatient setting. Obviously, that's a dynamic that we've, you know, not, it's certainly not new. We've seen it in the acute space for, you know, a decade or two already. It's not new to the behavioral space either, but I think, you know, there's more of an emphasis on it. And to be fair, I think, you know, our business has been an inpatient-centric business for most of its history.

We have always had an outpatient presence, but I don't know that our, you know, focus has been as intense as it is currently in part to take advantage of that shift. So I think that one of the reasons why it has been difficult for us to reach that two and a half to three percent target that has been elusive, and we certainly acknowledge it's been elusive, is that there's been a shift to outpatient, and we've been not necessarily capturing what I would describe as our fair share of that outpatient business. Our focus has clearly changed.

You know, like I said, we've seen sequential improvement from Q1 to Q2, both in overall adjusted patient days, but specifically in outpatient. I think we believe we'll continue to see improvement over the balance of the year and do believe that over the long term, that two and a half to three percent adjusted patient day growth target is a reasonable target for this business. That the demand is there. We just have to be able to service it in the right setting with the right staff, etcetera.

Sarah James: Thank you.

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

Ryan Langston: Great. Thanks. Appreciate your commentary on the West Henderson Hospital, but maybe can you just more broadly give us an update on how Nevada and the Las Vegas markets are doing in terms of volume trends, payer mix, any other data you're able to share?

Steve Filton: Yeah. I mean, I think we've seen a little bit of slowdown in our Nevada volumes. There's been, I think, you know, a great deal written in recent months about the overall Nevada economy and the Las Vegas economy slowing down a bit. You know, we're seeing some impact from that. But as I said, you know, even if you exclude the cannibalization from West Henderson, or just exclude West Henderson's, you know, ER volumes, like, our overall ER volumes are up slightly, you know, not by a great deal, but yeah. I mean, you know, Vegas's performance was still very solid.

And while West Henderson's performance is extremely positive, we are seeing a little bit of pressure from some of the economic softness in the market.

Ryan Langston: Okay. Great. Just one follow-up. You know, net leverage continues to come down even with the increases at least year over year in share repos and capital spending. I guess, can you remind us how we think about capital deployment strategy and if we should maybe just expect this to continue to come down through the back half of the year? Thanks.

Steve Filton: Yeah. So in our initial 2025 guidance, we guided to a share repurchase number in the $600 million to $700 million range. And that was really the free cash flow that we were anticipating in that original guidance. Obviously, the revised guidance presumes a higher level of free cash flow, and I think it's reasonable to assume that incremental free cash flow will likely be dedicated to an elevated level of share repurchase. It's possible that, you know, as we evaluate what we think to be a, you know, a pretty compelling share price at the moment, you know, that we'll decide to be even more aggressive from a share repurchase perspective.

But, you know, again, at a minimum, I think it's at least safe to assume that as our free cash flow increases, that incremental amount will be dedicated to additional share repurchase.

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

Michael Ha: Thank you. Just wanted to follow-up to Peter's question. So it sounds like you're very confident in finding the offsets for the DPP headwinds after 2032. We just wanted to fully, clearly confirm that we should be thinking about behavioral health long-term margin targets as unchanged. All that recent strength in favorable margins, pricing should remain resilient, durable, even in the face of this gradual headwind?

And, basically, do you still believe over time you can get back to those sort of high twenties margins from a decade ago and I know there's no immediate rush, but curious if you have any early sense on timeline when you look to have the mitigation plan with all the offset leverage flow fully flushed out.

Steve Filton: Yeah. I mean, you know, obviously, Michael, I think, you know, people are asking, you know, very specific questions about, you know, a period that doesn't begin for three years and doesn't end until eight years from now, difficult to project. I think, you know, what we've tried to express in our commentary is that particularly on the behavioral side, which is really, I think, the thrust of your question, we do have the ability to shift programming and, you know, to shift sort of targeted, you know, patient programs in certain places, in certain geographies, where maybe we're seeing, you know, the DPP impacts the greatest. And, you know, but we have plenty of time to do that.

And, frankly, you know, one of the challenges we have is to, you know, do the timing right. You know? So in other words, we're not seeing those reductions for several years. It doesn't make sense for us to all of a sudden exit Medicaid-centric programs when Medicaid reimbursement over the next several years will remain at current levels. So we're going to have to time that outright, etcetera. But, yeah.

I mean, I think what we try to express and I think what our peers have tried to express is that, I think, as for-profit providers especially, we have proven, you know, in a number of instances, I think most recently with the challenges of the pandemic, to be quite nimble and flexible and willing and able to adjust our business for some pretty significant challenges and that, you know, we're confident with the time period that we have to prepare, that we'll be able to do that in this case as well.

Michael Ha: Got it. Thank you. And just a follow-up question. Sorry. Another policy one. But as it relates to work requirements in 2027, just given the outsized procedural disenrollment that we've seen from redetermination, but with work requirements, I know MCOs are very focused on it. But from a provider perspective, if slides weren't dropped off, and they're ineligible for subsidized marketplace coverage that prevents an offsetting catchment. To the extent that actually ends up driving up uninsured and provider bad debt over the coming years. I'm just curious at level how you're thinking about the potential ripple effect of Medicaid work requirements on the UHS.

And are there any things that you guys can do as a provider to maybe even help sort of bridge that gap or back practically engage your own Medicaid patients to sort of improve member retention? Thank you.

Steve Filton: Yeah. So again, you know, I don't know that, you know, there's lots of different estimates about how many patients, you know, might be removed from the Medicaid roles. As a result of work requirements and quite frankly, who those patients all are. You know, obviously, the bill and, you know, the narrative around the bill was that, you know, they were largely eliminating young, healthy, particularly male patients. If that's really the group that, you know, and I'm not enough of a Medicaid expert to speak to this fluently, but if that's really the group being eliminated, I don't know that's a group that has utilized our services at, you know, in great numbers.

You know, to be fair, on the acute side, most of our Medicaid business comes through the emergency rooms as most of our uninsured business does. And there's not a great deal we can do. I mean, there are ways that we can effectively manage that business or manage that business more effectively, and we'll certainly focus on that. But for the most part, we have to take the patients that come to us. Again, I'll make the point that on the behavioral side, we have more optionality in the patients that we're able to take. And if patients, you know, generally don't have insurance, they usually find their way to other settings rather than our hospital.

You can just tell that from our uncompensated care load in the behavioral segment, which is dramatically less than it is in the acute segment. So in terms of referral sources, in terms of the programs that we stress, etcetera, we have the ability to be flexible in terms of, you know, targeting, you know, patient groups, etcetera, that are more preferable from our perspective and certainly will do that as this plays out. But as we look at it, you know, on a forward-looking basis, it's difficult to predict with precision how many of these patients they're going to be and what the characteristics of that patient population is going to look like.

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

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

Steve Filton: Yeah. So what I tried to say earlier, Kevin, is in terms of the step-down patients, the patients that we discharge, we do capture a good share of those, but there are still a good number of those patients who go elsewhere. And we probably can be more effective in the control of those patients. In large part because I think we believe that the care they'll receive in continuity of care that they'll receive at our facility is greater than they will elsewhere. But, yeah, I mean, on what we described as the step-in business, more of the freestanding business. Yes.

There are a lot of other entities out there of all sorts, large, small, etcetera, that offer those services, and we just have not, you know, historically really competed aggressively in that space. And, you know, we'll do some more in the future. We do have advantages. We have relationships with payers. We have relationships with referral sources. Long-standing relationships that some of these newer and smaller providers just don't have. But staffing and therapists are an issue as well in these settings. You know, a lot of therapists have been working, you know, more remotely in more recent years, etcetera. And so competition for therapists is also intense.

So there's not a single reason that I think our outpatient has not grown as much as we think it should. But I think more importantly, our focus on this is going to enable us to grow, you know, at a faster pace in the coming periods than we have in the last few periods.

Kevin Fischbeck: Yeah. I guess maybe if you could just expand on that because I guess, like, you know, staffing and things are things that you kind of should have had, I guess, had a view on as to where you would be this point this year. So we think about the guidance reduction itself and kind of what you thought coming into the year and now what you think volumes will look like. Is it that it has incrementally been harder to staff or something's gone on there? Or has it been the competition or maybe slower progress in some of the initiatives that you were thinking about doing?

And then to that end, whatever the answer is, what, if anything, are you doing differently for 2026 to try and get that back to two to three? Thanks.

Steve Filton: Sure. I feel like, you know, it's a little bit redundant. I think we've addressed this. Yeah. I think it's all those things. I think, you know, we're building and creating more capacity, which we didn't have. So that's new capacity. We're focused on our, you know, sort of discharge and referral processes for patients who are, you know, being discharged from our facilities. We're trying to focus more on recruitment and retention effectiveness, doing all those things. And, you know, that are challenging, but did improve quarter over quarter, and we expect will improve further in the back half of the year.

Kevin Fischbeck: Alright. Thanks.

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

Joshua Raskin: Hi. Thanks. I know you talked about it a little bit, Steve, but I'm just curious on the, you know, sort of AI and, you know, the technology that you're using on the RCM side. Are those internal investments or are you using external vendors more often now? And then is that impacting sort of the coding and patient acuity, sort of like the is that why we're seeing it on the pricing or the revenue per admit side?

Steve Filton: Yeah. So I think it's a combination, Josh. I mean, we've publicly disclosed our investment in Hippocratic AI, which is a company dedicated to the development of AI applications in health care. We also have relied on some vendors. You talked about coding. We've used an AI vendor, a vendor that uses AI technology for coding in all our emergency rooms. I don't know that's resulted in necessarily increased or elevated coding, but I think it's resulted in increased efficiency. You know, taking a relatively routine task and allowing it to be, you know, taken care of in a more efficient way. So it's a combination. I think, you know, we've used some outside vendors.

We're also, you know, investing and working closely with a company that's developing new AI technology. We're doing some things on our own. So I think it's a combination of us trying to take advantage. And quite frankly, you know, some of the technology, some of the new technologies, and we've talked about this, I think, a little bit before, like patient rounding technology, which is not necessarily AI, but in sort of, like, an Apple Watch kind of technology where patients wear that sort of device and we're able to track them and their location more closely and how often they're checked on and those sort of things.

All those things, I think, result in greater consistency and also, honestly, you know, greater patient safety and quality of care.

Joshua Raskin: Yeah. Perfect. And then just last quick one. I know we talked about this last quarter as well, but tariffs, any updated thoughts on potential impact from tariffs?

Steve Filton: Not really. We haven't seen, you know, any sort of material impact from tariffs and have not necessarily sort of been told by our GPO or even by, you know, any significant vendors that significant increases in supply expense are on the horizon. So, you know, obviously, the tariff negotiations at the highest levels, you know, continue, and, you know, we'll have to see how that all sorts out. But it has had little impact on our business to date.

Joshua Raskin: Thank you.

Steve Filton: And operator, we're going to have to make this our last question. We have another commitment at the top of the hour.

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

Rajkumar: Hey. Thanks. Excuse me. And just one from the policy perspective. Just kind of thinking about the proposed elimination of the inpatient-only list. Maybe kind of walk us through the puts and takes for UHS, and then kind of maybe what your view is on the potential impacts from an inpatient admissions growth perspective and overall rate curve perspective over the next few years as that policy gets potentially phased in?

Steve Filton: Yeah. It's difficult to say. And I think what you're referring to is, you know, there's a number of the site neutrality proposals and they differ and, you know, the devil is always in the details. You know, the industry broadly, written a lie, you know, is lobbying hard and making the point that it's been subject to some pretty significant cuts. Many which we've already discussed at some length. We'll see. I mean, I think it's difficult for us to sort of project what the impact is until we know, you know, what the details of the specific bill would be.

Rajkumar: Alright. Thank you.

Steve Filton: So I'd like to thank everybody for their time, and I look forward to speaking with everybody again next quarter.

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