By Bob Mitchell

Although its revenue increased last year, Universal Health Services, a hospital management company based in King of Prussia, saw its profits decrease due to a “fairly dramatic shift” in the industry in which Medicaid patients are moving from fee-for-service into managed care.

The company saw its revenue increase 4.2 percent to $2.754 billion during the Fourth Quarter 2018 as compared to $2.643 billion during the fourth quarter of 2017.

UHS’s revenue grew 4.2 percent annually to $2.8 billion. Its revenue growth was due to increased patient admissions at its acute care hospitals. Admissions for outpatient services increased by 2.2 percent for the same facility. At UHS-owned behavioral health facilities, admissions increased by 4.5 percent.

The company’s behavioral health revenue grew by 2.6 percent on a same-facility basis in 2018. However, the company missed its projections of growing same-facility behavioral health revenue by five percent.

Steve G. Filton, executive vice president and CFO, said during a company’s earnings call that he is no longer specifying when the five percent behavioral growth will occur. UHS expects to see some behavioral health growth in 2019.

Behavioral health pressures

Much of the pressure on UHS’s behavioral health revenue comes from its Medicaid patients moving from fee-for-service into managed care, which tends to approve shorter lengths of stay.

“In the fourth quarter 2018, I believe 65 percent to 70 percent of our Medicaid patient days were represented by managed Medicaid days, and that number has grown from 50 percent within the last 18 months, or so,” Filton said, noting that this is a “fairly dramatic shift.”

The number of states that now have a large behavioral health presence have moved to a managed care system, such as Florida, Kentucky, and Illinois. “We felt the impact of that, and I think that continues to be a major driver on the length of stay contraction” in the industry.

UHS’s expenses also increased from $2.3 billion in the fourth quarter of 2017 to $2.5 billion in the fourth quarter of 2018.

New construction

UHS plans to build a new, 102-bed behavioral hospital in Cape Girardeau, Mo., in 2019. The $33 million, state-of-the-art facility will span more than 68,000 square feet, and is expected to improve access to behavioral health programs and services.

A Missouri State Board approved plans for the new construction in May 2018. Construction will begin this summer, and the facility is expected to open in the fall of 2020.

UHS has also added beds at many of its hospitals, including Spring Valley Hospital and Summerlin Hospital Medical Center, both in Las Vegas, and Henderson Hospital in Nevada. UHS has also built a larger emergency department at Manatee Memorial Hospital in Bradenton, Fla.

Executive search

The CFO also discussed the retirement of long-time behavioral unit president Debra Osteen, who retired in December 2018 after serving more than 35 years in the position. He said that the search for a new president is going well.

“There are a number of good, viable candidates we’re exploring and will continue to do so; we’re quite pleased with the way our behavioral team has stepped in during the interim,” Filton said. “A lot of people are filling in and taking on additional responsibilities, and we’re very comfortable at how the business is being run.”

Osteen was recently hired to serve as CEO of Acadia Healthcare in Franklin, Tenn. Acadia operates 586 behavioral healthcare facilities with 18,000 beds in 40 states, the United Kingdom, and Puerto Rico.

UHS said it also made a $31.9 million adjustment to its Department of Justice (DOJ) reserve for an ongoing federal investigation of its behavioral health facilities. UHS recorded pre-tax increases of $31.9 million and $102.3 million to the reserve.

“We’ve adjusted our reserves periodically to reflect whatever our latest offer is. So, that’s certainly what the reserve reflects,” Filton said during the earnings call. “I think it’s worth noting that the gap between our offer and the government’s (DOJ) demand has narrowed considerably,” as the DOJ may be near the end of its investigation.

UHS also noted that its board of directors authorized a $500 million increase in its stock repurchase program in December 2018, which increases aggregate authorizations to $1.7 billion from an earlier $1.2 billion authorization approved in 2014, 2016, and 2017. As part of this program, UHS may repurchase shares of its Class B Common Stock. UHS said that there is no end date for the stock repurchase program.

Note: At the close of the market Monday (3.18.2019), UHS shares closed at $135.84, $4.96 below its 1-year high of $140.80 achieved on March 1, 2019.