OK, great. Welcome, everyone. My name is Michael Ha. I'm the Managed Care and Healthcare Services analyst at Baird. And our next session is with Universal Health Services, an operator of acute and behavioral healthcare facilities, and I am very pleased to have with us today Chief Financial Officer, Steve Filton. Thank you very much for being here. And, I guess we'll jump right into Q&A if you're- That'd be great. All right, great. So 2024 guidance, you raised your full year adjusted EBITDA by about $250 million last quarter. But my sense is there's still a very healthy level of conservatism, and I wanted to drill down a bit deeper into that. And if I'm not mistaken, I believe there's not much in the guide in terms of that assumption of sort of persistence of first half outperformance into the second half of the year. And it also excludes Texas, Tennessee, and DC Medicaid supplemental payments, which all could drive some very attractive upside. So I was wondering if you could walk us through the elements of the guide raise. What does that reflect? What could potentially represent upside? Yeah. So Michael, I think to be fair, you, you've described it pretty well. I think you know, what we attempted to do in revising our guidance and thinking about the second half of the year is, number one, to incorporate all the newer or expanded Medicaid supplemental programs, which have been approved, which we are, you know, relatively certain about. So they've been included, and that detail, you know, is included in our second quarter 10-Q. To your point, we did not. We have two pending programs, or there are two pending programs in Tennessee, which for us is exclusively a behavioral program, and in Washington, D.C., which largely would be an acute program. And, you know, we've scoped out the magnitude of both of those again, in our 10-Q. We're waiting for approval of those. Don't expect approval to come until late this year, perhaps early next year. As is our practice, we would not begin to recognize that revenue until there's CMS approval. But the expectation is that the Tennessee program, if and when approved, would be retroactive to June one of this year, and the DC program would be retroactive to October one of this year after it's approved. So that there's that element of it, as you described. I think the other thing, you know, clearly we have been able to execute on some pretty significant cost improvements, and I think we tried to continue to reflect those in our guidance, feel like those are sustainable, etc. But the element of conservatism, I think, that you referred to, at least in my mind, is the idea that, you know, what drove a lot of the outperformance in the two segments was on the acute side, acute care volumes that have been sort of stronger than historical norms and behavioral pricing that has been stronger than historical norms. And in both cases, our guidance for the back half of the year really reverted back, or I should say, remained the same. We didn't change, you know, our assumptions about acute volumes or behavioral pricing from where we were in our original guidance. To your point, those metrics have outperformed in the first half of the year to the degree that they're sustainable, and I think they are to varying degrees. Then that's where I think there's the conservatism lies in the guidance. Great, thank you. And I definitely want to dive deeper into acute and behavioral, but maybe on supplemental payments really quickly. So Tennessee, $42 to 56 million dollars, your estimated range, DC, $80 to 90 million. Would you say those are pretty firm ranges, or is there potential for some variation outside? So those numbers come from the state or the district's own estimates. We call them the impact files. So, you know, we're really just going off their calculations. So I think in my mind, as long as CMS approves the program as submitted, and as long as the state or district's calculations are accurate, then those numbers should be accurate. They're not anything, none of our judgment, none of our calculations, just really taken from what the state has- Great ... provided us. Got it. So then, okay, so back in late June, we made UHS our top hospital pick on the thesis that UHS is at the very beginning of this very powerful margin recovery story, magnitude being 400 basis points back to pre-COVID, 700 basis points back to 2015. So with that said, I'd like to drill into both acute and behavioral, but maybe starting with acute margins. So you had mentioned last week that there may be some structural challenges that might prevent you from getting all the way back to pre-COVID, things like professional fees, etc., but you still expect to get pretty close to pre-COVID over the next one to two years. So number one, I wanted to firstly confirm, related to timeframe, is that true, one to two years is the right thinking? Then, should we think of this recovery being primarily driven by, as you've mentioned before, lagging Nevada, DC, SoCal markets, or are there other specific factors that we should consider in getting back to those levels? Yeah. So I think you can think about the recovery in a couple of different ways. I think you can think about it. I'll describe it as sort of functionally. Obviously, during the pandemic, acute care demand was disrupted. Obviously, at the very beginning of the pandemic, you know, disrupted materially, you know, dramatic declines in particularly more discretionary, more elective procedures, and as you know, there's an ongoing debate. Clearly, we have recovered some of those procedures, but, you know, I think there is a, you know, difference of opinion about how much is sort of left to go. Acute care volumes have certainly been stronger than historical norms, I'm going to say, for the last 18 months or so. You know, but we saw some moderation in our acute care volumes... In the second quarter, although, you know, the point that we made on our call was that was compared to some pretty strong volumes in the same period last year. So, yeah, I mean, I think the expectation is that acute care volumes will remain strong and solid. How much? And, you know, are they gonna be greater than historical norms? I think that's, you know, a matter that's sort of being debated. And, honestly, I would say I'm not sure anybody really knows for sure. But the other issue that I think, you know, really disrupted the business during the pandemic was, you know, a really sort of disjointed, disconnected labor supply-demand dynamic. And, you know, the cost of labor in the acute business went up dramatically. We were using significant amounts of premium pay, that is temporary, and traveling nurses, and, overtime for our own nurses, and we were paying premiums, and sign-on bonuses, and loan forgiveness, and all these things to attract nurses, et cetera. And that was really all caused by the demands put on the labor force by the pandemic itself. And as the pandemic has eased, I think, you know, we have seen you know, I'm not saying it's an easy labor market anymore or now, but it is certainly kind of a more normative to me, it looks much more like it did 2019, pre-pandemic. and so, you know, we clearly you know, I think I alluded to this before, you know, we saw our cost structure, you know, moderate. We've also, I think, become, you know, more aggressive, maybe more focused. You know, I, I think during the pandemic, I don't want to say that our operators ignored some of the, the normal efficiencies, but we were so concerned with keeping our labor force intact and, you know, not discouraging people. You know, I do think we kind of eased up on the gas in terms of, you know, sort of driving productivity, et cetera. And again, I think what you've seen in the first half of this year is a return to some of those norms. So I think it's really that, you know, kind of return to normative demand and a return to, I'm going to say, a more normative expense structure that's really driving the margin improvement. Also, as you allude to, and I think, everything I described, I just described, I think all hospitals are experiencing, certainly all, all the for-profit hospitals are experiencing. But I do think we're experiencing at a different pace, depending on geography. You know, I know that you know, my peers have commented for the last year or two that they've seen quicker, faster, more steeper recovery in places like Texas and Florida, states that did not shut down as much during the pandemic, and as a consequence, I think have seen a kind of a faster economic recovery. We have hospitals in Texas and Florida. We experienced that same dynamic. Proportionally, we have fewer hospitals in Texas and Florida than some of our peers. We have more hospitals, and like you mentioned, in places like Nevada, California, DC. These are places that tended to shut down more during the pandemic, and I think have recovered more slowly. But I think part of our strength that you've seen, again, in the last at least six months, is those markets, particularly the Nevada, particularly the Las Vegas market, getting that traction and recovery now. Great, thank you. So maybe sticking on that topic on the markets. So acute margins, just a couple of years ago, 10%, 600 basis points shortfall versus 16% pre-COVID. You just printed basically over 14% this quarter. So at first glance, it would optically appear there's some significant headway being made in that market recovery. But, in terms of, like, innings for those three markets, Nevada, SoCal, DC, where would you say, we are in that market recovery for each market? Yeah, I mean, you know, you talked about- you sort of framed, the trajectory or the time frame to get back to pre-COVID margins in the one- to two-year range. I don't think that's unreasonable, but I think it's probably a little bit on the aggressive side. You know, I always tell people this is probably the single most frequent debate we have internally within the company. I think we all agree sort of what the path and what the trajectory is, the question of how reasonably, how quickly can you expect to get there? Again, I don't think this is a five- or six-year recovery. I would certainly be pleased at one to two years. If it took three years, I wouldn't be stunned. But it's in that time frame, and so, you know, as you think about that, I don't know, you know, I would sort of describe it. We're in the middle innings. We've clearly recovered a good chunk of that, but obviously, we still think there's a decent amount of room to go. Great, so maybe shifting to behavioral now. So you also mentioned last week that you hope to get to above pre-COVID levels. So thinking on time frame, I know we just went through acute, but what's the thinking there, one to two years, five to six years? And are you envisioning a path back to 2015 type levels and that sort of high 20s margins? I know, you know, the current primary, behavioral headwinds, labor, redetermination, site issues, but if I'm not mistaken, if those headwinds subside, that I believe that gets you back to pre-COVID. But to get to 2015 levels, what are the operational, I guess, building blocks getting you there? Could you help us sort of paint that picture? Yeah, I mean, again, I think that the opportunities on the behavioral side, not altogether different than what I described on the acute side. Again, there was a lot of demand interruption during the pandemic, but the demand interruption in behavioral was exacerbated by the labor supply disconnect. Interestingly, the labor supply disconnect during the pandemic, I think, affected the two businesses differently. In acute care, we tended to be able to fill all of our vacancies during the pandemic. It was an effort, and it often required us to you know, pay premium rates, either to temporary traveling nurses or to raise our own salaries, or to pay overtime, whatever. But for the most part, we were able to-... You know, staff all of our vacancies and, you know, I'm sure there were exceptions, but generally did not have to turn business away during the pandemic. On the behavioral side, I think what we found quite frequently and, you know, pervasively throughout the portfolio is that in many cases, we could not fill all of our vacancies, almost regardless of the price we were willing to pay for labor, and as a result, our volumes were extremely muted during the pandemic. And while that's been improving and while we, I think, we've been able to hire more people and fill more of our vacancies, I think we still find that labor scarcity can be an issue in specific geographies, specific hospitals, and that continues to mute our volumes. I think we believe that we're gonna continue to make incremental progress there. As you know, you noted, you know, I think we've been negatively impacted by Medicaid redeterminations and, you know, with some, you know, 40%+ of our business on the behavioral side being Medicaid, that's had more of an impact on our behavioral business than our acute business. But we're finding those people are either re-enrolling in Medicaid. A lot of the people who've been disenrolled, either re-enrolling in Medicaid, having sort of solved their administrative issues, et cetera, or they're enrolling in commercial exchange products. It's just taking, I think, a little bit longer than we thought. So, again, the pace of recovery on the behavioral side, in some ways has been faster because they probably benefited more proportionally from, additional Medicaid supplemental payments, but in terms of sort of the core, it's been a little bit slower. So I, I'd sort of put it in that same time frame, 18 months, 24, 36 months. And again, I think, what has driven a lot of the behavioral outperformance in the last 18 months has been strong pricing, which we think is reasonably sustainable, but, you know, where we think we're gonna get the continued improvement is this slow recovery of volumes to, you know, something, approaching a more normative historical level, maybe three, 3.5%, you know, year-over-year patient day growth. Got it, and then in terms of getting back to 2015 type levels, that's 8-18, 24, 36 is getting back to pre-COVID. Yeah, I think getting back to 2013, 2014 is sort of peak behavioral margins in the high 20s. I would describe that as an aspirational goal. I don't think that it's impossible to think we can get there, but that's, you know, in my mind, a second sort of more incremental, you know, more significant phase that I think would, again, largely be driven by improved volumes. Got it. So then if acute and behavioral health, you're returning back to pre-COVID margins over the next, let's call it three years on average, the magnitude of margin improvement, the impact to EBITDA growth. I guess looking forward to next year, I know it's way too early to comment officially, but in terms of the headwinds and tailwinds, it feels like it's skewing heavily to tailwinds, but maybe you could help us walk through the larger pieces, the building blocks to the EBITDA bridge. Yeah, and again, I think we've touched on a lot of it. You know, obviously, there are these two pending Medicaid supplemental programs that we have disclosed. I think the historical trend of those Medicaid supplemental programs, and people who follow us, I think, closely know that we probably disclose more detail about these Medicaid supplemental programs than any of our peers, and if you go back for however long you'd like to do this, you know, five years, seven years, et cetera, you know, I think what you'll see is, you know, the trend is that these programs just continue to grow. They've continued to expand. That's no guarantee that that'll be the case in the future, but we know that there are states that are talking about expanding programs and new states that haven't adopted programs yet, et cetera. So, you know, my guess is that, you know, in the short and intermediate term, we'll still get an uplift there. And we'll get an uplift, I think, you know, from the things that we sort of talked about originally. You know, demand, I think, will continue to, if not exceed historical levels, at a minimum, you know, run at, you know, historical levels higher than it did during the pandemic. And again, I think, you know, the cost structure has become, you know, much more reasonable than it was during the pandemic. I think all those factors, they've contributed to the growth so far and will continue. I don't know that there's anything, other than the supplemental programs, that's terribly kind of new and different. It's really just more of the same, I feel. Got it. So then shifting back to acute, in the second quarter, you mentioned acute same-store revenue growth, 5% to 6% is expected to eventually split evenly, price, volume, and that would exclude supplemental payments. And I know acute pricing has been seeing a bit of a lag dynamic in recent years, primarily from an acuity lag perspective, but as mentioned, it's been supported by Medicaid supplemental payments. But going forward, just curious from your view on timing of when you believe that pricing can get back to 2% to 3% with that sort of, you know, 50/50 split on pricing, and how should we think about the eventual return of acuity mix? Yeah, so I think what I would describe as sort of the distortion in acuity is that, as I noted before, during the pandemic, there was a significant deferral and postponement of procedures. Almost by definition, the procedures that were most likely to be postponed and deferred tended to be those most discretionary, most elective, least acute. You know, if somebody was having a heart attack or a stroke or in an accident or, you know, needed cancer surgery, they were having those things during the pandemic. But, you know, discretionary orthopedic procedures or colonoscopies, you know, you can go down the list, those are the things that we sort of found to be deferred, and those are the things that are being sort of caught up on, if you will. And so by nature, I think part of the strong acute care volume that we've all been experiencing is the exhaustion or the utilization of those deferred and postponed procedures, but they tend to be lower acuity. So volumes have been higher on the acute side, acuity's been lower. I think as volumes moderate, acuity will grow, and that's our expectation in the back half of the year. So I don't know that we'll be, you know, by the end of the year at sort of that split, you know, three to four on both acute and volume, but I think we're gonna continue to get closer to those numbers. Got it. So you mentioned there's a lot of cost management in your acute care business that you're doing in the second quarter, basically to prepare for the eventual return to pre-pandemic volumes, and to be able to still grow EBITDA, expand margins, even when things begin to moderate. So could you talk more about what these cost management efforts look like, how they give you confidence in your ability to expand margins in a period of potential volume moderation when hospital models, I think, more broadly, are known to be pretty high operating leverage? Yeah, to be clear, you know, I think and the point that I tried to make before and on the second quarter call was, I do think that there was... and again, I still struggle with the right characterization, but a suspension, a postponement of some of the just historically blocking and tackling that we do to drive productivity, you know, to try and match, you know, hours per staff to, you know, admissions or adjusted admissions or adjusted days. I don't wanna say that was ignored during the pandemic, but it was not, I'm gonna say, as rigorously pursued as we have historically done, just because there was this, you know, sort of overarching notion that, you know, you didn't really wanna lose any labor that you that you really didn't absolutely have to. So, there's that element of it. What I also said on the second quarter call, which I think is what you articulated, is I think that it's good that we're doing that because that way, as acute care volumes moderate, if they continue to moderate as we suspect they might, you know, we'll be better prepared for that, and be able to better match expenses and, you know, continue to grow EBITDA and drive EBITDA. So, it's that idea. It's really nothing, you know, terribly new. Again, you know, I'll point to another thing. I mean, length of stay exploded during the pandemic, mainly because the COVID patients that you know really dominated the scene at the beginning of the pandemic were you know tended to be old and sick and you know very acutely ill, and tended to have long lengths of stay. But that was also complicated by the fact that as we tried to discharge patients, the availability of our normal sort of discharge or referral sites you know was limited. So nursing homes and rehab facilities and skilled nursing facilities were unable to take a lot of the patients that we would normally have discharged because they were struggling with labor issues. And again, that's still an issue, but I think you know if you look at our metrics, we've driven to a much lower length of stay. I think we still have room to go there. And the reason that length of stay is so important in terms of driving productivity is, for the most part, the vast majority of our payers pay us on a per-admission, per-discharge basis. So the sooner we can get patients well and appropriately discharged, you know, the more efficient we're gonna be because we're gonna get paid the same amount of money, whether that patient's in the hospital for six days or seven days or eight days. And so, you know, to the degree that we can properly manage that, you know, that's an efficiency driver. So again, I think there are issues. I think that there are technology enablers to help us better manage these issues, et cetera. But, you know, I believe we'll be coming more and more productive on a number of these scores. Great. Shifting to behavioral, I'd love to talk about the pricing strength and then volumes, so pricing strength, you guys are coming off of a quarter where you arguably saw the strongest behavioral pricing in history. I mean, off of a strong 7% prior year comp, wondering if you can drill deeper into the source of it, even excluding supplemental payments, still over 7% growth, so incredibly strong, so yeah, I was wondering if you could discuss that and your view on the sustainability of that strength going forward. Yeah, so I think it's driven by a couple of things, and we've talked for some time now about the sort of dynamic that in a capacity-constrained industry, where a lot of the providers have been unable to treat all the patients that are essentially out there demanding treatment, you know, alluded to it earlier, that, you know, during the pandemic, we would often have to turn patients away because we simply didn't have the staff to accommodate them and to treat them properly, but in that sort of environment, where payers are kind of left scrambling to find a place to, you know, have all their patients treated, I think our leverage over payers and, you know, from our perspective, particularly payers who were paying under market rates in a particular market, et cetera, was increased. And so, you know, what I saw, you know, and most people here know, I've been doing this for a long time, and in my almost 40 years in the business, I think we've given more termination notices and actual terminations of managed care contracts in the behavioral space in the last, you know, year and a half or two years than, you know, probably in the previous 10 or 12 years that I can remember. And it's really, I think, because of this, you know, this sort of, in my mind, kind of shifting leverage, going to payers and saying: Look, if we're gonna turn patients away, you know, you're gonna have to pay us a fair rate, you know, otherwise, we'll cancel a contract with you and accept patients for somebody who is willing to pay us, you know, a market or fair rate. So that's been, I think, a big help and has driven a lot of the improvement. And then I think secondly... apart from the Medicaid supplemental payments themselves, what the Medicaid supplemental payments do is they sort of change the landscape of how we think about payers. So if we're getting a big Medicaid supplemental payment in a state where we weren't getting it before, it's likely that reimbursement for Medicaid patients has become more attractive. And we are, you know, somebody on our second quarter call used the term, you know, can you lean into that business? And I like the term, so I've repeated it. But yeah, so we're leaning into that business in certain states, you know, where it's become, you know, more of a generous reimbursement, more of a fair reimbursement and, you know, seeking out those patients where, you know, before we have not necessarily. And that's, you know, I think result in a reasonably significant improvement in our payer mix. Great. Thank you. So in terms of volume, I'm gonna ask you a very long question. Okay, 3% patient day growth target by end of the year. Would love to drill into the different scenarios that need to transpire and materialize to get there, and conversely, what would be a scenario where UHS falls short? I know redeterminations is taking longer, but the thinking is it's gonna subside and become a tailwind in the back half this year. Your, those handful of sites that were restricted, I believe they're also improving. And then, maybe more importantly on labor, I know, behavioral turnover is what? Twice that of acute. You've faced those labor issues over the past couple of years. You mentioned recently that you're figuring out sort of these new non-compensation related incentives to attract new hires. So curious if you could sort of expand on that. What does that look like? How do you pitch hires on new career opportunity? And are these recent changes really materially different than, in terms of strategic execution versus what you've done historically? If you could expand on that. Yeah, so again, as you have in many of your questions, I think you've described it very accurately. Turnover is challenging in behavioral, and I would make the point that I think turnover is challenging in the subacute industry broadly. You know, whether that it does include behavioral, it does include, nursing homes and skilled nursing and home health, et cetera. And the challenge there has always been that nurses working in those subacute settings have always been able to make a higher salary in an acute care setting. You know, I've seen different sort of estimates of what that gap is, but I think historically it's been in the 15%-20% range that a nurse can make more, 15% to 20% more in an acute care setting. What really happened during the pandemic was that gap sort of exploded and, you know, nurses could make, at least for short periods of time, not 15% or 20% more, but 200% or 300% more. And many of them took that opportunity, and it was, and frankly, it was hard to criticize them for doing so. You know, we're getting back to something that's a bit more normative, but one of the challenges is some nurses have now grown accustomed to working in an acute care setting. In some places, that gap is now, you know, wider than it's been historically. And so that's challenging, and we're trying to solve that problem, and I think we're trying to solve that problem in hopefully some new and creative ways. I mean, one of the things we find is that, turnover of our nurses in particular, is highest in their first year of employment, and so we are really focused on making that first year of experience as satisfying, you know, as it can be. Meaning, wanna make sure that the nurse feels that he or she is appropriately and fully trained before they're out on the floor, and that they're getting appropriate support from their senior managers, and that every nurse who we hire has a mentor and somebody that they can fall back on, et cetera, and these are really important things that are not necessarily just compensation related. We also, you know, we're competing in some cases, you know, the hiring challenge is not nurses, but it's people that used to, back in the day, be called orderlies. We now call them mental health technicians. These are non-degreed people. They're critical to the functioning, however, of a behavioral hospital, making sure patients are where they're supposed to be and not where they're not supposed to be. But the problem there is where, you know, these people are making $20 to $25 an hour. We're competing with McDonald's and Walmart and UPS and Target for those folks. And again, one of the things we're really trying to do, and it's really kind of a dual strategy, is, you know, have them feel like they're really making a difference in a behavioral facility, you know, versus delivering packages, not criticizing any particular job. But, you know, and really give them that opportunity to say, "But I can further my career. I can train," and we'll help you and pay for you to become an LPN or an RN and create a career path that they might not have in one of these other jobs. So there's a huge focus on, I would say, a variety of things, on sort of increasing the pipeline, not just hiring nurses directly, but creating a pipeline of new nurses, increasing nurse satisfaction, et cetera. As well as, and I don't mean to imply that we're not focused on making sure our salary structure is competitive in every market, 'cause that's sort of is the starting point. If you're not competitive, you're not gonna be able to hire anybody. Great. Thank you. I have like 30 more questions, but maybe the last one. Okay, Biden just finalized another mental health parity rule. Any comments, thoughts on that? Yeah, look, mental health parity, I think has been a great development for the industry. It basically says that you know, payers and insurance company can't treat, you know, behavioral patients differently than they treat acute patients. But it's been a struggle from the beginning to get, insurance companies, to comply, and it's sort of, you know, been an ordeal. You know, I think it's an incremental step. The Biden administration sort of, you know, trying to strengthen those rules, and I think it will help us. I don't know that it's a seismic change, but it's a tool that I think we'll use as we continue to battle it out with the insurance companies. Great. Thank you so much, Steve. Thank you. Appreciate it. Yep, have a great rest of your conference. Thank you.