I'm Whit Mayo. I cover services at Leerink. Welcome to the Crossroads Conference. My pleasure to be joined by Steve Filton, longtime CFO of UHS. Steve, thanks for joining us. What do you want to talk about? I'll leave it up to you. All right, let's just start with some behavioral questions here. The business is beginning to pick up signs of life. We're seeing accelerating same store patient days, same store revenue per patient day. Margins are beginning to grow in the right direction. I know that you have historically framed this as being labor as our sort of biggest barrier to sustainable growth, but are there any other changes you would call out at the field level, organizational initiatives, anything that you feel like is manifesting itself into growth? And how do you feel about the sustainability of this? Yeah, I mean, I think that your, you know, high-level description is relatively fair. I mean, I think that our enthusiasm for this business really is, you know, based primarily on just the underlying demand. And I think both the macro industry factors and our own internal data in terms of, you know, the number of patients seeking behavioral care, all suggest that that's a rapidly growing number. It's not likely to diminish anytime soon. And so the things that we're focused on, as you suggest, are, you know, what can we do to best meet that demand? As you suggest, during the pandemic, probably the single biggest obstacle we had was not having sufficient clinical staff to treat all the patients who are being presented to us. I think we've made a lot of progress there. A lot of, you know, net hires. I think obviously, the easing of the pandemic and the COVID pressures have really helped that or helped us, you know, accomplish that. And I think our focus now is, while we continue to, you know, be pretty successful at hiring people, the turnover rate in behavioral, and I think in most subacute, you know, services, is still rather high, and we're really focused on reducing that number, because I think that will allow us to be more efficient, having to spend less on training, increase quality, all those sort of things. I mean, I think in terms of other areas that we're focused on, you know, we have always had a pretty strong presence in treating military members. We call it our Patriot Support Program. That's both active military and, you know, retired people through the VA. We have reinvigorated. We have a Patriot Support Board, which is made up of basically retired military folks, and it's, you know, a very impressive board, includes the ex-head of the Veterans Administration and any number of other people. And they're really helpful in advising us on care for our, again, veterans and active duty military in terms of what really suits their needs from, you know, a telehealth perspective all the way through specific skills training, etc. So we think that's a significant area of growth. Obviously, you know, addiction illness remains, you know, a real area of demand. A lot of the focus is on opioid, but obviously, addiction illness, you know, across, you know, drug, alcohol, etc., is significant. You know, we think we're doing our best to kinda streamline our approach in those areas, centralize some of our, you know, marketing and intake and, you know, whatnot. So yeah, you know, we're doing what we can, I think, to, to better meet the demand that's out there. You know, we still think the demand is extremely strong, and that's why, you know, we remain so bullish on this business. How do you measure the demand? Is it still patient deflections as a primary indication of patients presenting themselves and not having anywhere to go, or you can't admit them, or are there other market-level things you're doing to come up with, I don't know, a severe mental illness incident, you know, ratio or something? Like, how do you measure it? So on a micro basis, we measure it, I think, exactly the way you're describing it. There's inbound activity, you know, people are either calling our 800 numbers or they are, you know, approaching us on the internet, etc. And, you know, we measure those inbound inquiries and the rate at which we're able to convert them and the rate, as you've discussed or alluded to, that we have to deflect them because we don't have a bed or we don't have staff to staff the bed or whatever. So all those indicators would indicate that the demand keeps rising. And then there are these macro factors. There's a lot of macro studies about the rate of behavioral illness, etc. I think, you know, the rate of behavioral illness, you know, continues to increase. I think, you know, it accelerated during the pandemic. It accelerated, I think, particularly in the adolescent population or the child and adolescent population during the pandemic. I think there's a lot of macro data that supports that, those sort of issues as well. Okay. Back on the military business, you have talked about this before, the focus there. What's the rate outlook, whether it's TRICARE, VA? I remember there was like a... I think last year, maybe it was like a 4% update or something that the industry got. Do you feel like you're still getting, you know, good rates in that area? Yeah, I mean, I think that, you know, both VA and TRICARE rates tend to be somewhere between Medicare and commercial rates, so it's, they're good payers. And again, you know, I think it's just also that the demand is so strong in that population, you know, for a variety of reasons. You know, I mean, there's a lot of sort of addiction illness in the active duty population. There's a lot of PTSD in the retired population. So, you know, sociologically, you know, I think, you know, it's problematic, but, you know, in terms of the demand for us to meet, it's a positive development. Okay. And then if we go back through and sort of rank the growth in volumes among acute psych, residential addiction, who's winning right now? ... Well, so first of all, I would say, you know, I mean, our business has been, you know, heavily skewed towards acute behavioral for many years. Probably, you know, somewhere between 80% and 85% of our revenues come from the acute behavioral business. I think we saw some weakness in our residential business, and especially in our child and adolescent population in the back half of last year. We talked about the sort of drag from Medicaid disenrollment having an impact on that population. We talked about a handful of residential facilities that had what I would describe as sort of idiosyncratic issues with a referral source or a regulator being somewhat of a drag. But, other than that, I would say that for the most part, over the last several years, there hasn't been a huge difference in the rate of growth in our, you know, acute and residential populations. Okay. Do you feel like the drag on the RTC business is largely behind you? Do you need another quarter or two to make sure that we're completely through redeterminations? Yeah, I mean, I look, I think practically, the bulk of redeterminations are done, you know. The public health emergency ended in, I believe, May of last year. We saw the bulk of, I think, redeterminations or disenrollments in the sort of June, June, July, August time frame last year. I think for the most part, they are done, and now we're back to kind of an annual exercise in those redeterminations. The thing... You know, it obviously takes some time for those folks to get re-enrolled, either re-enrolled in Medicaid because of administrative, you know, deficiencies, and they update their address or, or, you know, whatever it takes, or they re-enroll in a commercial exchange product. You know, that- Right ... may take some time. What I think really affects the behavioral business, however, is when they re-enroll in a commercial product, commercial exchange product, it tends to have a significant co-pay or deductible. And, you know, when you're talking about the behavioral business, where the average bill may be, you know, $8,000-$10,000, and somebody's got a $10,000 deductible, at least in the beginning of the year, that's not all that effective, you know, in terms of real coverage. So I think we believe that aspect of the sort of the re-enrollment and redetermination and re-enrollment process will improve as the year goes on. Okay, so what do you think the percentage of your admissions today in behavioral are coming from patients covered in, in exchange products? Yeah, I will tell you, we probably have less precise data on that in behavioral than we do in acute. I would say in acute, about 5% of our total admissions are exchange patients. Right. And that's up from maybe 4%, you know, six months ago or, you know, before disenrollments began. We don't, you know, have those exact, you know, numbers in behavioral, but my speculation would be it would be a similar percentage. Okay, okay. I want to go back on the co-pays, deductibles, make sure I understand this. Just the average exchange product has a higher deductible than you find on Medicaid. That totally makes sense. If you looked at the after bad debts, not collecting that, 'cause you're probably not gonna collect all of it, does the cash revenue per patient day look similar to that of Medicaid, managed Medicaid? Yeah, I would say actually, you know, once you're through the co-pays and deductibles, I would say the average revenue probably looks closer to Medicare. Okay. Medicare is higher than Medicaid? Yes. Yeah. Yeah. Okay, so it's still a favorable trade- Yes, yes ... on a cash? Yes. Okay, perfect. Okay. Lots of states over the years have looked to pass 1115 waiver plans, mostly as an effort to circumvent the IMD. If, if you have a substance use disorder, we'll pay for that. I don't know how many states it is now. I haven't read this in, like, a year or something, probably 30, high 30s, I'm, I'm guessing. Are there any states that haven't sought these waiver plans that could be a, not a needle mover, but could be like, could be a driver of coverage for you, that may not have one of these things passed yet? Yeah, I mean, I think, you know, we're in 37 or 38 states at last count. I believe the vast majority of the states that we operate in- Yeah ... have the 1115 waiver, so it doesn't seem to be a big issue. Do you see this- A big opportunity. Do you see this patient population inside your hospitals, though? We do- Yeah ... but I don't know that it's changed dramatically- Yeah ... in the last couple of years. Yeah, okay. All right. We went over labor inflation a bit for behavioral. Some of the BLS data that the government publishes does look like it's showing more pressure. It's government data, so I never know how reliable it is. I publish anyway on it. Do you feel like the year-over-year inflation is still normalized or no? Yeah, I mean, look, I think that wage inflation is certainly higher today than it was pre-pandemic, and you would expect that because obviously overall inflation rates are higher. What I do think is, you know, we clearly, wage inflation has decelerated from, you know, the heights that it reached in 2021, 2022, you know, when we were really facing the pressure of a lot of, particularly in behavioral, a lot of our, you know, clinical personnel leaving to work in sort of COVID environments, et cetera. So I think wage inflation is definitely, you know, or the rate of wage inflation has decelerated. I think the other issue, you know, that I've been looking at recently is, during the height of the pandemic, 2021, 2022, we were paying all kinds of incentives, sign-on bonuses, loan forgiveness. You know, honestly, every market had sort of a little bit of a different flavor in their efforts to attract, you know, appropriate levels of staff. And you know, those incentive payments have really been reduced dramatically from the height of the pandemic. So I think, you know, as you see the improvement in our salaries and wages as a percentage of revenue, I think a lot of that is being driven, A, by the deceleration in wage increases and also by the elimination of a large part of those incentive payments. Yeah. Okay. All right, normalized is what I'm gonna conclude there. Yeah, normalized at a slightly higher inflation rate. Yeah. Yeah. Yeah, yeah. I think that's fair. Any updated views on the opioid settlement and how money may be flowing directly or indirectly towards you guys? Yeah, I mean, you know, I guess the best way I would characterize it, I think it's still dribs and drabs. And that's a hard way to describe $40 billion of money. But I think, you know, the states and counties, et cetera, who are ultimately gonna administer the distribution of those funds are still slow to do so. You know, we continue to work with those entities to, you know, stress the sort of programs that, you know, we can offer and how we think we can be helpful. And again, you know, I think what we tend to try and differentiate ourselves is being able to offer a broad continuum of care rather than, let's say, specifically methadone clinics or- Mm-hmm ...... Suboxone clinics or whatever. But, you know, kind of the broader, more traditional addiction treatment. But I would say that, you know, broadly, we're seeing, you know, just really, I'm gonna say, relatively immaterial amounts of those settlement monies working their way into the system as of yet. All right. You've consistently reiterated your view that over a period of time, you believe that given an improved volume environment, a sustained, you know, top-line environment, and a certain cost environment, you can get back to, you know, a 26%-27% margin. Any updated views on, you know, how long you think it would take you to get there in that circumstance where you had sustained volume, sustained rate, same store revenue, and normalized cost? Yeah, I mean, and obviously, it's a step process because, you know, in that case, you're talking about, you know, something like a 500 basis improvement from where we are today. You know, and a lot of it, I think, is what you already discussed. I think as long as we can get back to, you know, 3%-4% volume growth, which sort of was the traditional level of volume growth pre-pandemic, patient day volume growth, as long as, you know, inflation, cost inflation, particularly salaries and wages, tends to be more modest and moderate, you know, I think all that is helpful. I think in addition to that, you know, we'll continue to try and drive productivity gains. You know, we're implementing an electronic medical record. I think that will allow us to centralize some functions- Yeah ... that we've previously been unable to centralize, things like utilization management, intake, you know, et cetera. So yeah, I think all those things combined, you know, I certainly wouldn't guarantee that we can get back to sort of the absolute peak behavioral margins, which we probably experienced in the 2013-14 time frame, but certainly, I think we- Mm ... we should be able to get a good portion of the way there over, I'm gonna say, the next 2-4 years. Remind me on your EMR investment, what, how many facilities have gone through an implementation? How long? A five-year sort of process, maybe longer? Yeah. So I think probably at this point, we've got 15-20 facilities either live or in some, you know, phase of implementation. Right. Yeah, I think that probably 4- or 5-year timeframe is a pretty good estimate of what- How much you spend in a year? It's probably in the $10 million-$15 million a year range over that 5-year period. Okay. Helpful. Shifting to the acute care business, how... I I think I know the answer, but how do you feel about the durability of the demand and volume environment that we have seen? Yeah, I mean, look, that, you know, that seems to be the $64,000 question that most people have. You know, I think we've probably been more bearish, or maybe a better description would be less bullish than some of our peers, in the sense of we've taken the approach that historically, our acute volume growth, measured by adjusted admissions, has, you know, generally run in the 3%-3.5% range. We've clearly been running above that in the last couple of quarters, and we were in the sort of 5%-6% range. And so, you know, our view is at some point, we're gonna moderate to those levels. Others have argued, and I think it's a legitimate argument, that, you know, if you go back and you take 2019, you know, the last pre-pandemic year of acute care volumes, and you ignore the pandemic and index forward- Right ... what would have been your expected growth, here we are in 2024, and we're still short of where we would have otherwise been. You know, now, lots of things have happened during that time. We've, you know, lost 1 million people to, you know, COVID deaths, and those were big users of the system. Yeah. But, you know, now the population continues to age. You know, it, you know, I don't know that any of us know exactly how utilization patterns may have permanently changed as a result of the pandemic, et cetera. What I will say is, it does certainly seem like the strength of those acute care volumes seems to be more sustainable than we might have originally thought. Mm-hmm. Again, I think, you know, we'll probably take, you know, a kind of more conservative view, that it will moderate at some point. But others have made the argument that, you know, we still have several years' worth of runway. And, you know, as I always point out to people, I hope they're right. This is one of those situations where I obviously hope that- Yeah ... our conservative position is wrong, and I hope they're right. But honestly, I don't know that any of us know that with real precision. Got it. Okay. Remind me your exchange admission growth in the first quarter. I can't remember if you disclosed that in your Q or in the conference call or not. So I would say last year or before, you know, the disenrollment sort of process began, in our acute division, you know, I think I said this before, our exchange, you know, the percentage of our admissions that are exchange admissions were in the 4% range. I think today they're in the 5% range. So proportionally, they've increased a fair amount, but it already seems like that has started to flatten out. So I think, you know, we're in this sort of 5% range of our overall acute admissions, our exchange patients who have exchange coverage. Okay. Can we just have a quick conversation around DPP and supplemental programs? You know, I've talked a lot about this over the years. They've continued to grow and become a recurring piece of your revenue and earning stream. You've just disclosing your 10-Q, a potential program in Tennessee, which is not insignificant. How much more visibility do you have into some of these programs that are being established? Yeah, I mean, what we do know is obviously states have become, you know, much more interested in either implementing these programs, implementing new programs, or to the degree that states have programs that have more headroom, et cetera, and in expanding these programs. We tend not to disclose them in any sort of formal way, in... Or we tend not to sort of disclose any activity until there is a more formal, you know, submission of a program to CMS for approval, et cetera, because what we have found is that some of these programs can take years to sort of develop. I'll use the, you know, the big benefit that we're getting this year is a new program in Nevada, that's worth about $160 million to us annually. But that program, I will tell you, was being kicked around for three or four years before it was implemented. And so, you know, I'm glad that we didn't go out and sort of talk about it too prematurely, but, you know, we disclosed it when the state submitted the program to CMS. But we do know that other states are looking at this, and other states that have programs are looking at expanding them. You know, the concern that people have and have expressed to me is, I think twofold. You know, one is, is there going to be some effort to sort of reverse these programs, et cetera? And look, and I think you have made this point more than anybody, that if you... You know, and we disclose probably more detail about these programs than anybody else, and if you look at it over time, the programs have done nothing but increase. Yeah. You know, year to year, you may see, you know, a slight reduction in a state like Texas, which has a bunch of different programs, but over time, it has done nothing but increase. Yeah. And I think these programs become an embedded fabric of Medicaid reimbursement, and particularly for those safety net hospitals that I think they're really designed to help the most. Those safety net hospitals become completely reliant on these programs, and without them, I think they're just no longer economically viable. So from a public policy perspective, the idea that these programs are sort of somehow gonna be dramatically, you know, overnight, sort of reduced, or eliminated, I think that's not generally, you know, a tremendous risk. What I do think, and what I think CMS has been, you know, very, you know, open about, is that they are gonna look for ways to cap the growth in these programs. But, you know, recently, you know, the new rule that they came out with, I think it was encouraging that they didn't try and cap them as a percentage of overall Medicaid reimbursement. Right. They said they shouldn't, these, you know, all-in Medicaid reimbursement programs shouldn't exceed commercial reimbursement. That's a pretty high bar, and, you know, I don't think that's, you know, gonna be much of a restriction in most of our states. And then the other issue that they've really sort of addressed is they object to these hold harmless agreements where general state revenues are used to be the financing vehicle. We have a couple of states where that's the case, Florida, Texas, you know, have those as opposed to provider taxes, which, you know, CMS sort of signs off on. But what CMS has said is they're not gonna enforce any sort of prohibition of these hold harmless agreements for three and a half years. So, you know, our view is that the states that have these programs have plenty of time, and the programs are important enough to the states that they will conform their programs to meet the CMS criteria. We have every expectation that that'll be the case. So again, I think it's a perfectly legitimate argument to say: How much can these programs continue to grow? I think they're unlikely to grow at the same rate, although I think over the next couple of years, we may still see some, you know, relatively significant growth, but at some point, the concern that somehow they're gonna be, you know, retrenched dramatically, et cetera, I think is probably not, you know, a realistic risk. Right. Any other signs of inflation in the acute segment? Professional fees have moderated. They're still growing. You've got the other operating expense, the professional... Or the professional fee, the provider taxes in there sometimes, labor normalized. I mean, anything else that's sort of emerging as another newer pain point? Yeah, no, I don't think so. I mean, obviously, the physician expense issue was, you know, very sort of idiosyncratic and having to do with the No Surprises Act and pressure from payers on that very specific, you know, especially ER and anesthesiology coverage. Hard to identify something comparable to that. I mean, obviously, we've struggled with just the broader inflationary pressure on, you know, all of our business. We're, you know, we're buyers of food and utilities and insurance like everybody else, and those costs have gone up, but I think all those costs are moderating. So, you know, when you look at what the tailwinds in this business have really been, which I think is acute care volume growth, which has, you know, kind of been better than expected, behavioral pricing growth, which has been better than expected, and you combine those two sort of top-line strengths with moderating costs, I think that's what really drove the outperformance in Q1, and, you know, hopefully will continue for the balance of the year. It doesn't hurt to have some exchange growth and some favorability around redeterminations at the, at the same time. Playing my model, which is dangerous sometimes, Steve. But normally, when I think about the seasonal pattern of the way your earnings develop, Q1 for acute's a big number, usually goes down, you know, a few points or so. Behavioral usually has a high water mark going from Q1 to Q2, just in terms of EBITDA, even when you normalize for some out-of-period stuff, it would seem that the street might be still a little bit off on kind of that seasonal pattern to your, your earnings, meaning that would imply a number higher than where the street is. I know you don't always spend time looking at consensus, but just a really a question more about, like, the seasonality of the business and, you know, the weighting first half, second half. I don't know if you had any updated views. No. Well, first of all, I mean, I think your comments are that, that has sort of that's an accurate description, I think, of what the historic model or the historic, you know, results would show. The other issue that has gotten a lot of attention, I think, is most providers have said that in this year, you know, March tended to be softer in both of our business segments, really, because of the calendar issues and the timing of Easter and spring break, which were, you know, in March of this year, but April of last year. So I think we get a benefit from that. I think other than that kind of specific nuance this year, the normal, you know, there's, I don't think, any reason why the normal seasonal patterns should not hold. Okay, so even stronger seasonality in Q2. Perhaps even a little bit more step up, yeah. Yeah. Big calendar benefit in April. Things are flat year-over-year, I feel like in May and maybe even June. I haven't looked yet, but that's helpful. What are some of the bigger changes within the broader UHS organization that no one here ever asked you about, that you're excited about? Yeah, look, I think, you know, we have, you know, made some personnel upgrades. We've got a, you know, a new managed care person, that honestly, we recruited from HCA, who's been with us for now, probably 6 months. I think that's really helpful in an environment where the, you know, the relationship with payers just become, you know, is, you know, more and more difficult every day. Friction. Yeah, for the-- that's... Thank you. That's a good word, a great description. We've got a new chief medical officer in our acute business, and I think, you know, our quality scores have been on the rise, and that's, I think, an important thing. You know, we talked about the EMR in behavioral, I think will be a long-term benefit. The other thing is, you know, one of the biggest challenges in behavioral is what we describe as patient observation, and that is in the behavioral business, it is absolutely imperative that we have eyes on our patients, I'm gonna say, almost, you know, constantly, 24/7. And, you know, that can be, you know, difficult when you're relying, you know, frankly, the biggest burden on that falls to the, what we call our mental health technicians. These are non-professional people, you know, who are generally making $20-$25 an hour. But that's always a challenge for us, but I think the technology is really improving in that regard, and I think most behavioral providers are experimenting with these, you know, new patient observation technologies. Basically, you know, our patients wear something that- Mm-hmm ... looks like an Apple Watch, and we can tell where they are at all times. We can also tell, you know, what our mental health techs are carrying around, what looks like an iPad, and, you know, effectively, we can tell when they've made contact with a patient. We can tell if a patient's not where they're supposed to be, they're in their room when they're not, they're, they're not in group therapy when they should be, that sort of thing. And I think, you know, that's gonna be a real improvement in sort of quality and risk mitigation, et cetera. So, you know, that's another, I think, a really important development in the business. Okay. Anybody have any questions? Last one for me, just, capital deployment. You guys are pretty active buying back your stock. You've consistently been active. You can always get an authorization updated. Not a lot to do on the balance sheet right now. How do you feel about accelerating buybacks? How do you feel about timing of acquisitions maybe coming into the picture? Yeah, I mean, I think, you know, the acquisition landscape has been relatively quiet for the last several years. I think on the acute side, there haven't been a ton of for-profit acquisitions. You know, quite frankly, there have been more, as you know, for-profit sales than there have been acquisitions. You know, at some point, I think that, you know, that might change because I think a lot of these not-for-profit transactions are not really helping the, you know, the hospitals that are involved improve their operations, et cetera. You know, on the behavioral side, I think, you know, our biggest challenge has been chasing sort of private equity investment money in the business. But obviously, that, you know, that business, I think, has been, you know, challenged more with higher interest rates. So, you know, we'll see, but, yeah, I think, you know, we continue to find the repurchase of our own stock to be, you know, among the most compelling investments we can make. We've been a little bit more cautious since we've had this, you know, Illinois verdict, just to see what we're gonna have to do in terms of posting a bond or this or that, but, I think over time, you know, we'll continue to devote a significant portion of our free cash flow to share repurchase. Okay. We got, like, 50 seconds left. We can just end it there. Okay. Steve, thank you so much for joining us. Thanks, everybody.