Hello, thank you for joining us. This is the Universal Health Services presentation. My name is Matthew Gillmor, and I lead healthcare services equity research for KeyBanc. Joining me on screen is Steve Filton, the Chief Financial Officer of UHS. UHS is a leading operator of both acute and inpatient behavioral health services. Steve is the company's long-tenured CFO. He's always been very generous with his time with the investment community, and we're appreciative of him being here today. Steve, I did count it up, and I think this is something like your 280th public appearance with the investment community. That's not in counting road shows or other sort of meetings. These are sort of publicly broadcast. That puts you in a league of your own. We're all really appreciative of the time you spend with us. I have the gray hairs to prove it too. This will be just one housekeeping. It'll be fireside chat format. I'll be leading the Q&A. There is an opportunity to ask questions. I think there's a link in sort of the top right-hand side of your screen. If you click that and wanted to submit questions, we'd be happy to get them addressed. With that, Steve, welcome. Thanks for joining us. I wanted to try to start off these conversations with a higher-level question. We'll get into the financials and the policy topics that are certainly top of mind today. Steve, obviously, the thing that distinguishes the company is its balanced portfolio of acute and behavioral facilities. I think investors, we talk about these businesses almost as if they're independent. I thought you might just take a couple of minutes to talk about the history of the portfolio, how it came together. Beyond just the benefits of financial diversification, are there operational benefits to having both of these businesses in the markets where you do have both assets? I thought we might start there, and then we'll get into some of the topics of the day. Yeah. I mean, there's a long history here. The company is 45 years old. In the early 1980s, it was really just originally an acute care company. In the early 1980s, there was this very significant shift that probably few investors today were around for. The Medicare and Medicaid programs really were shifting from a cost-based reimbursement methodology to a prospective payment system, basically a diagnosis-related reimbursement system. At the time, this was kind of a seismic shift, and nobody really knew what it meant and how hospitals would sort of survive this and prosper, et cetera. I think it was at that time that the company really sort of made the decision to sort of diversify itself and get into the behavioral business in a meaningful way because reimbursement methodology for behavioral at the time was not changing. It was sort of a cushion or a protection against whatever sort of the impacts would be from this dramatic acute care change in reimbursement. As it turned out, the company weathered that, and I think the industry weathered it just fine. I think what really this sort of risk diversification strategy became sort of embedded in what the company was doing in the sense that reimbursement for these two businesses has tended not to change at the same time over the years. The current environment may be a little bit different. The businesses have tended to operate sort of countercyclically in a variety of ways, and it was proved to be a pretty significant risk diversification strategy. I think other than that, I do think that for the most part, historically, the businesses have been generally run relatively discreetly and separately. I mean, there are synergies where we operate in the same markets. A lot of referrals to behavioral hospitals come from acute care emergency rooms. Where we operate behavioral hospitals and acute care hospitals in the same markets, I think there is that synergy. Although, quite frankly, we certainly operate in plenty of markets where we're dealing with third-party hospitals and have excellent relations with them, et cetera. I think in recent years, there has been a greater level of integration between the two businesses. I think as there has been a broader acknowledgment and recognition that behavioral care and acute care are very much interrelated, this idea that if you're managing the health of a population, which I think there will be more and more of as we in the next few years unfold, that a population that may be chronically ill from an acute care perspective, a diabetes population, chronic COPD population, chronic cardiac population, that they will do better, meaning they will have better outcomes, less costs, et cetera, if their mental health is positive and well-managed and they're much more likely to be medication compliant and exercise compliant and diet compliant and not have severe depression and the addiction issues that go with that, et cetera. I think we feel like, and I think we're just starting to scratch the surface in this regard, that being and having a significant presence in these two businesses will really allow us to play a fairly unique and value-added role in sort of a population management dynamic that we're going to see more and more of over the next few years. Got it. That's really great and sort of an interesting way to start the conversation. Why don't we shift over to sort of more sort of state of the union and what's your sort of thinking and feeling as we're entering 2025? We're obviously coming off a really strong period in 2024. I think as I was looking at the model, I think you grew EBITDA on both segments by over 20%, and you really exceeded the guidance you had put out there for 2024. What were some of the drivers behind the stronger performance in 2024? As we're looking into 2025, what are you sort of expecting in terms of revenue growth and EBITDA growth across the business on a go-forward? Yeah. I mean, so and we've talked about this a little bit on the call and in recent sort of public commentary. I mean, the current situation has sort of an odd feel to it in the sense that our underlying business and the metrics and the fundamentals of our underlying businesses in the two segments feels sort of as predictable, as reliable as it's felt in a number of years, maybe five years going back to sort of pre-pandemic periods. Obviously, and I'm sure we'll touch on it at some point, there's a lot going on around us that's creating all kinds of angst and uncertainty, sort of whether justifiably so or not. Again, the underlying business feels good. I think, look, we've benefited to a degree. Some of the outperformance we had in 2024 was a result of these Medicaid supplemental payments or the increase in these Medicaid supplemental payments. Although, as we always point out, those payments, I think, are being made in acknowledgment of the fact that Medicaid reimbursement, certainly in the last several years, has been inadequate really to cover our costs and certainly our increased costs. I think more than that, I mean, we've returned to what seems like a historically normative model for these two businesses. That model, which I think has been in place for years and years and years, was if you could generate same-store revenue growth in sort of the mid-single, upper single-digit range, 5%-6%-7% for acute, 6%-7%-8% for behavioral, that generally your expenses, because they were so often skewed towards fixed and semi-fixed expenses, were not growing nearly as fast. That allowed you, if you could generate that mid-single-digit growth, to increase EBITDA, increase margins. In 2024, I think, that was the first year where that model sort of took hold again because what had happened during COVID was expenses did not operate in that way. There was significant wage inflation. There was significant use of premium pay and recruitment and retention incentives and just broader inflation and physician expense pressures on the acute care side, et cetera, and some interruption in demand as a result of COVID. All those things have, I think, largely stabilized. I think 2024 was the first year in which I would sort of describe it as our first truly post-COVID year. The model worked the way it has historically worked with the benefit of these incremental Medicaid supplemental programs. Even if you take those out, the model, again, kind of worked the way that it has in the past. Our expectation is, again, outside of any of these outside pressures that I'm sure we'll talk about, the model should continue to work that way. You mentioned some of the pressures on the acute side that had stabilized. I think one of the questions we get from investors, and I've heard you speak to it before, is this idea of getting back to sort of pre-COVID margins. I think you're pretty much there on behavioral. You still got some ways to go. From externally, when you just look at a model, you can sort of look at the sort of embedded EBITDA opportunity that exists, theoretically, if you're able to close that gap. Maybe just give us some sense in terms of what are the drivers between where you are, particularly in the acute margins today versus where you were pre-COVID. How are you thinking about narrowing that gap over the next couple of years? What are the key things that need to happen? What we've said, I think, fairly consistently is that as a company, we believe we can get our consolidated margins back to pre-COVID levels. I think in saying pre-COVID, I think generally people use that 2019 year as the base sort of case before COVID arose in 2020. I think we further sort of clarified that in order to get back to those consolidated margins, and I think that's over the course of the next couple of years, it would probably result in us getting to behavioral margins, as you suggest, that were either at or above where we were in 2019. We're already, I think, largely there with some additional upside to go. Acute care margins, quite frankly, are likely to fall a little bit short. The reason I think they're likely to fall a little bit short, and we've touched on this a little bit, is we've seen this increase in physician expense. In this case, when I say we, I think the industry collectively has seen broadly this increase in physician expense. In our case, we think it's cost us about 150 basis points of margin. It's going to be very tough to make that up. I think we feel that physician expense has stabilized. In terms of recouping it, it's going to be very difficult. I think there's also been a structural drag on margins in Acute care because of the shift from in to outpatient. That has, I think, kind of been a drag on acute care profitability. Again, difficult to sort of there's all kinds of ways. We will try and make up for that in terms of service line changes and cost efficiencies, et cetera. Broadly, I think that's always going to be something that's going to make it difficult to get all the way back to pre-COVID margins for Acute. Again, 20,000-per view of it should be able to get to behavioral margins and above. The 2019 levels probably fall a little bit short on acute, but that should allow us, I think, in the next couple of years to get back to consolidated margins that are either at or above pre-COVID. On physician expense, it sounds like that's kind of stabilized. Have there been particular areas within those sort of categories that have driven sort of more pressure the last couple of years? Any additional comments there would be great. The original pressure, I think, and I think this is pretty consistent with commentary from my peers, was in the area of emergency room doctors and coverage and anesthesiology coverage. In 2022 and 2023, those were the big increases in expense. I think those are now largely baked in. While we've been able to sort of have some success around the edges and getting those expenses under control, et cetera, they are kind of where they are, and they're not going to generally be reduced. I think the area that most providers have sort of suggested recently have been pressure points is sort of radiology. Radiology is not an area that has really drawn a lot of subsidies historically. I honestly have trouble remembering paying radiology subsidies in the past in any significant way. It has arisen. I think our view is we can deal with that, and we will deal with it in the context of our overall expense. There is more optionality in radiology, meaning radiologists do not necessarily have to be on site. You can use outsourced services. You can use radiologists, foreign radiologists, et cetera, et cetera. There are other options for radiology that, quite frankly, do not exist for anesthesiology where people have to be on site. That is, I think, the most recent pressure point, but one that I think we believe is manageable. Before we get to the behavioral side of the business and some of the policy questions, I do want to ask one more on Acute, just in terms of managed care, the conversations you have with them, the types of rate negotiations that you're able to achieve maybe today versus two to three years ago. One of the areas of discussion has been around denials. I think you've sort of described it as sort of normal, but unfortunate. I was curious if you had any higher-level thoughts about what the industry can do to try to smooth this issue out that would maybe work for both hospitals and payers. I know that if there was an obvious solution, it would be deep. If you had any higher-level thoughts on that, that'd be great. Yeah. I mean, look, I think you framed it appropriately. There's sort of this normal tension. I think it's an unfortunate tension between payers and providers because I think there's an enormous amount of kind of wasted administrative effort and time and dollars spent on billing and rebilling and being denied and appeals denials and there's litigation and arbitration, et cetera. Broadly, I do think that from a public policy perspective, if that process, that whole revenue cycle process can be streamlined and eliminate some of that friction, it would be helpful to the industry because I do think there's a lot of wasted value within the system at, again, very high levels. In terms of where we are today and what we can do, I think we're very focused on this idea of making sure that our bills go out correctly. We have talked a little bit about the fact that we have been focused on sort of the proper billing under the Two- Midnight Rule for a number of years. We have been using an outside consultant for a number of years to try and eliminate the denials or the level of denials in that area, doing everything we can to make sure that all the authorizations and pre-authorizations that we are required to have before we can bill are, in fact, in place, et cetera. We have been, I think, somewhat more aggressive in our appeals of denials and in seeking legal recourse where we do not believe we are being treated fairly in renegotiating our contracts so that contract language is helpful to us in those processes, et cetera. Again, I forget exactly how you framed it. It's kind of disappointing or it's difficult, but it's sort of now an accepted part of what we do. It's been a huge focus of ours. We've devoted a lot of resources to improving our revenue cycle technology and talent and perceived practices, et cetera. But we kind of are where we are. It doesn't feel to us like there's been enormous changes on the part of the payers and their behavior, at least in recent years. When the pandemic first occurred, we felt like the payers really sort of, because there was such a natural decline in utilization and demand, that they sort of really took their foot off the gas in terms of utilization management, et cetera. Once we got to 2022, 2023, it felt like they sort of returned to their normal historical practices. I would say since then, it's been that sort of daily slog that is, again, I don't know all that much value added, but hasn't changed a terrible amount in the last few years. Got it. Do you have any optimism that sort of AI could be some sort of panacea in the domain or sort of to be determined? Yeah, I think so. I mean, obviously, I think what AI can do, if used properly, is to help you predict what claims are likely to draw sort of greater scrutiny and to help you ensure that you've done all the things, et cetera, to make sure that the claims are as clean and as sort of problem-free as possible. Obviously, we do that now in a manual way. I think there's the potential for that to be more automated and for AI to help do that. I think we've made some improvements in that regard, but we'll continue to do so. Got it. Okay. Why don't we shift over to behavioral for just a couple of questions? One of the areas where we've been pleasantly surprised is just the pricing that you've been able to achieve in that business. I've heard you describe it in terms of you're able to engage with the payers, and there's a scarcity of beds. It creates a relatively favorable dynamic from your perspective in terms of the payers needing to have the right amount of capacity in market. I was curious if you could sort of expand on those comments and give us some sense for sort of the sustainability around the pricing metric or if there's other sort of factors you wanted to tease out with respect to behavioral pricing. Yeah. No, I think in your question, you pretty accurately described the dynamic and the dynamic that we've tried to articulate before. I think it's worth noting that we've argued for a number of years that Medicaid reimbursement, broadly, I think for hospitals, both acute and behavioral in general, but certainly for behavioral in particular, Medicaid reimbursement has been inadequate. We have aggressively worked with our payers over the last several years to increase the historic Medicaid reimbursement that we're receiving, particularly from our managed Medicaid payers. I think we've had a fair amount of success. I think we attribute the fact that we've had a fair amount of success to this idea that there's not a ton of excess capacity in the industry and that if payers are wanting to ensure that they have either beds or outpatient facilities or whatever the issue may be to send their patients, then we're, in our minds, demanding what is, at least in our minds, a reasonably adequate market rate. I think, again, we've been somewhat successful in that. Our success in underlying managed Medicaid rates or rates in general, the fact that we are getting more Medicaid supplemental payments, et cetera, I think these things are not accidental. I think they're happening because there's an acknowledgment throughout the industry on the part of both payers and providers that Medicaid reimbursement has historically been inadequate. While I think Medicaid reimbursement has always been viewed as the worst or the lowest paying reimbursement compared to Medicare and to commercial, that gap had grown over the years. While that gap is still there, it at least has narrowed over the last several years. In terms of being sustainable, I think to some degree, to the degree that we're getting increases that we hadn't gotten for a number of years, to some degree, the annual benefit of that or the annual impact starts to anniversary, and it will start to diminish that year-over-year impact. I think the other argument that we've sort of made is that as capacity starts to expand and we've emerged from the pandemic, and I think you'll see capacity expand more, that the leverage over payers will also diminish somewhat. I think it's worth noting that this strength in behavioral pricing has persisted longer than we might have originally imagined. We've been talking about expecting kind of a slowing down or a deceleration in this behavioral pricing for a while now, and it hasn't really occurred. We've made the point that in our guidance for next year, we're assuming behavioral pricing grows by 4%-4.5%. That would still be lower than it's been in quite a few years. We're not at that level yet. We think if there's a conservative element in our guidance for next year, that's probably the biggest one. Okay. One other on behavioral. This has sort of sounded new to me, at least in some of your comments around the opportunity to open some outpatient behavioral capacity off campus. I was hoping you could spend a minute talking about that. Is there any, maybe it's too early to report anything, but any sort of discernible improvement in volumes when you have those types of assets in the market versus a market that's less mature in terms of those types of utilities? I think you're correct in noting that there was definitely some incrementally new commentary there. We've always had a presence in outpatient care in our behavioral business. It has historically been focused on what we sort of call downstream referrals. These are patients who are being generally discharged from our inpatient facilities, but they still require some level of care. In some cases, some pretty intensive level of, we call it actually intensive outpatient or partial hospitalization. These are people who are continuing to get four or six hours of care a day. They're just not staying overnight at the hospital. That's historically been the bulk of our outpatient business. I think what we've seen in recent years is more and more patients being treated in outpatient facilities that maybe are not quite as intensive as those. Even if they are, they're often in locations that are not on the hospital campus. What we have found is that patients who are not necessarily being discharged from an inpatient facility, but are sort of new to the system, often feel more comfortable being treated in a setting that's in a strip mall or some location that is not on the campus of an acute behavioral hospital because they're sort of angsty about being sort of caught up, if you will, in that dynamic. We are trying to build a bigger presence there. At the same time, I think trying to increase our presence. I think the outpatient market is growing. We've, I think, struggled to get our share of that because I think of our inpatient focus. I think in the coming years, we're going to try and do a better job, more efficient job of retaining the outpatient volumes that we, in fact, control from our inpatient discharges, but also creating a greater freestanding presence. I think on the call, I sort of talked about realistically being able to add a dozen or so of these facilities a year. Again, I don't think it changes the landscape of our business. I think as you think about particularly our adjusted patient days, which includes an outpatient component, et cetera, I think it's going to help us reach that 2.5%-3% adjusted patient day growth level that we've targeted for some time now. I think feel like it's very achievable in 2025. Steve, I just wanted to see if you had any comments on sort of recent volume trends on either side of the business. We've tracked some credit card data that's proprietary to KeyBanc, and it sort of showed that January and February seem sort of remarkably stable, even on really tough comps from almost two years at this point. Any observations you'd care to share with us in terms of sort of more recent trends? Yeah. I mean, the general observations we've made about the two businesses, I think on the acute side, everybody acknowledges that this is a pretty busy flu season. Some of the commentary suggests it's the busiest flu season in a long time. I don't know that that's been our experience, but definitely an elevated flu season. I think that's incrementally helpful. I think we've always sort of commented on the fact that we don't get a huge uplift from busy flu seasons. The business itself tends not to be terribly profitable. It also tends to have the impact of crowding out other potentially more profitable procedural or surgical business. The point that I always make is when everybody gets the flu, everybody gets the flu, meaning some of our elective patients who are scheduled and then do not show up, it means some of our physicians and some of our nurses, and we sometimes have to cancel procedures during the flu season, et cetera. Again, I think acute care volumes, to your point, they look pretty solid in Q1. I think some of that is being propped up, maybe the wrong word, but they are being sort of helped by a busy flu season. I just generally think acute care volumes are tracking pretty solidly in Q1. I think behavioral volumes started the year pretty strong. We suggested, I think specifically in our markets, that we ran into some winter weather for four or five weeks in sort of the middle of January to the middle of February in places I make the point that do not really normally experience winter weather and do not cope with winter weather very well, places like Virginia and Tennessee and Kentucky and Mississippi. We may struggle to get to that 2.5%-3% patient day volume growth level in Q1. I think that is a transient sort of temporary issue. I think we continue to feel confident we will get there for the full year. Fair enough. Okay. Let me finally get to the policy questions, which have been at the forefront of investors' minds. I guess I wanted to maybe start off with Medicaid supplementals. And we're obviously sort of waiting to see what will be included in this House reconciliation package. It does seem like there is some focus on these payments. If you had any I'm sure you want to provide some context around them, but be happy to hear that. Really, the meat of my question would be around if there is the mechanisms they seem to be looking at are sort of reducing the Safe Harbor threshold from 6% to something lower, should we just think of that as a would that be a proportional impact, or is it so state and service line specific that it's hard to know, or if there's some change to on the DPP side, the average commercial rate versus Medicare? I know there's a lot sort of embedded within that, but any sort of general observations and then sort of how you're thinking about potential changes? Yeah. Again, I'm going to say pretty much everything that I know, but I think it's worth sort of recapping that when the Republicans passed their bill in the House, they did so with fairly significant Medicaid cuts embedded in the bill, although they were completely nonspecific. There were any number of Republican House members who commented at the time that they only voted for the bill because they were assured by their leadership that there really wouldn't be these dramatic Medicaid cuts. We also know that there still has to be a bill that passes in the Senate. By every measure that we can tell, the Senate is even less enthusiastic about big Medicaid cuts than the House was. I think it's unrealistic or it would be naive on our part to think that there are not going to be some initiatives to reduce Medicaid spending. You tick through a couple on the DPP payments. It could be reducing the cap from 6%- 5%. I think the challenge in sort of analyzing that impact is to just say that going from 6%- 5% is like a 17% reduction. Not every program is already at the 6% limit. You have to do that analysis program by program. Same thing if instead of capping this at average commercial rate reimbursement, it's capped at 90% or 85%, you have to go through the math and the individual programs. I think we'll likely see work requirements and things like that, which would reduce the number of Medicaid enrollees. For all these things, I think it's difficult to sort of size or frame what the impact would be. Other than, I think the general feedback we get as we talk to our lobbyists and get feedback from the legislators themselves, et cetera, is that there is a lack of consensus for really dramatic draconian cuts. I think cuts are likely to be more incremental, extended over a long period of time, making them more manageable. Certainly, they're real, and we would have to adjust to them, and we would do so, I think, in a variety of ways. I think our expectation is that whatever cuts are likely to be implemented are likely to, again, just be more incremental and more extended over time. Yeah, that's fair. That's obviously kind of consistent with sort of history too. Let me ask a follow-up or two on the two of the Medicaid DPP approvals that I think the investment community has been watching has been Tennessee and then also the District of Columbia. We've gotten sort of different feedback in terms of what has to happen for those sort of final approvals to occur. Maybe it's tied to a CMS administrator being put in place. If you had any sort of update or just in terms of the process of how these approvals will sort of come through, that'd be great. Yeah. I think CMS acknowledges that when the administration changed in January, they put a pause on new approvals or approvals of new programs, as well as what we would describe as kind of routine reapprovals. All of these DPP programs, even the ones that have been in place for many years or multiple years, have to be reapproved every year. Some of them have been. I think we have very extensive disclosure in our 10-K about which programs have been reapproved and not. Maybe half have been reapproved, but half are waiting. The CMS, I'll call them the career bureaucrats, as they communicate, not necessarily to us as providers directly, but with the state health departments and whatnot, basically sort of describe this pause in their minds as relatively routine, awaiting, as you suggest, for some of these political appointees to get in their seats in their offices, but are still likely to be forthcoming. It is just a little hard to predict when. I think that's sort of where we sit today. Obviously, the sort of delay in approvals, given the kind of broader concerns that we've been discussing, created, I think, a level of angst that wouldn't normally or otherwise be there. As we talk to the state health departments who are communicating with CMS, their general sort of message to us is that they're still expecting these reapprovals. They're still in Tennessee and DC expecting the new approvals, although timing is somewhat up in the air. I will say we got one sort of small piece of encouraging news in the last few days where, as we understand from the Nevada Health Department, they've been told by CMS that even though the program hasn't been reapproved, that it's okay for them to go forward with their payments as if it's been reapproved. Doesn't mean that it's not a guarantee of approval, et cetera, but it does seem like an odd thing for CMS to suggest if they really didn't think the approval was ultimately forthcoming. Got it. That's certainly a great sign. Steve, we're up against time. I really do appreciate you spending some time with us, and thank you. Yeah, thank you, Matt.