The King of Prussia, Pa.-based company’s same-facility behavioral health revenue grew by 2.5% year-over-year during the third quarter, which ended Sept. 30, ending the quarter at $1.2 billion. The company’s stock price was down roughly 2% Friday morning.
UHS’ profit grew by nearly 22% during the quarter, jumping to $171.7 million compared with $141.2 million during the same period in 2017. UHS’ net revenue rose by 4.2% to $2.65 billion, compared with $2.54 billion in the prior-year period, boosted by 6.7% same-facility growth in its acute-care operations.
UHS continues to walk back its goal of growing same-facility behavioral health revenue by 5%. On the company’s first quarter earnings call, UHS’ Chief Financial Officer Steve Filton said he expected to hit the goal by mid-year. On the second quarter call, he said it was still reasonable to get there by the end of the year.
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But on Friday morning’s call, Filton dampened expectations that the company would meet that goal.
“We continue to work in a terribly focused and disciplined way on improving that behavioral same-store revenue growth dynamic,” he said. “But I think we also acknowledge that we’ve created this 5% target and now disappointed a couple of times both internally and externally.”
He said he expects the company’s fourth quarter behavioral revenue growth will be a repeat of the third quarter. In the long term, however, he said he still thinks 5% is a reasonable goal.
“But how quickly we’re able to get to that 5% and over what period of time and what the trajectory is, at the moment, we’re going to take a step back and think about how we establish those targets going forward,” he said.
Filton said the company plans to “give considerable thought” to the trajectory of its revenue growth when it puts out its 2019 guidance at the end of February.
Even as behavioral health revenue fell short of expectations, same-facility admissions to UHS’ behavioral health facilities jumped 4.7% during the quarter, which Filton said was partly because of lower admissions in the third quarter of 2017 due to hurricane damage. But the company has also made progress in hiring, which has been a challenge in a tight labor market.
“We don’t have nearly as many capped beds or closed units because of a lack of qualified staff,” he said. “That’s the real underlying improvement is the strides we’ve made in the labor shortage area.”
The benefit of improved behavioral admissions was restrained by a 1.9% decline in net revenue per adjusted admission. That’s because more of the company’s Medicaid patients are being shifted into managed-care plans that are paying for shorter stays than fee-for-service Medicaid, Filton said. The company is working to dampen the negative impact by bringing in more non-Medicaid patients and improving its documentation so it can justify longer lengths of stay with managed-care providers.
“The thing we can’t do is hold back the tide of patients moving from traditional programs to managed programs,” he said.
UHS’ overall revenue fell just short of the consensus estimate among analysts who report their predictions to Zacks Investment Research, which pegged the company’s third-quarter revenue at $2.7 billion, or year-over-year growth of 5.5%.
The company’s third-quarter results include a $48 million pre-tax addition to the reserve it established in connection with the Department of Justice investigation into its behavioral health operations. When the company reported its second-quarter earnings in July, the reserve contained $43 million. As of Sept. 30, the reserve was up to roughly $90 million, the company said Thursday. The government is investigating whether hospitals submitted false claims for services.
The fact that UHS is adding money to its settlement reserve more frequently and in bigger chunks indicates a settlement may be drawing near, Filton said.
“I think it’s reflective of the fact that our settlement negotiations with the government are meaningful, the pace has picked up, the gaps between our offers and the government’s demands have narrowed,” he said. “We’re optimistic and hopeful that we can reach a resolution of this relatively soon.”
UHS reported earnings before interest, taxes, depreciation and amortization of $377.7 million during the third quarter, up nearly 4% compared with $363.4 million during the prior-year quarter.
UHS’ Emerald Coast Behavioral Hospital in Panama City, Fla. will remain closed for roughly 4 to 6 months due to severe damage from Hurricane Michael, Filton said. He said he expects the closure to cost between $5 million to $7 million because employees continue to be paid even as the facility stops generating revenue. The loss, which Filton said he expects will be covered by insurance, is comparable to that which the company saw from hurricane damage to behavioral health facilities in the fourth quarter of 2017.