By Bob Mitchell

For-profit hospital and behavioral health operator, King of Prussia-based Universal Health Services (UHS) saw its revenue decrease in the first quarter of 2019 due to shifts in high-margin to low-margin surgical patients.

The company’s net revenue per adjusted acute-care admission was $234.2 million, during the first quarter of 2019, as compared to $223.8 million in the first quarter of 2018. Net revenues increased to $2.804 billion in the first quarter of 2019, as compared to $2.688 billion during the first quarter of 2018.

Weaker than expected earnings

Steve G. Filton, UHS’s Chief Financial Officer said on a call last week with analysts that surgical volumes were “extremely weak,” and a-typical, in the first quarter from higher-margin, higher-revenue surgical patients to lower-margin, lower-revenue medical patients. “We did see that pattern abate as the quarter went on. They got better in February and March, and it looks like they’re continuing to get better in the early stages of the second quarter,” he said.

Part of the reason for the weakness, Filton said, was due to patients who have elective procedures at the end of the year once they have met their health insurance deductible. “As a result, the beginning of the following year tends to be slow, although that can be difficult to measure,” he said.

Before interest, taxes, depreciation and amortization earnings were $452.7 million during the first quarter of 2019, compared with $442.1 million during the first quarter of 2018.

Adjusted admissions to UHS’ acute-care hospitals increased 4.9% and adjusted patient days increased 4.4%, as compared to the first quarter of 2018. At these facilities, net revenue per adjusted admission dropped to 0.4% while net revenue per adjusted patient day was unchanged in the first quarter of 2019 as compared to 2018.

In the company’s behavioral health facilities, adjusted admissions increased 2.9% year-over-year, with adjusted patient days growth by 0.9%. Net revenue per adjusted behavioral health admission increased by 0.4% while net revenue per adjusted patient day increased 2.5% during the first quarter.

Additional ERs and beds

Filton said UHS spent $170 million on capital expenditures during the first quarter of 2019. “We completed and opened 52 new behavioral health beds and expect to open another 350 new beds at our busiest behavioral health hospitals before the end of the year. We also completed and opened two new freestanding emergency departments (FEDS) in the first quarter: one in South Texas and the other in Wellington, Florida, bringing our total number of FEDs to 10, with several more expected to open over the course of 2019,” he added.

Reserves

During 2017 and 2018 UHS increased its reserve as a result of a Department of Justice (DOJ) investigation of its behavioral health facilities. The aggregate pre-tax reserve amounted to approximately $123 million in the first quarter of 2019 and the fourth quarter of 2018. Filton said additional changes in the reserve may be required as discussions with the DOJ continue and additional information becomes available.

Filton explained that negotiations with the DOJ are continuing and have shifted to issues other than money, such as the terms and periods of release, and the conclusion of a criminal investigation.

“What we had talked about in our year-end call in January was the idea that we felt like we were nearing an agreement on a monetary settlement with the government but that there were several nonmonetary issues to be negotiated and discussed,” Filton said. “Over the last couple of months, the focus of our interaction with the government has shifted to those nonmonetary items, things like terms of a release, periods of a release and the conclusion of related investigations, criminal and otherwise. We continue to negotiate rather vigorously with the government. And I think both sides are committed to bringing this matter to a conclusion. We, as always, hope it will go faster but are dedicating our resources to make sure that happens.”