Universal Health Services, Inc. Class B Morgan Stanley 24th Annual Global Healthcare Conference

Yeah, sure. I think maybe as a brief start, kind of a quick recap of Q2, which at the moment seems like ages ago. But we were pleased with our Q2 results in the context of rebounding volumes in both of our segments. We felt like both segments continued to demonstrate strong cost control and pleased by the benefit that we got from the Florida DPP program, which we recognized for calendar year 2025. Still waiting for the approval for calendar year 2026. We had some exogenous unfavorable items in the quarter, caused us to revise our guidance downward by about $50 million at the midpoint. At that sort of midpoint of our revised guidance, we're now projecting on an EBITDA less NCI basis about 3% growth for this year. Over last year on an EPS basis at the midpoint, projecting about 6% growth.

I think subsequent to the quarter, or at least the quarterly announcement, probably the most significant items of note were we closed the Talkspace transaction, which we're very excited about, and the opportunities to really accelerate the growth in our outpatient behavioral business. I'm sure we'll touch on that more. The 6,000 therapists that Talkspace currently has on their panel, that add a tremendous amount of capacity for us. We also did execute on our $1.1 billion bond deal. Both the Talkspace closing and the bond deal were in mid-August, and that sets us up for several years now of solid and comfortable financing. So, I'll pause, and Craig, happy to entertain your questions at this point.

Yeah. On the volume side, we did adjust our guidance for volume for adjusted patient days on the behavioral side down about 50 basis points. We are now talking about something in the 1%-2% range. We ran for the first half of this year about 1.5%. We ran 0.9% last year, so we are incrementally improving. I think the real opportunity, as I alluded to very briefly already, to see adjusted patient day growth in behavioral is in the outpatient side. We have been, primarily for most of our history, an inpatient-centric company. 90% of our revenues today are inpatient prior to the Talkspace acquisition. I think we believe that a lot of the demand is on the outpatient side in behavioral.

We also believe that by growing in the behavioral, we will limit our exposure to Medicaid and become a more Medicare and commercial-centric company, which I think is a great way to set up the next few years as there is more pressure on Medicaid over the next several years. From a pricing perspective, we are talking about revenue growth in the behavioral business in the sort of 3%-5% range in our guidance. That is kind of 1%-2% volume, 2%-3% pricing. The 2%-3% pricing is a little bit lower than it has been over the last several years.

I think it has been somewhat inflated, or it has been somewhat higher in the last several years as a result of Medicaid supplemental payments increasing over the last several years, as well as, I think, a bump in commercial payments as we came out of the pandemic and commercial contract pricing recognized sort of higher labor inflation and just higher inflation all around. That is largely, I think, how in the near medium term, we think about both the revenue growth of the behavioral business, both from a pricing and a volume perspective.

Yeah. So I mean, what we saw and I think your question alludes to, is during the pandemic, in particular, there was significant pressure on our behavioral volumes as a result of labor constraints. Very often, we couldn't admit patients because we had a lack of staff, and that could be nurses, could be therapists, could be non-professionals. But I think we've largely, first of all, I think the market has settled down post-COVID. The demand for providers in the sub-acute facilities from the acute facilities is not as great as it was during the pandemic. But also, we've been very focused on getting to an appropriate level of staffing. I think we added about 4% to our headcount last year. We added about 3% to our headcount in the first half of this year.

We certainly still have a handful of markets, facilities that face labor constraints at any particular time. But I think that issue is, I'm going to say, largely behind us. And honestly, I think that headcount now will start to move much more in sync with demand and volumes, and as a consequence, that should be a help to our margins as well.

Yeah, I think that our view is that the inpatient business is a very solid, steady business, likely to grow, in small amounts. That 1%-2% that I think I would cite as a sort of near to midterm goal for us is really largely targeted at the inpatient volume. And again, what I would say is I think the upside for us is really on the outpatient side. I think that's where the demand is growing. I think patients more and more would prefer to be treated, if possible, on the outpatient side. I think payers and employers would prefer to see their subscribers and their employees treated on the outpatient side. It's less expensive if it's appropriate, clinically appropriate.

Our goal, both with the Talkspace acquisition and with our own standing up of freestanding behavioral facilities, is really designed to capture more of that outpatient demand and outpatient growth over the next several years. That is, I think, where we have the opportunity to push that 1%-2% up in the mid and longer term.