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Steve Filton, UHS CFO
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UHS expects ACA to give it up to 7% net income boost


By Beth Kutscher
Posted: February 28, 2014 - 3:45 pm ET
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Universal Health Services is forecasting that the Affordable Care Act will provide a 3% to 7% boost to its net income this year, with varying impacts on each of its divisions.

The 7% figure suggests a benefit to both the acute-care and psychiatric hospital segments operated by the King of Prussia, Pa.-based chain. The lower limit of the range, 3%, would result if only its acute-care division benefits, said Steve Filton, senior vice president and chief financial officer, on an earnings call.

On the acute-care side, the boost will come from fewer uninsured patients—and less so from increased utilization, Filton said. The decrease in uninsured patients is expected to be from 7% to 9% of its current patient base. “On the behavioral side, the impact is almost exclusively on volume,” he said.

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UHS' behavioral health business has helped it outpace many of its pure-play acute-care peers, but its performance in the fourth quarter was not as strong as Wall Street anticipated.

UHS reported slower than expected growth in behavioral health volume year-over-year, which tempered its latest financial results.

Volume at its psychiatric hospitals increased 2.4% over the fourth quarter of 2012, while the division's operating margin remained nearly flat at 27.9%. Admissions at its acute-care hospitals were unchanged, but showed a 3.6% bump when adjusted for outpatient activity. That segment saw its operating margin decline slightly to 14.1% from 14.4%.

The chain reported net income for the quarter of $124.5 million on revenue of $1.8 billion. That result represented an 8.8% decrease from the $135.5 million in net income on almost $1.8 billion in revenue it saw during the same period the previous year.

Its operating results included losses on its newly built Temecula (Calif.) Valley Hospital, which opened in October, Filton said. Those results are expected to improve by the second half of this year, he forecasted.

UHS also saw a year-over-year increase in charity care and bad debt at its acute-care hospitals, but the effect on earnings was offset by low levels of charity care and higher revenue at its behavioral health facilities.

UHS is often said to be better positioned to benefit from healthcare reform than its publicly traded peers because of a concentration of hospitals in states such as Nevada and California that are expanding Medicaid. Filton acknowledged the advantage, but said the overall effect on volume is still unclear.

“We have the most exposure from any of the companies to Medicaid-expanding states,” Filton said. “The challenge is … they're not necessarily the states where we have the greatest number of uninsured. Whether or not Texas participates in Medicaid expansion is probably the greatest swing factor.”

Separately, the chain is aiming to add 600 behavioral health beds in 2014—nearly twice as many as were added last year—including two new hospital projects. In addition, it is close to completing acquisitions in Tucson, Ariz., and another unnamed location.

“Our acquisition pipeline is very busy in the behavioral division,” Filton said.

Follow Beth Kutscher on Twitter: @MHbkutscher


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