- Universal Health Services lowered its guidance after reporting mixed results for its third quarter on Thursday.UHS' net income fell to $97.2 million from $171.7 million compared with the prior third quarter. Revenue increased 6% to $2.8 million compared with a year earlier.
- UHS disclosed a $97.6 million asset impairment charge for its Foundations Recovery Network, an addiction treatment chain the company acquired in 2015.
- The chain said pushback from payers to that unit's business model is dragging on earnings.
Despite posting an increase in revenue thanks to an uptick in admissions, the King of Prussia, Pennsylvania-based hospital chain reported a slide in its net income. The increase in volume required more staffing resources in a tight labor market, resulting in overtime and other labor costs, execs said during the Friday morning earnings call.
UHS lowered its earnings' full-year guidance to $9.60 to $9.90 per diluted share as compared to the previous guidance range of $9.70 to $10.40 per diluted share.
The company also noted the business model for its addiction treatment unit, Foundations Recovery Network, is being heavily challenged by payers. Historically, Foundations has relied on direct-to-consumer marketing to attract patients to their centers even when it meant patients traveled from further away. The unit has drawn a blend of in- and out-of-network patients. But insurers are cracking down on that model and dictating where patients can go, eliminating a lot of the traveling and turning it into a largely in-network model, CFO Steve Filton said during Friday's call.
"All of those metrics have really been challenged by the payers over the last several years," Filton said. "There is much less travel for treatment and there is more and more control by the payers and less and less by the consumers themselves about where treatment can be rendered."
Filton said the company is focused on adjusting the Foundation's model to reduce the drag on earnings.
The company's legacy addiction treatment services, typically inside its behavioral health facilities, are performing well, he said. UHS purchased Foundations in 2015 for $330 million.
The pushback from payers isn't confined to addiction treatment services, Filton said. Over the last several years, payers have become more aggressive in their tactics. He noted an increase in denials for care this quarter and payers scrutinizing admission criteria and medical necessity.
The issue is widespread, he said, noting it's not coming from a specific payer or a particular region of the country.