Amid ongoing labor and volume recovery pressures, hospital operator UHS sees a significant opportunity over the next five to seven years in joint ventures with acute hospitals and larger hospital operators.
UHS has been in conversation with acute care hospitals that have existing behavioral health services but feel they could be more efficient and “they’re looking for a partner who is more expert,” UHS CFO Steve Filton told investors Tuesday during a call on the system’s second quarter.
UHS had a number of new facilities open this year, including its first behavioral health hospital in Wisconsin. But management is measuring an uptick in capital investment against challenges in opening new capacity at a time of acute labor scarcity, which — along with impacting the system’s ability to meet patient demand in the second quarter — contributed to its net income halving on a year-over-year basis.
The system reduced the pace of its capital expenditure spend by about 20%, or $100 million, in the first six months of the year, according to management.
“We’re trying to create a pipeline in these joint ventures which can be absorbed in a proper way without creating a drag on earnings,” Filton said.
UHS’ latest joint ventures include partnerships inked with Bayada Home Health Care in 2020 and Regent Surgical Health and Vera Whole Health in 2019. In January, the system launched Valley Health at Home along with Bayada, which expands UHS’ reach in the post-acute space as demand rises for in-home care, especially among older patients.
The Pennsylvania-based for-profit operator has struggled with labor pressures during the coronavirus pandemic. Though it expects staffing costs to improve in the back half of the year, UHS is focusing on strategies to streamline operations and cut costs where possible.
That includes more aggressive negotiations with its managed care providers.
As costs rise, “we’re certainly doing our best to recoup them from our managed care payers,” Filton said. “We are willing to part with inadequately reimbursed contracts and focus on patients and contracts that are adequately reimbursed.”
That could result in the provider, which operates 28 acute care hospitals and hundreds of outpatient, ambulatory and behavioral facilities, becoming out of network with patients in some areas. However, Filton noted he’s hearing from some payers — including UnitedHealthcare — that plan to give some level of price increases to providers in 2023 to acknowledge increased inflationary pressures.
“Our expectation is that payers will be more receptive to it in 2023, but we’re also gong to try to be more aggressive and grab the bull by the horns and wrangle more aggressive price increases where we can,” Filton said. “Where we can’t, we’re willing to let go of those payers.”
Analysts have raised concerns with UHS meeting its forecasts for the rest of the year, even despite the system cutting guidance earlier this year when non-COVID-19 utilization failed to bounce back as quickly as expected.
COVID-19 patients made up 13% of UHS’ total admissions in the first quarter, but only 3% in the second, management said. That drop wasn’t offset by non-coronavirus-related admissions, resulting in a shortfall.
SVB Securities analyst Whit Mayo said in a note on UHS’ second-quarter results that he expects costs to continue outpacing revenue growth, which “places downside risks to earnings, margins, and the forward valuation.”