Hi, good morning. Welcome back to the Barclays Global Healthcare Conference. I'm pleased to welcome Universal Health Services, and joining me on stage here is Marc D. Miller, CEO, Steve G. Filton, CFO, and Darren Lehrich, Vice President of Investor Relations. Welcome. Let's start with the acquisition of Talkspace that you announced yesterday. You characterized Talkspace as an accelerant to UHS's outpatient behavioral strategy. From your seat, what is the key strategic gap this deal fills, and why was now the right time to buy such an asset?
We have been talking for the last few years about our intent to continue to grow outpatient services. We do a lot of outpatient now, but as compared to our inpatient portfolio on the BH side, you know, not nearly comparable. We've been trying to grow that. It's been a little bit slower than we would have liked. In lieu of that, or in addition to, we look to really partner with different companies, and have been quite interested in who's been doing what in the market, and certainly the better players. We had occasion to talk with these folks for a while about maybe different partnerships, working together. They decided to go into a process. The timing worked out well in that regard.
We just think that this company complements a lot of what we want to do and really fills out the continuum for us because the types of intensive outpatient that we do, partial hospitalization programs, those are a lot of step-down programs from our inpatient. What Talkspace does with their front end lower acuity types of solutions is totally additive to what we have now. We really think that it couldn't be a better fit. They're a very high quality outfit and they are really tech-enabled. The tech that they have already deployed, what they've been doing for a number of years is impressive. The things that they're talking about doing in the coming years are equally, if not more impressive. We're very excited about the opportunity there.
Right. How do you plan to integrate and leverage that platform across the UHS system to drive that growth?
Again, I mean, there are a number of things, but I mean, just basically, they do things that we don't do, and we do things that they don't do. We think that there's gonna be an opportunity on both sides, where, for example, patients that they're touching on the front end who don't have a need or many or most who don't have a need for inpatient, some percentage will have a need for either more intensive outpatient or ultimately maybe inpatient. We had no purview to those patients previous to now. Now we'll have a direct connection to possibly getting those patients into the UHS stratosphere. Conversely, they would never have seen any of the UHS patients. We're gonna be able to directly introduce them to some of those as well.
We think that's gonna be additive, but on top of that, it's gonna be some of the things that they're developing, new relationships that they're already working on that we think we're gonna be able to take advantage of.
Right. Understanding the different sort of modalities, how do the demographics compare of their customer base versus your customer base? Is this something that you see expanding the potential reach of your platform?
I think so. I mean, you know, we focused a lot on their younger population. They have a younger population. We touch that population, but that's only one part of our overall. I mean, they're certainly skewed younger. They're also skewed towards a commercial base. You know, we touch a commercial base, but we treat everybody. So there will be some effect there as well.
Right. You've highlighted Talkspace's, I think, 6,000 therapists and you view that many of them have additional capacity. You know, what's the plan to scale the volume while maintaining that clinical quality? Especially given, I think, their model is largely independent contractors versus W-2s.
Yeah, I mean, again, they are able to attract a great number of therapists all around the country because of the tech and the platform that they've created. We see it as a huge opportunity for us to tap into some of these folks that maybe have never thought to work anywhere else. They might have their own small practice. They work with a Talkspace type of a platform, and this might now be another opportunity for them to do other types of work that they've not seen previously. We're not a hundred percent sure what that'll mean, I think again, it's greater opportunity.
Great. Moving beyond just outpatient behavioral, you know, it appears you're leaning into the AI capability building through internal hiring, working with some external vendors, as well as investments, including your stake in Hippocratic AI. Can you help us understand the key pillars of your strategy with artificial intelligence and how your approach may differ from, you know, in the behavioral business versus the acute business?
Yeah, I mean, honestly, our approach is similar depending on, you know, almost regardless of which business. It's identifying what the needs are and trying to find the best fit to address those needs. Hippocratic, you mentioned, is a company that, you know, we were an initial investor. There's a few healthcare investors for Hippocratic AI. We think that they have a terrific platform. They continue to grow in a whole host of ways, mostly non-clinical facing, so it's a lot of back office. There are patient-facing items, but it's not in the operating room or things like that. We think that's the right place to focus on the acute care side for the time being. We're not limited to Hippocratic AI.
We've got many relationships with different vendors who are utilizing different forms of AI for revenue cycle, finance, operations, really everything going on on both sides of our business. We're looking to see if there are AI solutions that can help us into the future. We're involved with some now, and we're looking at new ones going forward.
Right. It sounds like there's some kind of tiered investments going on here. Is there a framework for how we should think about the timing and cadence of, you know, the benefits here, you know, in terms of, you know, which segment it accrues to and, you know, how it will materialize in the P&L?
I'll let you answer that.
Yeah, I mean, I think one of the challenges we have, Andrew, is that there are multiple opportunities and, you know, we have, you know, an infrastructure sort of, you know, an AI steering infrastructure, if you will, that tries to prioritize and identify the opportunities that are most impactful, can be realized, you know, quickly. As Mark suggested, you know, the different ways we can do that, with a vendor relationship, developing it on our own, you know, working with Hippocratic AI to do so. I think it's, you know, we're in the very early innings of this process, and I think it's difficult to quantify, you know, what the ultimate benefit could be. I think the way we look at it is we haven't spent a tremendous amount of money.
We've invested, you know, $20-some-odd million in Hippocratic AI, which we think is actually, you know, we're gonna earn a significant return on. We've, you know, entered into these relationships with vendors that I think, quite frankly, are more efficient than where we've been, you know, doing the tasks manually ourselves. You know, we've invested, we've shifted some of our internal IT investment and IT expenditures, you know, more towards an AI focus. But, you know, I don't think we're, you know, ultimately incrementally increasing our IT spend dramatically. So our investment, not that great. I think our returns are starting to build, and they'll continue to build incrementally.
I think in industry like healthcare and in hospitals, the development of AI is gonna be just a significant net positive because it doesn't threaten our business at all, it doesn't threaten our demand, but it allows us to deliver a lot of the routine recurring functions that are a big part of what we do in a much more efficient way.
Right. I think some of those functions, you know, RCM fits into that category, Revenue Cycle Management. You know, that's become an increasingly strategic priority for hospitals. Which capabilities, you know, have driven the greatest benefit in RCM, and where do you see the greatest opportunity from here?
We've talked about a couple that we've cited. I mean, one is, again, using a third-party vendor to do emergency room coding, which is something that, you know, we used to do on our own. They use an AI application to do so. We tested it extensively in sort of a parallel fashion where we would code, you know, claims manually and compare it to, you know, how they coded and found out that they were coding more accurately, and quite frankly, you know, obtaining greater reimbursement because they were coding more accurately. The payers have noted that, you know, broadly large providers, I think, have gotten better and more accurate in their coding, not just in the OR, but in inpatient as well.
That's an example where I think, you know, we've got a, you know, an uplift of tens of millions of dollars annually just by coding more accurately, just by using a vendor who's using AI technology. Another example that we've cited, probably before, is using AI to appeal denials. We believe that the insurance companies have been using AI to generate their denials for several years now, and then, you know, they were doing so in a very sort of efficient, you know, non-manual labor-intensive way. We were replying to these denial letters with a nurse or other clinical professional having to go through the denial letter, having to go through the medical records, draft the denial appeals letter, etc.
Now we're using a vendor to generate those letters and having a nurse spend five minutes to review each one just to make sure they're accurate and complete. Again, just, you know, gaining that sort of efficiency. Like I said, I think we're just scratching the surface on these sort of opportunities. We'll continue to find more, and I think they'll continue to make us more efficient and more productive.
Great. Sticking with the hospital segment, we're now a few months into the year following the expiration of enhanced ACA subsidies. Is there anything you can share on how exchange volumes or patient behavior is tracking relative to your expectations? Related to this, what impact do you expect a shift towards Bronze tier ACA coverage to have on utilization and acuity trends this year?
Just to remind everybody, you know, we have framed an estimated impact from the lapsing of the HIX subsidies at about $75 million, primarily in our acute division. It's really based on a couple of very high-level assumptions. One is that about 25%-30% of the HIX volume that we currently have will lose their subsidy or lose their exchange coverage as a result of the subsidies lapsing. In the first couple of months of the year, we've seen a reduction, not quite at that 25%-30% level.
I don't think we're surprised that we haven't seen, you know, us sort of reach that 25%-30% level immediately because I think we'll find that as time passes, some patients will not pay their premiums and that, you know, sort of unsubscription level, if you will creep up. You know, I think that as an industry, we still have to experience more. We have to see how the next couple of months play out. We have to see, you know, you suggested another nuance that people may not completely lose their coverage, but they may shift from a Gold tier to a Bronze tier, and that could create some uncompensated pressure on us if they have a higher co-pay and deductible.
We've tried to factor all that into our estimate, and again, I think, you know, based on the first couple of months of experience, we're feeling reasonably comfortable with our estimate. I, you know, I'm certainly not, you know, expressing 100% confidence that we got the point exactly right. I think, you know, feel like we're certainly, you know, have a, you know, in the ballpark on what the impact is likely to be.
Great. Sticking with the commercial coverage more broadly, there's been mixed data points on the strength of the U.S. employment market. What trends are you seeing across your core markets, such as Las Vegas, and how are those showing up in volumes and payer mix so far?
Yeah, I think employment trends remain pretty stable, and that's encouraging. You know, there's been some attention to the Las Vegas market in the last year because tourist volume in the market is down. I think, you know, one of the more encouraging things for us in that market is that the employment trends are actually quite strong, which I think suggests that the gaming properties themselves are expecting an improved year and improved tourist volume in 2026. I think we find whether you wanna look at it from the perspective employment trends or unemployment trends, that tends to have a bigger, you know, impact on our business than, you know, let's say, tourist volume, that sort of thing.
You know, it was a bit softer year in Nevada and Las Vegas, I guess, specifically this year for us. I think that the Las Vegas market performed probably closer to the divisional average, the divisional acute average than it has in the past, where it's generally been an outperformer. It has not been a drag. It's not, you know, and I think, you know, that's our expectation for 2026 at a minimum is, again, it performs at the division level. If the employment trends and the employment data is accurate, I think it suggests that, you know, the economy in Vegas may be on the upswing.
Great. Let's turn to the fundamentals in the behavioral business. Same-store patient day growth improved throughout 2025, but finished at 1.5% growth and short of the 2%-3% target. You've consistently pointed to labor as a constraining factor, but the labor backdrop does seem relatively stable. What needs to go right operationally for that acceleration to materialize?
Well, we did disclose in our 10-K, and I think we discussed on our fourth quarter call that we increased headcount or full-time equivalent count in the behavioral segment by a little over 4% in 2025, and that was certainly in excess of how much our volumes grew and, you know, a little over 1%. I think that was a conscious and intentional investment, if you will, in labor to position us better to be able to grow, you know, closer to that target. I think the other thing that gives us confidence is that we have been investing in outpatient growth, which I think, you know, clearly outpatient demand and behavioral is growing faster than inpatient, and that's why, you know, we've been focused on it, and I think we'll benefit from that.
Obviously, the Talkspace acquisition will help that. I'm not sure it'll, you know, have a material impact in 2026. you know, over the next several years, I think, you know, growing our outpatient at a faster rate than inpatient has been growing will help us achieve what has historically been a very achievable, you know, volume target of sort of 2%-3% adjusted patient day growth.
Right. Today, I think your outpatient behavioral revenue is about 10% of the segment. You're clearly leaning into that category. As you scale that footprint, how do you ensure that new outpatient capacity is incremental to the system rather than cannibalistic?
Look, I think the truth is that, you know, you need to treat patients where they wanna be treated and where payers, you know, wanna treat them. You know, if you think about the acute business, there's been this shift over time, you know, out of the hospital and into outpatient settings, whether that's ambulatory surgery or outpatient imaging or freestanding EDs. You know, we've shifted along with that. You know, some of that, to your point, is cannibalized business. Some of that is business that was performed on an inpatient basis. There's really no resisting that. You know, we've gotta deliver the care where patients wanna be treated and where payers are sort of demanding they be treated, and we'll do that on the behavioral side as well.
You know, we'll do that by, you know, focusing and dedicating people to growing that outpatient business. We'll do it by building out these freestanding outpatient facilities that we really never had a presence in before. I think now we'll do it by, you know, taking advantage of the synergies with Talkspace over the next several years that will really kind of, you know, you used the term or, you know, repeated the term that we used in our press release that, you know, that I think Talkspace is really gonna help us accelerate that outpatient growth that is already underway.
Right. As you look at those different avenues of investment, like, where do you see the strongest returns between step-in and step-out services, particularly in the context of that Talkspace acquisition?
Yeah. You know, again, I don't think it's a, you know, kind of a linear sort of thing where we're choosing, you know, one option. I think broadly, margins in the outpatient space tend to be better than the inpatient space because I think quite frankly, the payer mix tends to be better in outpatient. It tends to be more commercially and Medicare-centric and less Medicaid-centric. I think, you know, obviously we'll make judgments about where, you know, the investments make the most sense. But, you know, investing in these freestanding centers, which, you know, require minimal capital, you know, investing or continuing to invest in the Talkspace technology, which Marc alluded to before, is, you know, we find quite advanced and quite sophisticated, is something, you know, we'll continue to do.
You know, again, I think this is all about creating this end-to-end seamless continuum, so patients, you know, can be treated anywhere along what I'll call a UHS Talkspace continuum in the future, where it's most appropriate, where the payers are willing to pay, where they're gonna be most satisfied. You know, one of the things that interests us in Talkspace is they have very high levels of patient satisfaction as well as therapist satisfaction. You know, building out outpatient should be economically and financially beneficial to us, but it should be really, you know, quite beneficial from an outcome and a satisfaction perspective for the patients and for those delivering the therapy.
Great. On the pricing side, behavioral pricing, especially on the inpatient side, has been particularly strong in recent years. You know, what are the primary drivers of that strength? Yeah, I think you've more recently noted that started to moderate. What's driving that moderation? Is it state budget dynamics, payer behavior, some combination of the two, changes to the commercial side?
I really think it's just an outgrowth of the success that we've had in the last several years. You know, we've talked a lot about, one of the dynamics in the last several years is that because of a lack of capacity, not just in our own hospitals, but in the behavioral space broadly, particularly, you know, in terms of inpatient capacity, that we've been able to go back to payers, particularly managed Medicaid payers from whom we didn't necessarily have regular increases over the last several years and negotiate, what we believe to be, you know, just fairer rates, you know, not particularly outsized increases, et cetera. Some of those increases that we got in 2023 and 2024 and 2025 have, you know, now started to anniversary.
As we anticipate, you know, what the year-over-year growth is in 2026 is not as great as we're not expecting it to be as great as it's been over the last several years.
Right. Medicaid supplemental payments, I think, are a component, right, within that. Can you provide an update on the status of some of the larger pending programs such as Florida? To your knowledge, is the holdup related to the structure of these programs or some sort of administrative backlog at CMS?
Yeah. Look, I think it's worth noting that CMS clearly is willing to approve new programs. You know, we have acknowledged that at least two new programs CMS has approved in the first quarter that we'll record the benefit in the first quarter, one in Ohio and one in Nevada. I think, you know, broadly, and they've approved other new programs as well. CMS continues to approve new programs. The Florida program, as your question suggests, has been delayed. What the state of Florida says is that, you know, there are some structural issues that CMS has objected to or at least, you know, questioned.
The state of Florida suggests that they're in, you know, what they, you know, I think, describe as sort of constructive engagement with CMS and continue to imply that they're expecting approval. We don't know what the timing of that is. We don't know if that's, you know, weeks away or months away. We've taken a conservative approach in terms of recording and not including in our guidance, that Florida benefit until it is approved. Based on the feedback that we're getting from the state of Florida, still expect it to be approved.
Right. Policies in the One Big Beautiful Bill Act are, you know, set to phase down Medicaid supplemental payments starting in 2028. Marc D. Miller, how are you positioning the organization to absorb those changes, and what sort of advocacy efforts are you making in D.C. to delay or adjust those policies?
Yeah. We've been spending a lot of time in D.C. I honestly think that, you know, it's unknown what's gonna happen come 2028. We've gotten a lot of positive feedback, though, from moderates on both sides of the aisle that, you know, this won't stand as it is today. They expect something to happen legislatively, probably in the next Congress, but if not this one coming up, then the one after, in some way. Because, you know, we'll be able to absorb whatever we have to absorb. We'll adjust our operations. We've proven that we can do that. I think the 80% of the hospitals that are not-for-profit in the U.S., a lot of them are gonna have a much harder time. The folks in D.C. recognize that. It's a wait and see.
I can't really predict what'll happen. I just think that, you know, it will moderate in some way and we'll be in the forefront there, and we'll take care of that.
Great. Marc, it's hard to believe it's already been five years since you've stepped into the CEO role. You know, how has the company changed over your tenure? You know, how do you view the competitive positioning of the company today versus five, 10 years ago?
Yeah, I mean, you know, overall, the company is similar. I mean, I've been president since 2009, so it's been 15 years. You know, we're pretty consistent in our approach. I did not come into this role really changing anything because it was a continuation of what I was already doing. I think the company's on a good track. I think this latest acquisition puts us in an even stronger position for the next few years and beyond. We're very excited about where we are, where we're going, and again, our consistent approach continues. We have a very positive outlook going forward.
Great. Well, with that, we're out of time here, so let's end it, and thank you so much for joining on stage, and please enjoy the rest of the conference.
Thanks, Andrew.
Thanks, Andrew.