Universal Health Services, Inc. Reports Financial Results For Three And Six Months Ended June 30, 2013

KING OF PRUSSIA, Pa., July 25, 2013 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $151.8 million, or $1.53 per diluted share, during the second quarter of 2013 as compared to $107.6 million, or $1.10 per diluted share, during the comparable quarter of 2012.  Net revenues increased 6.5% to $1.83 billion during the second quarter of 2013 as compared to $1.72 billion during the second quarter of 2012. 

Reported net income attributable to UHS was $271.6 million, or $2.75 per diluted share, during the first six months of 2013 as compared to $236.2 million, or $2.41 per diluted share, during the comparable period of 2012.  Net revenues increased 4.3% to $3.67 billion during the six-month period ended June 30, 2013 as compared to $3.52 billion during the comparable six-month period of 2012. 

Consolidated Results of Operations, As Adjusted – Three and six-month periods ended June 30, 2013 and 2012:

For the three-month period ended June 30, 2013, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Consolidated Statements of Income Information ("Supplemental Schedule"), was $118.9 million, or $1.20 per diluted share, as compared to $109.1 million, or $1.12 per diluted share, during the second quarter of 2012.     

As reflected on the Supplemental Schedule, included in our reported results during the second quarter of 2013 was: (i) a net favorable after-tax impact of $37.8 million, or $.38 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to years prior to 2013, based upon a reserve analysis, and; (ii) an unfavorable after-tax impact of approximately $4.9 million, or $.05 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of electronic health records ("EHR") applications at our acute care hospitals (as discussed below in Accounting for HITECH Act incentive income and EHR expenses). 

As reflected on the Supplemental Schedule, included in our reported results during the second quarter of 2012, was a net favorable after-tax impact of $3.4 million, or $.03 per diluted share, consisting primarily of the 2011 portion of net Medicaid supplemental revenues recorded during the quarter, and an unfavorable after-tax impact of approximately $5.0 million, or $.05 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of EHR applications at our acute care hospitals

Included in our reported results during the six-month period ended June 30, 2013 was the above-mentioned net favorable after-tax impact of $37.8 million, or $.38 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to prior years, and an unfavorable after-tax impact of approximately $5.3 million, or $.05 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of EHR applications.

Included in our reported results during the first six months of 2012 was the above-mentioned unfavorable after-tax impact of approximately $5.0 million, or $.05 per diluted share, recorded in connection with the implementation of EHR applications, and an aggregate favorable after-tax impact of $21.4 million, or $.21 per diluted share, consisting of the following: (i) a favorable after-tax impact of $18.8 million resulting from an industry-wide settlement with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services, related to underpayments of Medicare inpatient prospective payments during a number of years prior to 2012; (ii) a favorable after-tax impact of $4.3 million representing the 2011 portion of the net Medicaid supplemental reimbursements recorded pursuant to the Oklahoma Supplemental Hospital Offset Payment Program; (iii) an aggregate unfavorable after-tax impact of $5.1 million resulting from the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($2.4 million unfavorable after-tax impact), and the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($2.7 million unfavorable after-tax impact), and; (iv) a net favorable after-tax impact of $3.4 million consisting primarily of the 2011 portion of net Medicaid supplemental revenues recorded during the second quarter. 

Acute Care Services – Three and six-month periods ended June 30, 2013 and 2012:
During the second quarter of 2013, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 2.0% and adjusted patient days increased 1.2%, as compared to the second quarter of 2012. Net revenues at these facilities increased 4.9% during the second quarter of 2013 as compared to the comparable quarter of 2012. At these facilities, net revenue per adjusted admission increased 2.9% while net revenue per adjusted patient day increased 3.7% during the second quarter of 2013 as compared to the second quarter of 2012. On a same facility basis, the operating margin at our acute care hospitals decreased to 14.8% during the second quarter of 2013 as compared to 16.1% during the second quarter of 2012. We define operating margin as net revenues less salaries, wages and benefits, other operating expenses and supplies expense (excluding the impact of the items mentioned above and as indicated on the Supplemental Schedule).

During the first six months of 2013, at our acute care hospitals on a same facility basis, adjusted admissions increased 0.2% and adjusted patient days increased 0.7%, as compared to the first six months of 2012. Net revenues at these facilities increased 2.8% during the six-month period ended June 30, 2013 as compared to the comparable period in 2012. At these facilities, net revenue per adjusted admission increased 2.5% while net revenue per adjusted patient day increased 2.1% during the first six months of 2013 as compared to the comparable period in 2012. On a same facility basis, the operating margin at our acute care hospitals decreased to 15.4% during the first six months of 2013 as compared to 17.6% during the first six months 2012.

We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. Our acute care hospitals provided charity care and uninsured discounts, based on charges at established rates, amounting to $258 million and $266 million during the three-month periods ended June 30, 2013 and 2012, respectively, and $489 million and $581 million during the six-month periods ended June 30, 2013 and 2012, respectively.  The decrease in charity care and uninsured discounts recorded at our acute care hospitals during the 2013 periods, as compared to the comparable 2012 periods, was offset by an increase in the provision for doubtful accounts which amounted to $216 million and $164 million during the three-month periods ended June 30, 2013 and 2012, respectively, and $434 million and $290 million during the six-month periods ended June 30, 2013 and 2012, respectively.

Behavioral Health Care Services – Three and six-month periods ended June 30, 2013 and 2012:
During the second quarter of 2013, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 5.4% while adjusted patient days increased 1.8%, as compared to the second quarter of 2012. Net revenues at these facilities increased 3.2% during the second quarter of 2013, as compared to the comparable quarter in 2012. At these facilities, net revenue per adjusted admission decreased 2.1% while net revenue per adjusted patient day increased 1.3% during the second quarter of 2013 over the comparable quarter in 2012. The operating margin at our behavioral health care facilities owned during both periods remained unchanged at 28.7% during each of the three-month periods ended June 30, 2013 and 2012.   

During the first six months of 2013, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 2.9% while adjusted patient days increased 0.8%, as compared to the first six months of 2012. Net revenues at these facilities increased 2.8% during the six-month period ended June 30, 2013, as compared to the comparable period in 2012. At these facilities, net revenue per adjusted admission remained relatively flat while net revenue per adjusted patient day increased 2.0% during the first six months of 2013 over the comparable period in 2012. The operating margin at our behavioral health care facilities owned during both periods increased to 28.6% during the six-month period ended June 30, 2013, as compared to 27.7% during the comparable period in 2012.

Accounting for HITECH Act incentive income and EHR expenses:

The health information technology provisions of the American Recovery and Reinvestment Act (referred to as the "HITECH Act") established criteria related to the "meaningful use" of electronic health records ("EHR") for acute care hospitals and established requirements for the Medicare and Medicaid EHR payment incentive programs.    

During 2011, we began implementing EHR applications at certain of our acute care hospitals and continued to do so, on a hospital-by-hospital basis, until completion which occurred at the end of June, 2013. Our acute care hospitals are eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, assuming they meet the "meaningful use" criteria.  As of June 30, 2013, fifteen of our acute care hospitals met the "meaningful use" criteria and we expect the remainder to do so by the end of 2013.

As reflected on the Supplemental Schedule, in connection with the implementation of EHR applications, our consolidated results of operations include the net unfavorable after-tax impact of $4.9 million ($7.9 million pre-tax) during the second quarter of 2013 and $5.0 million ($8.0 million pre-tax) during the second quarter of 2012.  In connection with the implementation of EHR applications, our consolidated results of operations include the net unfavorable after-tax impact of $5.3 million ($8.4 million pre-tax) during the first six months of 2013 and $5.0 million ($8.0 million pre-tax) during the comparable six-month period of 2012.   

Conference call information:
We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on July 26, 2013. The dial-in number is 1-877-648-7971. 

A live broadcast of the conference call will be available on our website at www.uhsinc.com.  A replay of the call will follow shortly after conclusion of the live call and will be available for one full year.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:
Universal Health Services, Inc. ("UHS") is one of the nation's largest hospital companies, operating acute care and behavioral health hospitals and ambulatory centers nationwide and in Puerto Rico and the U.S. Virgin Islands.  It acts as the advisor to Universal Health Realty Income Trust, a real estate investment trust (NYSE: UHT).  For additional information on the Company, visit our web site: http://www.uhsinc.com.

This press release contains forward-looking statements based on current management expectations.  Numerous factors, including those disclosed herein, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A-Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2012 and in Item 2-Forward-Looking Statements and Risk Factors in our Form 10-Q for the quarterly period ended March 31, 2013), may cause the results to differ materially from those anticipated in the forward-looking statements.  The operating pressures that we continue to experience in many of our acute care markets has increased the volatility of our financial results making estimation of future results more challenging.  Many of the factors that will determine our future results are beyond our capability to control or predict.  These statements are subject to risks and uncertainties and therefore actual results may differ materially.  Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof.  We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

As mentioned above, our acute care hospitals may qualify for EHR incentive payments upon implementation of an EHR application assuming they meet the "meaningful use" criteria. However, there can be no assurance that we (our acute care hospitals) will ultimately qualify for these incentive payments and, should we qualify, we are unable to quantify the amount of incentive payments we may receive since the amounts are dependent upon various factors including the implementation timing at each hospital. Should we qualify for incentive payments, there may be timing differences in the recognition of the incentive income and expenses recorded in connection with the implementation of the EHR application which may cause material period-to-period changes in our future results of operations. Hospitals that do not qualify as a meaningful user of EHR by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year. Although we believe that our acute care hospitals will be in compliance with the EHR standards by 2015, there can be no assurance that all of our facilities will be in compliance and therefore not subject to the penalty provision of the HITECH Act.

We believe that operating income, operating margin, adjusted net income attributable to UHS, adjusted net income attributable to UHS per diluted share and earnings before interest, taxes, depreciation and amortization ("EBITDA"), which are non-GAAP financial measures ("GAAP" is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. In addition, we believe that, when applicable, comparing and discussing our financial results based on these measures, as calculated, is helpful to our investors since it neutralizes the effect in each year of material items that are nonrecurring or non-operational in nature including items such as, but not limited to, costs related to extinguishment of debt, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods.  To obtain a complete understanding of our financial performance these measures should be examined in connection with net income, determined in accordance with GAAP, as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2012 and report on Form 10-Q for the quarterly period ended March 31, 2013. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability.  Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies.  Investors are encouraged to use GAAP measures when evaluating our financial performance.