Group 1 - The acute care hospital industry is facing significant concerns regarding the potential expiration of enhanced subsidies [1] - The company is currently the only one providing estimates on the impact of the expiration of these enhanced subsidies [1] - There is a request for an update on the company's latest thinking and the assumptions used to develop the estimates regarding the subsidy expiration [1]

Financial Data and Key Metrics Changes - The company has increased its estimate of the potential impact of enhanced subsidy expiration from $50 million to a range of $50 million to $100 million, primarily affecting the acute care division [5][4] - The company anticipates same-store revenue growth in the 5% to 7% range, with a midpoint of approximately 6%, split evenly between price and volume [18][19] Business Line Data and Key Metrics Changes - Surgical procedural volumes have been somewhat soft, attributed to challenging comparisons with the previous years when hospitals were recovering from the pandemic [19] - The Cedar Hill hospital, which opened in April, has faced delays in obtaining deemed status from CMS, resulting in an estimated $25 million EBITDA loss in Q2, with expectations of improvement once the status is granted [23][24] Market Data and Key Metrics Changes - Approximately 6% of adjusted acute admissions are exchange patients, which is lower than larger peers like Tenet and HCA, indicating geographical differences in patient demographics [8] - The company has noted that while Medicaid supplemental payments are under scrutiny, they are pursuing three pending programs that could yield an annual benefit of $150 million to $200 million if approved [15][16] Company Strategy and Development Direction - The company is prepared to implement cost efficiencies and other programs to offset potential revenue reductions from the loss of exchange volumes and Medicaid supplemental payments [10][12] - The company is focusing on leveraging technology to improve revenue cycle efficiency and clinical productivity, including the use of AI for post-discharge calls and ER coding [40][41] Management's Comments on Operating Environment and Future Outlook - Management views 2024 and 2025 as the first clean post-COVID years, expecting a return to historically normative growth models [18] - Labor pressures have stabilized, with wage inflation returning to more normative levels of 3% to 4%, and the company is not experiencing significant pressure points in labor costs [30][31] Other Important Information - The company is exploring M&A opportunities, particularly in the acute care sector, but has faced challenges in the behavioral sector due to high multiples for niche providers [55][56] - The company believes it can capture more market share in behavioral care by addressing labor shortages and improving recruitment and retention [50] Q&A Session Summary Question: Update on the potential impact of enhanced subsidies expiration - Management has increased the estimate of potential impact to $50 million to $100 million, primarily in the acute care division [5][4] Question: How is the company planning to offset revenue reductions? - Management indicated they have a menu of options to modify the cost structure and are prepared to react to pressures over the next few years [10][12] Question: What is the outlook for surgical volumes? - Management expects surgical volumes to improve incrementally as the year progresses, although current trends have not changed dramatically [20] Question: Update on Cedar Hill's financial progression - Cedar Hill is expected to improve once deemed status is obtained, with a ramp-up to divisional margins anticipated within 24 months [24][25] Question: How is the company addressing labor challenges? - Management noted that labor pressures have eased, with wage inflation stabilizing and recruitment improving, although challenges remain in some facilities [30][45] Question: What is the outlook for behavioral care rates? - Management expects sustainable same-store revenue growth in the 6% to 7% range, with a mix of price and volume growth [51][52] Question: What are the M&A prospects for the company? - Management is open to M&A opportunities, particularly in the acute care sector, but has faced challenges in the behavioral sector due to high acquisition costs [55][56]

Financial Data and Key Metrics Changes - The company estimates a potential revenue impact of $50 million to $100 million due to the expiration of enhanced subsidies, primarily affecting the acute care division [5][4] - Same-store revenue growth is projected to be in the 5% to 7% range, with a midpoint of 6%, split evenly between price and volume [16][17] - The company experienced a $25 million EBITDA loss in Q2 due to delays in obtaining DEEM status for Cedar Hill Hospital, with an additional estimated loss of $25 million in the second half of the year [20][21] Business Line Data and Key Metrics Changes - The acute care division is expected to see a return to historically normative growth, while surgical volumes have been somewhat soft compared to previous years [16][17] - The behavioral health segment is experiencing labor shortages, impacting the ability to meet demand, but improvements in recruitment are anticipated [36][37] Market Data and Key Metrics Changes - Approximately 6% of adjusted acute admissions are exchange patients, which is lower than peers like Tenet and HCA, indicating geographical differences in patient demographics [9] - The company expects to capture more market share in behavioral care, particularly in outpatient settings, as care delivery becomes more fragmented [40][41] Company Strategy and Development Direction - The company is prepared to implement cost efficiencies and productivity improvements in response to potential revenue reductions from lost exchange volumes and Medicaid payments [10][12] - M&A activity is being considered, particularly for underperforming not-for-profit hospitals, but recent market conditions have made such opportunities less frequent [48][49] Management's Comments on Operating Environment and Future Outlook - Management describes the current operating environment as the first clean post-COVID year, with expectations for sustainable growth rates [16][17] - Labor pressures have eased, with wage inflation stabilizing at more normative levels, although challenges remain in hiring for behavioral health facilities [25][36] Other Important Information - The company is leveraging technology, including AI, to improve efficiency in revenue cycle management and clinical operations [32][33] - Approval for three Medicaid supplemental payment programs could add $150 million to $200 million in annual benefits if approved [14] Q&A Session Summary Question: Impact of enhanced subsidies expiration - Management provided estimates of $50 million to $100 million in potential revenue loss, primarily in the acute care division [5][4] Question: Volume trends and payer types - Management indicated that surgical volumes have been soft but expect a return to normative levels as the year progresses [16][17] Question: Cedar Hill Hospital's financial progression - Cedar Hill Hospital is expected to reach divisional margins within 24 months of opening, pending DEEM status approval [22][23] Question: Labor market conditions - Labor pressures have stabilized, with wage inflation returning to more normative levels, although some challenges remain in hiring [25][36] Question: Outlook for behavioral rates - Management anticipates a sustainable growth model for the behavioral business with same-store revenue growth targets in the 6% to 8% range [45][46] Question: M&A outlook - The company remains open to M&A opportunities, particularly for underperforming hospitals, but recent market conditions have limited such transactions [48][49]

Financial Data and Key Metrics Changes - The company has increased its estimate of the potential impact from the expiration of enhanced subsidies from $50 million to a range of $50 million to $100 million, primarily affecting the acute care division [4][5] - The company reported a $25 million EBITDA loss in Q2 due to delays in obtaining deemed status for the Cedar Hill hospital, with an additional estimated loss of $25 million for the second half of the year [21][23] Business Line Data and Key Metrics Changes - The acute care division is expected to see same-store revenue growth in the range of 5% to 7%, with surgical volumes being somewhat soft compared to previous years [17][18] - The behavioral health segment is experiencing labor shortages, impacting the ability to meet demand, but improvements in recruitment and retention are anticipated [45][48] Market Data and Key Metrics Changes - Approximately 6% of adjusted acute admissions are exchange patients, which is lower than competitors like Tenet and HCA, indicating geographical differences in patient demographics [8] - The company expects to capture more market share in behavioral care as it addresses labor shortages and improves recruitment [51] Company Strategy and Development Direction - The company is prepared to implement cost efficiencies and modify its cost structure in response to potential revenue reductions from the loss of exchange volumes and Medicaid supplemental payments [10][12] - The company is exploring M&A opportunities, particularly in the acute care sector, if financially distressed not-for-profit hospitals become available [57][58] Management's Comments on Operating Environment and Future Outlook - Management described 2024 and 2025 as the first clean post-COVID years, expecting a return to normative growth models [17] - The company is optimistic about the sustainability of its growth rates, particularly in the acute care division, despite some softness in surgical volumes [18][19] Other Important Information - The company is leveraging technology, including AI, to improve operational efficiency and reduce costs in areas such as revenue cycle management and patient follow-up [38][40] - The company anticipates that Medicaid supplemental payment programs pending approval could add $150 million to $200 million annually if approved [14][15] Q&A Session Summary Question: What is the impact of potential subsidy expiration? - Management noted that there is speculation about an extension of subsidies, but they have increased their estimate of the impact on revenue due to potential loss of coverage [4][5] Question: How is the company addressing cost efficiencies? - Management indicated that they have a menu of options to adjust the cost structure and are prepared to react to regulatory changes [10][12] Question: What is the outlook for surgical volumes? - Management expects surgical volumes to improve incrementally as the year progresses, although they have not seen dramatic changes in Q3 [19] Question: What is the status of Cedar Hill hospital? - Cedar Hill is awaiting deemed status approval, which is expected soon, and management anticipates improved financial performance following this approval [22][23] Question: How is the labor market affecting operations? - Management reported that labor pressures have stabilized, with wage inflation returning to more normative levels [26][28] Question: What is the outlook for commercial rates? - Management expects contractual price increases from payers to be in the 4% to 5% range moving forward [33][34] Question: What is the company's approach to M&A? - Management is open to M&A opportunities, particularly in the acute care sector, if financially distressed hospitals become available [57][58]

Core Viewpoint - The healthcare sector is showing initial signs of recovery after reaching a 30-year high in valuation discount relative to the S&P 500 index [1][2] Group 1: Market Performance - Since reaching a historical high on September 3, 2024, healthcare stocks have been in a "persistent downtrend," underperforming both in absolute terms and relative to the S&P 500 [1] - August is identified as a turning point for the sector, with healthcare stocks beginning to reverse their previous weak performance [1] Group 2: Economic Environment - The recovery is driven by a historically significant valuation gap and an economic backdrop characterized by GDP growth slowing to 1.5% or lower while inflation remains at 3% or higher, which historically favors the healthcare sector [1] - The dual effect of valuation discount and improved sentiment provides strong justification for including healthcare stocks in investment portfolios under the current economic conditions [2] Group 3: Investment Recommendations - Evercore ISI highlights several healthcare stocks with attractive valuations and sentiment, including Cencora (COR.US), BioMarin Pharmaceutical (BMRN.US), Cigna (CI.US), Cardinal Health (CAH.US), Humana (HUM.US), Incyte (INCY.US), LabCorp (LH.US), Pfizer (PFE.US), Quest Diagnostics (DGX.US), Teleflex (TFX.US), Tenet Healthcare (THC.US), Universal Health Services (UHS.US), and Viatris (VTRS.US) [2]

Group 1 - The healthcare sector is showing initial signs of recovery after reaching a 30-year high in valuation discount relative to the S&P 500 index [1][2] - Healthcare stocks have been in a "persistent downtrend" since reaching historical highs on September 3, 2024, missing out on market rebounds [1] - The recovery is driven by a historical valuation gap and a macroeconomic environment characterized by GDP growth slowing to 1.5% or lower while inflation remains at 3% or higher, which historically favors healthcare sector performance [1] Group 2 - The current price-to-earnings ratio of the overall market is 25.5 times, while healthcare stocks still present attractive investment options [2] - The potential recovery of healthcare stocks is described as part of "the fastest bear market rebound in history," indicating a larger bull market may extend until 2026 [2] - Evercore ISI recommends healthcare stocks with both valuation and sentiment appeal, including Cencora, BioMarin Pharmaceutical, Cigna, Cardinal Health, Humana, Incyte, Labcorp, Pfizer, Quest Diagnostics, Teleflex, Tenet Healthcare, Universal Health Services, and Viatris [2]

Core Insights - Universal Health Services, Inc. operates two main business segments: acute care and behavioral health, providing a diversified and resilient revenue base across 39 U.S. states, Washington D.C., the UK, and Puerto Rico [1] Business Overview - The company benefits from significant scale, geographic breadth, and a diverse service mix, which contribute to its operational resilience [1] Investment Strategy - The focus is on identifying high probability long-term compounders by analyzing fundamental value drivers of business economics and seeking to buy at appropriate prices relative to intrinsic worth [1]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, changes in equity, and cash flows, for Universal Health Services, Inc. and its subsidiaries - The financial statements are unaudited and prepared in accordance with SEC rules, reflecting normal recurring adjustments[29](index=29&type=chunk) - They are condensed and omit certain footnote disclosures typically found in audited statements, as permitted by SEC regulations[29](index=29&type=chunk) [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This item presents the core unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, changes in equity, and cash flows [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This statement details the company's revenues, operating charges, and net income for the three and six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Income (amounts in thousands, except per share amounts) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $4,283,816 | $3,907,604 | $8,383,536 | $7,751,186 | | Operating charges | $3,783,546 | $3,471,206 | $7,428,441 | $6,926,026 | | Income from operations | $500,270 | $436,398 | $955,095 | $825,160 | | Interest expense, net | $35,364 | $48,899 | $75,420 | $101,725 | | Income before income taxes | $473,385 | $382,006 | $893,813 | $718,092 | | Provision for income taxes | $110,773 | $87,676 | $209,573 | $157,940 | | Net income | $362,612 | $294,330 | $684,240 | $560,152 | | Less: Net income (loss) attributable to noncontrolling interests | $9,394 | $5,178 | $14,342 | $9,166 | | Net income attributable to UHS | $353,218 | $289,152 | $669,898 | $550,986 | | Basic earnings per share attributable to UHS | $5.49 | $4.32 | $10.36 | $8.22 | | Diluted earnings per share attributable to UHS | $5.43 | $4.26 | $10.23 | $8.08 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income components, such as foreign currency translation adjustments, for the three and six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income | $362,612 | $294,330 | $684,240 | $560,152 | | Foreign currency translation adjustment | $35,247 | $907 | $50,148 | $(66) | | Other comprehensive income (loss) before tax | $35,247 | $907 | $50,148 | $(49) | | Total other comprehensive (loss) income, net of tax | $35,239 | $899 | $50,548 | $(477) | | Comprehensive income | $397,851 | $295,229 | $734,788 | $559,675 | | Less: Comprehensive income (loss) attributable to noncontrolling interests | $9,394 | $5,178 | $14,342 | $9,166 | | Comprehensive income attributable to UHS | $388,457 | $290,051 | $720,446 | $550,509 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (amounts in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :---------------- | :------------------ | | Cash and cash equivalents | $137,595 | $125,983 | | Accounts receivable, net | $2,302,247 | $2,177,751 | | Total current assets | $2,989,982 | $2,816,288 | | Property and equipment, net | $6,882,989 | $6,572,225 | | Goodwill | $3,977,976 | $3,932,879 | | Total Assets | $14,985,577 | $14,469,749 | | Current maturities of long-term debt | $40,897 | $40,059 | | Accounts payable and other liabilities | $2,197,635 | $2,081,479 | | Total current liabilities | $2,317,071 | $2,210,406 | | Long-term debt | $4,542,000 | $4,464,482 | | Redeemable noncontrolling interests | $59,569 | $13,293 | | UHS common stockholders' equity | $7,030,048 | $6,666,207 | | Noncontrolling interest | $55,465 | $83,316 | | Total equity | $7,085,513 | $6,749,523 | | Total Liabilities and Stockholders' Equity | $14,985,577 | $14,469,749 | [Condensed Consolidated Statements of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) This statement outlines the changes in equity attributable to UHS and noncontrolling interests, including net income, stock repurchases, and other adjustments - Net income attributable to UHS for the three months ended June 30, 2025, was **$353.2 million**, and for the six months ended June 30, 2025, was **$669.9 million**[21](index=21&type=chunk) - Total equity increased from **$6.749 billion** at January 1, 2025, to **$7.086 billion** at June 30, 2025[19](index=19&type=chunk)[22](index=22&type=chunk) - Repurchases of common stock, including excise tax, amounted to **$(156.6) million** for the three months ended June 30, 2025, and **$(381.1) million** for the six months ended June 30, 2025[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details cash flows from operating, investing, and financing activities for the six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (amounts in thousands) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $909,026 | $1,075,687 | | Net cash used in investing activities | $(577,238) | $(437,479) | | Net cash used in financing activities | $(319,071) | $(628,467) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $3,931 | $(392) | | Increase in cash, cash equivalents and restricted cash | $16,648 | $9,349 | | Cash, cash equivalents and restricted cash, beginning of period | $224,752 | $214,470 | | Cash, cash equivalents and restricted cash, end of period | $241,400 | $223,819 | | Interest paid | $77,448 | $95,902 | | Income taxes paid, net of refunds | $251,786 | $131,499 | | Noncash purchases of property and equipment | $148,887 | $108,260 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering accounting policies, related parties, debt, equity, commitments, and segment reporting - The notes are an integral part of the condensed consolidated financial statements[11](index=11&type=chunk)[14](index=14&type=chunk)[17](index=17&type=chunk) - Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted[29](index=29&type=chunk) [(1) General](index=10&type=section&id=%281%29%20General) This note clarifies the scope of the Quarterly Report on Form 10-Q, defining company terms and stating that interim financial statements are unaudited with normal recurring adjustments - The report covers the quarterly period ended June 30, 2025[28](index=28&type=chunk) - The financial statements are unaudited and include only normal recurring adjustments[29](index=29&type=chunk) - The statements should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2024[29](index=29&type=chunk) [(2) Relationship with Universal Health Realty Income Trust and Other Related Party Transactions](index=10&type=section&id=%282%29%20Relationship%20with%20Universal%20Health%20Realty%20Income%20Trust%20and%20Other%20Related%20Party%20Transactions) This note details the Company's relationship with Universal Health Realty Income Trust, including ownership, advisory role, lease agreements, and other related party transactions - UHS holds approximately **5.7%** of Universal Health Realty Income Trust and serves as its Advisor, earning an advisory fee of **$1.4 million** for the three months ended June 30, 2025[30](index=30&type=chunk) - The Company leases five hospital facilities from the Trust, with lease terms extending to 2026, 2033, and 2040[39](index=39&type=chunk)[129](index=129&type=chunk) - Financial liabilities related to failed sale leaseback transactions with the Trust were approximately **$72 million** at June 30, 2025[35](index=35&type=chunk) - UHS has supplemental life insurance plans for its Executive Chairman and his wife, with projected premium payments of **$28 million** by UHS and **$9 million** by trusts, entitling UHS to at least **$37 million** in death benefits[45](index=45&type=chunk) - UHS holds equity securities in Premier, Inc. with a market value of **$49 million** as of June 30, 2025, and received cash dividends of **$0.47 million** for the three months ended June 30, 2025[46](index=46&type=chunk) [(3) Other Noncurrent liabilities and Redeemable/Noncontrolling Interests](index=14&type=section&id=%283%29%20Other%20Noncurrent%20liabilities%20and%20Redeemable%2FNoncontrolling%20Interests) This note outlines other noncurrent liabilities, including professional liability and workers' compensation reserves, and details redeemable noncontrolling interests held by outside owners - Other noncurrent liabilities include professional and general liability, workers' compensation reserves, pension, and deferred compensation liabilities[48](index=48&type=chunk) - Outside owners hold noncontrolling interests ranging from **5% to 49%** in various acute care and behavioral health facilities[49](index=49&type=chunk) - Redeemable noncontrolling interests, totaling **$60 million** at June 30, 2025, reflect minority ownerships with put options, requiring reclassification from noncontrolling interest[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - UHS purchased a **20%** ownership interest in a Pennsylvania behavioral health facility in April 2025 after the minority owners exercised their put option[52](index=52&type=chunk) [(4) Treasury](index=16&type=section&id=%284%29%20Treasury) This note details the Company's debt structure, including its $1.3 billion revolving credit facility, $1.2 billion Tranche A Term Loan, and $3.0 billion in senior secured notes - UHS's Credit Agreement was amended in September 2024, extending maturity to September 26, 2029, and establishing a **$1.3 billion** revolving credit facility and a **$1.2 billion** Tranche A Term Loan[53](index=53&type=chunk) - As of June 30, 2025, UHS had **$1.08 billion** of available borrowing capacity under its revolving credit facility and **$1.18 billion** outstanding on the Tranche A Term Loan[53](index=53&type=chunk) - UHS has **$3.0 billion** in senior secured notes outstanding, with maturities ranging from 2026 to 2034 and interest rates from **1.65% to 5.050%**[57](index=57&type=chunk)[58](index=58&type=chunk) - The average outstanding borrowings and effective interest rate for revolving credit, Tranche A Term Loan, and senior notes were approximately **$4.34 billion** and **4.1%** during Q2 2025, down from **$4.51 billion** and **5.0%** in Q2 2024[59](index=59&type=chunk) - UHS uses foreign currency forward exchange contracts to hedge its net investment in foreign operations, resulting in net cash outflows of **$66 million** during the six months ended June 30, 2025[63](index=63&type=chunk) - Cash, cash equivalents, and restricted cash totaled **$241.4 million** at June 30, 2025, including **$103.8 million** in restricted cash for commercial insurance subsidiary capital reserves[66](index=66&type=chunk) [(5) Fair Value Measurement](index=21&type=section&id=%285%29%20Fair%20Value%20Measurement) This note defines fair value, categorizes assets and liabilities into a three-level hierarchy, and presents tables of fair value measurements for various financial instruments - Fair value is categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[70](index=70&type=chunk) Assets and Liabilities Recorded at Fair Value (amounts in thousands) | (in thousands) | Balance at June 30, 2025 | Balance Sheet Location | Level 1 | Level 2 | Level 3 | | :----------------------------- | :----------------------- | :----------------------- | :------ | :------ | :------ | | **Assets:** | | | | | | | Money market mutual funds | $120,897 | Other noncurrent assets | $120,897 | - | - | | Certificates of deposit | $2,206 | Other noncurrent assets | - | $2,206 | - | | Equity securities | $48,963 | Other noncurrent assets | $48,963 | - | - | | Deferred compensation assets | $53,162 | Other noncurrent assets | $53,162 | - | - | | **Total Assets** | **$225,228** | | **$223,022** | **$2,206** | **-** | | **Liabilities:** | | | | | | | Foreign currency forward exchange contracts | $540 | Accounts payable and other liabilities | - | $540 | - | | Deferred compensation liability | $53,162 | Other noncurrent liabilities | $53,162 | - | - | | **Total Liabilities** | **$53,702** | | **$53,162** | **$540** | **-** | [(6) Commitments and Contingencies](index=22&type=section&id=%286%29%20Commitments%20and%20Contingencies) This note details self-insurance programs, significant legal proceedings including a $60 million verdict against Cumberland Hospital, and commitments for a new hospital in Washington, D.C. - UHS is self-insured for professional and general liability up to **$20 million** and **$3 million** per occurrence, respectively, with excess commercial coverage up to **$110 million** in 2025[71](index=71&type=chunk)[72](index=72&type=chunk) - The total net accrual for self-insured professional and general liability claims was **$487 million** at June 30, 2025, with no adjustments recorded in the first six months of 2025[74](index=74&type=chunk)[75](index=75&type=chunk) - A jury verdict against Cumberland Hospital for Children and Adolescents resulted in **$60 million** in compensatory damages and **$1.05 million** in punitive damages (reduced from **$120 million**) for three plaintiffs, with approximately 40 additional similar claims pending[79](index=79&type=chunk)[96](index=96&type=chunk) - UHS has aggregate insurance coverage of approximately **$147 million** remaining for matters applicable to the 2020 policy year, which could be materially impacted by the Cumberland matter[79](index=79&type=chunk) - UHS committed to develop, lease, and operate an acute care hospital in Washington, D.C., with construction completed and the hospital opened on April 15, 2025, funded by the District of Columbia (projected aggregate cost **$439 million**)[84](index=84&type=chunk) - UHS has committed to expend no less than **$75 million** over a projected 12-year period in healthcare infrastructure in Washington, D.C.[86](index=86&type=chunk) [(7) Segment Reporting](index=30&type=section&id=%287%29%20Segment%20Reporting) This note outlines the Company's two reportable segments, Acute Care Hospital Services and Behavioral Health Care Services, providing disaggregated financial information for each - UHS operates in two reportable segments: Acute Care Hospital Services and Behavioral Health Care Services[101](index=101&type=chunk) - Segment income before income taxes is the primary profitability measure used by the CODM group[101](index=101&type=chunk) Net Revenue from Reportable Segments (amounts in thousands) | Segment | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :----------------------- | :----------------------------- | :----------------------------- | | Acute Care Hospital Services | $2,401,034 | $4,750,263 | | Behavioral Health Care Services | $1,880,076 | $3,627,725 | | Non-segment revenue | $2,706 | $5,548 | | **Total Net Revenue** | **$4,283,816** | **$8,383,536** | - Behavioral health care facilities in the U.K. generated approximately **$247 million** in net revenues for the three-month period ended June 30, 2025, and approximately **$474 million** for the six-month period ended June 30, 2025[110](index=110&type=chunk) [(8) Earnings Per Share Data and Stock Based Compensation](index=33&type=section&id=%288%29%20Earnings%20Per%20Share%20Data%20and%20Stock%20Based%20Compensation) This note provides the computation of basic and diluted earnings per share for UHS and details stock-based compensation expense, including unrecognized costs Earnings Per Share Data (amounts in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to UHS | $353,218 | $289,152 | $669,898 | $550,986 | | Basic earnings per share attributable to UHS | $5.49 | $4.32 | $10.36 | $8.22 | | Diluted earnings per share attributable to UHS | $5.43 | $4.26 | $10.23 | $8.08 | | Weighted average number of common shares - basic | 64,356 | 66,878 | 64,663 | 67,041 | | Weighted average number of common shares and equivalents - diluted | 64,991 | 67,920 | 65,514 | 68,201 | - Pre-tax compensation costs for stock options were **$8.1 million** for the three-month period ended June 30, 2025, and **$17.5 million** for the six-month period ended June 30, 2025[108](index=108&type=chunk) - Pre-tax compensation costs for restricted stock awards were approximately **$15.5 million** for the three-month period ended June 30, 2025, and **$27.3 million** for the six-month period ended June 30, 2025[108](index=108&type=chunk) - As of June 30, 2025, there was approximately **$202.6 million** of unrecognized compensation cost related to unvested awards, expected to be recognized over a weighted average vesting period of **2.7 years**[108](index=108&type=chunk) [(9) Dispositions and acquisitions](index=34&type=section&id=%289%29%20Dispositions%20and%20acquisitions) This note summarizes the Company's acquisition and divestiture activities for the six-month periods ended June 30, 2025 and 2024, indicating minimal activity in both periods - UHS spent **$8 million** on the acquisition of businesses and property during the first six months of 2025[111](index=111&type=chunk) - UHS received **$3 million** from the sales of assets and businesses during the first six months of 2025[112](index=112&type=chunk) - There were no acquisitions during the first six months of 2024, and **$5 million** was received from the sales of assets and businesses[113](index=113&type=chunk)[114](index=114&type=chunk) [(10) Dividends](index=34&type=section&id=%2810%29%20Dividends) This note reports the dividends declared and paid by the Company for the three and six-month periods ended June 30, 2025 and 2024, including dividend equivalents for unvested restricted stock units - Dividends of **$12.9 million**, or **$0.20 per share**, were declared and paid during the second quarter of 2025[115](index=115&type=chunk) - Dividends of **$26.4 million**, or **$0.40 per share**, were declared and paid during the six-month period ended June 30, 2025[115](index=115&type=chunk) - Dividend equivalents applicable to unvested restricted stock units were accrued during 2025 and 2024 and will be paid upon vesting[115](index=115&type=chunk) [(11) Income Taxes](index=34&type=section&id=%2811%29%20Income%20Taxes) This note details the Company's effective income tax rates, explaining changes and discussing the impact of recent tax legislation and unrecognized tax benefits Effective Income Tax Rates | Period | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Rate | 23.4% | 23.0% | 23.4% | 22.0% | - The increase in the effective tax rate during the six months ended June 30, 2025, was primarily due to a **$10 million** unfavorable change in tax benefit from employee share-based payments[116](index=116&type=chunk) - The One Big Beautiful Bill Act, signed into law on July 4, 2025, is not expected to have a material impact on the estimated annual effective tax rate in 2025[117](index=117&type=chunk) - As of January 1, 2025, unrecognized tax benefits were approximately **$2 million**, which would favorably affect the effective tax rate if recognized[118](index=118&type=chunk) [(12) Revenue Recognition](index=35&type=section&id=%2812%29%20Revenue%20Recognition) This note explains the Company's revenue recognition policy, including the portfolio approach for collectability and disaggregated revenue by major source - Revenue is recognized when promised goods or services are transferred to customers, reflecting the consideration expected[121](index=121&type=chunk) - The Company uses a portfolio approach for assessing collectability due to a large volume of similar contracts with similar classes of customers[123](index=123&type=chunk) Disaggregated Revenue by Major Source (amounts in thousands) | Revenue Source | 3 Months Ended June 30, 2025 | % of Total | 6 Months Ended June 30, 2025 | % of Total | | :-------------------------- | :----------------------------- | :--------- | :----------------------------- | :--------- | | Medicare | $449,247 | 10% | $917,286 | 11% | | Managed Medicare | $519,172 | 12% | $1,039,471 | 12% | | Medicaid | $644,120 | 15% | $1,171,028 | 14% | | Managed Medicaid | $619,608 | 14% | $1,222,437 | 15% | | Managed Care (HMO and PPOs) | $1,227,853 | 29% | $2,412,654 | 29% | | UK Revenue | $246,906 | 6% | $473,974 | 6% | | Other patient revenue and adjustments, net | $310,054 | 7% | $620,127 | 7% | | Other non-patient revenue | $266,856 | 6% | $526,559 | 6% | | **Total Net Revenue** | **$4,283,816** | **100%** | **$8,383,536** | **100%** | [(13) Lease Accounting](index=37&type=section&id=%2813%29%20Lease%20Accounting) This note describes the Company's operating leases, primarily for real estate, including hospital facilities, outpatient centers, and administrative offices. It highlights lease terms, renewal options, and supplemental cash flow information related to leases - Operating leases are primarily for real estate, including acute care facilities, outpatient facilities, medical office buildings, and corporate offices, with typical initial terms of five to ten years and renewal options[128](index=128&type=chunk) - Five hospital facilities are held under operating leases with Universal Health Realty Income Trust, with two leases expiring in 2026, two in 2033, and one in 2040[129](index=129&type=chunk) Supplemental Cash Flow Information Related to Leases (amounts in thousands) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for operating leases | $66,779 | $65,765 | | Cash paid for finance leases (operating cash flows) | $1,770 | $1,850 | | Cash paid for finance leases (financing cash flows) | $1,345 | $2,183 | | Right-of-use assets obtained in exchange for lease obligations (operating leases) | $13,702 | $33,278 | | Right-of-use assets obtained in exchange for lease obligations (finance leases) | $1,372 | $- | [(14) Recent Accounting Standards](index=37&type=section&id=%2814%29%20Recent%20Accounting%20Standards) This note discusses recently adopted and issued accounting standards, including ASU 2023-07, ASU 2024-03, and ASU 2023-09, and the Company's evaluation of their potential impact - ASU 2023-07, "Improvements to Reportable Segment Disclosures," was adopted during 2024 and applied retrospectively to all periods presented[131](index=131&type=chunk) - ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures," is effective for fiscal years beginning after December 15, 2026, and is currently being evaluated for its impact[132](index=132&type=chunk) - ASU 2023-09, "Improvements to Income Tax Disclosures," is effective for fiscal years beginning after December 15, 2024, and is currently being evaluated for its impact[133](index=133&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, covering performance trends, key drivers, outlook, and critical accounting policies - As of June 30, 2025, UHS owned and/or operated **367** inpatient facilities and **61** outpatient and other facilities across 39 states, Washington, D.C., the United Kingdom, and Puerto Rico[135](index=135&type=chunk) - Net revenues from acute care hospitals accounted for **56%** of consolidated net revenues during the three-month period ended June 30, 2025, and **57%** during the six-month period ended June 30, 2025[135](index=135&type=chunk) - Net revenues from behavioral health care facilities in the U.K. were approximately **$247 million** for the three-month period and **$474 million** for the six-month period ended June 30, 2025[136](index=136&type=chunk) [Overview](index=38&type=section&id=Overview) This overview describes Universal Health Services, Inc.'s operational footprint, including the number and types of facilities it owns and operates across various geographies. It highlights the revenue contribution from its acute care and behavioral health segments and the services provided - As of June 30, 2025, UHS owned/operated **367** inpatient facilities and **61** outpatient/other facilities in 39 states, Washington D.C., the UK, and Puerto Rico[135](index=135&type=chunk) - Acute care facilities include **29** inpatient hospitals, **34** free-standing emergency departments, and **10** outpatient centers & **1** surgical hospital[139](index=139&type=chunk) - Behavioral health care facilities comprise **338** inpatient and **16** outpatient facilities in the U.S., **152** inpatient and **2** outpatient facilities in the U.K., and **3** inpatient facilities in Puerto Rico[139](index=139&type=chunk) - Acute care services accounted for **56%** of consolidated net revenues in Q2 2025, while behavioral health accounted for **44%**[135](index=135&type=chunk) [Forward-Looking Statements and Risk Factors](index=38&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section cautions readers about forward-looking statements and outlines key risk factors, including potential reductions in Medicaid funding, inflationary pressures, increased interest rates, and cybersecurity threats - Forward-looking statements are based on current estimates and expectations, but actual results may differ materially due to various factors[138](index=138&type=chunk)[140](index=140&type=chunk) - Risks include potential reductions in Medicaid and other state-based revenue programs, especially in states like California, Texas, and Nevada[141](index=141&type=chunk)[404](index=404&type=chunk) - The "One Big Beautiful Bill Act" (July 4, 2025) is expected to limit Medicaid enrollment and expenditures, reduce provider fees, and eliminate certain insurance exchange premium tax credits, potentially increasing uncompensated care[141](index=141&type=chunk)[405](index=405&type=chunk) - The healthcare industry faces inflationary pressures on salaries, wages, benefits, and supplies, which could increase expenses faster than anticipated[142](index=142&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Increased interest rates have significantly raised interest expense, reducing free cash flow and access to capital markets[142](index=142&type=chunk) - Cybersecurity threats, including ransomware attacks, pose a heightened risk, potentially leading to significant costs, data loss, and reputational damage[143](index=143&type=chunk) - The Cumberland Hospital litigation, with a **$60 million** compensatory and **$1.05 million** punitive damages verdict, could materially adversely impact future results and capital resources, potentially exhausting a significant portion of remaining commercial insurance coverage[143](index=143&type=chunk) [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no significant changes to critical accounting policies or estimates since the 2024 Annual Report on Form 10-K and refers to Note 14 for recent accounting standards - No significant changes to critical accounting policies or estimates since the 2024 Annual Report on Form 10-K[146](index=146&type=chunk) - Recent accounting standards are summarized in Note 14 to the Condensed Consolidated Financial Statements[146](index=146&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance, detailing net revenues, operating charges, and net income, and discusses the impact of staffing, inflation, and Medicaid reductions - Net revenues increased by **9.6%** to **$4.284 billion** in Q2 2025 and by **8.2%** to **$8.384 billion** in H1 2025, primarily driven by Same Facility growth and newly opened hospitals[154](index=154&type=chunk)[156](index=156&type=chunk) - Net income attributable to UHS increased by **22%** to **$353 million** in Q2 2025 and by **22%** to **$670 million** in H1 2025[156](index=156&type=chunk)[159](index=159&type=chunk) - No adjustments were recorded to self-insured professional and general liability reserves in H1 2025, contrasting with increases of **$7 million** (Q2 2024) and **$14 million** (H1 2024) in prior periods[160](index=160&type=chunk) [Clinical Staffing, Inflation, future Medicaid reductions and Tariffs](index=46&type=section&id=Clinical%20Staffing%2C%20Inflation%2C%20future%20Medicaid%20reductions%20and%20Tariffs) This sub-section discusses inflationary pressures on labor and operating expenses, staffing shortages, and the potential negative impact of new Medicaid legislation and tariffs on medical supplies - Inflationary pressures, primarily on personnel costs, have moderated recently but could still materially impact future results if they persist or accelerate[147](index=147&type=chunk)[148](index=148&type=chunk) - The "One Big Beautiful Bill Act" (July 4, 2025) is expected to reduce Medicaid enrollment and expenditures, potentially increasing uncompensated care[149](index=149&type=chunk)[151](index=151&type=chunk) - Significant tariffs or other restrictions on imported pharmaceutical ingredients, medical devices, and equipment could escalate costs and disrupt supply chains[152](index=152&type=chunk) - UHS is requesting and negotiating increased rates from commercial insurers and implementing productivity enhancement and cost reduction initiatives[153](index=153&type=chunk) [Financial results for the three-month periods ended June 30, 2025 and 2024](index=48&type=section&id=Financial%20results%20for%20the%20three-month%20periods%20ended%20June%2030%2C%202025%20and%202024) This section compares the Company's financial performance for the three months ended June 30, 2025, versus 2024, highlighting increases in net revenues, operating income, and net income Financial Results for Three Months Ended June 30 (amounts in thousands) | Metric | June 30, 2025 | % of Net Revenues | June 30, 2024 | % of Net Revenues | Change (YoY) | | :-------------------------- | :-------------- | :---------------- | :-------------- | :---------------- | :----------- | | Net revenues | $4,283,816 | 100.0% | $3,907,604 | 100.0% | +9.6% | | Salaries, wages and benefits | $2,014,951 | 47.0% | $1,856,372 | 47.5% | +8.5% | | Other operating expenses | $1,162,566 | 27.1% | $1,043,116 | 26.7% | +11.4% | | Supplies expense | $418,785 | 9.8% | $388,063 | 9.9% | +7.9% | | Income from operations | $500,270 | 11.7% | $436,398 | 11.2% | +14.6% | | Interest expense, net | $35,364 | 0.8% | $48,899 | 1.3% | -27.7% | | Income before income taxes | $473,385 | 11.1% | $382,006 | 9.8% | +24.0% | | Net income attributable to UHS | $353,218 | 8.2% | $289,152 | 7.4% | +22.2% | - The net revenue increase of **$376 million** was primarily attributable to a **$317 million** (**8.4%**) increase from Same Facility operations and **$43 million** from two newly constructed acute care hospitals[154](index=154&type=chunk) - Income before income taxes increased by **$91 million**, driven by increases at acute care facilities (**$15 million**) and behavioral health care facilities (**$37 million**), a decrease in interest expense (**$14 million**), and an increase in the market value of certain equity securities (**$14 million**)[155](index=155&type=chunk)[157](index=157&type=chunk) [Financial results for the six-month periods ended June 30, 2025 and 2024](index=50&type=section&id=Financial%20results%20for%20the%20six-month%20periods%20ended%20June%2030%2C%202025%20and%202024) This section compares the Company's financial performance for the six months ended June 30, 2025, versus 2024, showing significant growth in net revenues, operating income, and net income Financial Results for Six Months Ended June 30 (amounts in thousands) | Metric | June 30, 2025 | % of Net Revenues | June 30, 2024 | % of Net Revenues | Change (YoY) | | :-------------------------- | :-------------- | :---------------- | :-------------- | :---------------- | :----------- | | Net revenues | $8,383,536 | 100.0% | $7,751,186 | 100.0% | +8.2% | | Salaries, wages and benefits | $3,966,055 | 47.3% | $3,698,996 | 47.7% | +7.2% | | Other operating expenses | $2,268,318 | 27.1% | $2,075,286 | 26.8% | +9.3% | | Supplies expense | $821,666 | 9.8% | $791,636 | 10.2% | +3.8% | | Income from operations | $955,095 | 11.4% | $825,160 | 10.6% | +15.7% | | Interest expense, net | $75,420 | 0.9% | $101,725 | 1.3% | -25.9% | | Income before income taxes | $893,813 | 10.7% | $718,092 | 9.3% | +24.5% | | Net income attributable to UHS | $669,898 | 8.0% | $550,986 | 7.1% | +21.6% | - The net revenue increase of **$632 million** was primarily attributable to a **$542 million** (**7.2%**) increase from Same Facility operations and **$70 million** from two newly constructed acute care hospitals[156](index=156&type=chunk) - Income before income taxes increased by **$176 million**, driven by increases at acute care facilities (**$70 million**) and behavioral health care facilities (**$54 million**), a decrease in interest expense (**$26 million**), and an increase in the market value of certain equity securities (**$10 million**)[158](index=158&type=chunk) [Adjustments to self-insured professional and general liability reserves](index=52&type=section&id=Adjustments%20to%20self-insured%20professional%20and%20general%20liability%20reserves) This section discusses the Company's self-insured liability reserves, noting no adjustments in the first six months of 2025, contrasting with increases in 2024 - No adjustments were recorded to our reserves for self-insured professional and general liability claims during the first six months of 2025[160](index=160&type=chunk) - In the first six months of 2024, reserves increased by **$14 million** (**$10 million** for acute care, **$4 million** for behavioral health) due to unfavorable trends[160](index=160&type=chunk) [Acute Care Hospital Services](index=52&type=section&id=Acute%20Care%20Hospital%20Services) This section analyzes the operating statistics and financial results for the Acute Care Hospital Services segment, distinguishing between Same Facility Basis and All Acute Care Hospital Services - Net revenues from acute care hospital services increased by **$222 million** (**10.2%**) in Q2 2025 and **$386 million** (**8.9%**) in H1 2025 compared to prior year[180](index=180&type=chunk)[185](index=185&type=chunk) - Income before income taxes for acute care increased by **$15 million** (**7%**) in Q2 2025 and **$70 million** (**17%**) in H1 2025[181](index=181&type=chunk)[186](index=186&type=chunk) - Salaries, wages and benefits expense increased by **$78 million** (**9.1%**) in Q2 2025 and **$127 million** (**7.4%**) in H1 2025, partly due to new hospitals[182](index=182&type=chunk)[187](index=187&type=chunk) [Acute Care Hospital Services-Same Facility Basis](index=52&type=section&id=Acute%20Care%20Hospital%20Services-Same%20Facility%20Basis) This sub-section details the performance of acute care hospitals operational in both periods, focusing on organic growth drivers like net revenue per adjusted admission and patient days Acute Care Hospital Services - Same Facility Basis (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $2,272,316 | $2,105,189 | $4,516,378 | $4,213,234 | | Income before income taxes | $257,068 | $215,788 | $526,689 | $422,459 | | Salaries, wages and benefits | $905,960 | $858,559 | $1,800,061 | $1,719,645 | | Other operating expenses | $646,546 | $579,981 | $1,276,571 | $1,157,563 | | Supplies expense | $352,075 | $331,901 | $695,545 | $679,031 | - Net revenue per adjusted admission increased by **3.8%** in Q2 2025 and **3.2%** in H1 2025[168](index=168&type=chunk)[173](index=173&type=chunk) - Inpatient admissions increased by **2.2%** in Q2 2025 and **2.1%** in H1 2025[168](index=168&type=chunk)[173](index=173&type=chunk) - Salaries, wages and benefits expense increased by **$47 million** (**5.5%**) in Q2 2025 and **$80 million** (**4.7%**) in H1 2025, but decreased as a percentage of net revenues[169](index=169&type=chunk)[175](index=175&type=chunk) [All Acute Care Hospital Services](index=56&type=section&id=All%20Acute%20Care%20Hospital%20Services) This sub-section presents consolidated results for all acute care operations, including Same Facility performance, provider tax impacts, and contributions from new facilities All Acute Care Hospital Services (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $2,401,034 | $2,178,686 | $4,750,263 | $4,363,767 | | Income before income taxes | $227,744 | $212,700 | $488,535 | $418,168 | | Salaries, wages and benefits | $937,105 | $859,147 | $1,847,829 | $1,720,694 | | Other operating expenses | $757,120 | $655,760 | $1,472,460 | $1,310,743 | | Supplies expense | $360,985 | $331,877 | $709,378 | $678,881 | - Net revenues increased by **$222 million** (**10.2%**) in Q2 2025 and **$386 million** (**8.9%**) in H1 2025, driven by Same Facility growth and new hospitals[180](index=180&type=chunk)[185](index=185&type=chunk) - Income before income taxes increased by **$15 million** (**7%**) in Q2 2025 and **$70 million** (**17%**) in H1 2025, partially offset by pre-tax losses from newly opened facilities[181](index=181&type=chunk)[186](index=186&type=chunk) - Salaries, wages and benefits expense increased by **$78 million** (**9.1%**) in Q2 2025 and **$127 million** (**7.4%**) in H1 2025, reflecting both Same Facility increases and new facility expenses[182](index=182&type=chunk)[187](index=187&type=chunk) [Charity Care and Uninsured Discounts](index=58&type=section&id=Charity%20Care%20and%20Uninsured%20Discounts) This sub-section quantifies uncompensated care provided by acute care hospitals, including charity care and uninsured discounts, and estimates the associated costs Uncompensated Care (amounts in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Charity care | $217 | $200 | $486 | $417 | | Uninsured discounts | $710 | $632 | $1,387 | $1,220 | | Total uncompensated care | $927 | $832 | $1,873 | $1,637 | Estimated Cost of Providing Uncompensated Care (amounts in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Estimated cost of providing charity care | $19 | $18 | $42 | $37 | | Estimated cost of providing uninsured discounts | $63 | $57 | $121 | $109 | | Estimated cost of providing uncompensated care | $82 | $75 | $163 | $146 | [Behavioral Health Care Services](index=59&type=section&id=Behavioral%20Health%20Care%20Services) This section analyzes the operating statistics and financial results for the Behavioral Health Care Services segment, differentiating between Same Facility Basis and All Behavioral Health Care Services - Net revenues from behavioral health services increased by **$154 million** (**8.9%**) in Q2 2025 and **$246 million** (**7.3%**) in H1 2025[211](index=211&type=chunk)[216](index=216&type=chunk) - Income before income taxes increased by **$37 million** (**10.2%**) in Q2 2025 and **$54 million** (**8.0%**) in H1 2025[212](index=212&type=chunk)[217](index=217&type=chunk) - Salaries, wages and benefits expense increased by **$82 million** (**9.1%**) in Q2 2025 and **$138 million** (**7.8%**) in H1 2025[213](index=213&type=chunk)[218](index=218&type=chunk) [Behavioral Health Care Services-Same Facility Basis](index=59&type=section&id=Behavioral%20Health%20Care%20Services-Same%20Facility%20Basis) This sub-section details the performance of behavioral health facilities operational in both periods, focusing on key operating metrics like net revenue per adjusted admission and patient days Behavioral Health Care Services - Same Facility Basis (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $1,827,519 | $1,677,876 | $3,533,381 | $3,294,117 | | Income before income taxes | $400,426 | $361,019 | $741,182 | $678,492 | | Salaries, wages and benefits | $974,476 | $890,855 | $1,900,013 | $1,759,511 | | Other operating expenses | $330,508 | $307,502 | $651,954 | $621,503 | | Supplies expense | $58,183 | $56,777 | $113,562 | $113,486 | - Net revenue per adjusted admission increased by **8.6%** in Q2 2025 and **7.9%** in H1 2025[199](index=199&type=chunk)[204](index=204&type=chunk) - Inpatient admissions increased by **0.6%** in Q2 2025, while adjusted admissions decreased by **0.6%** in H1 2025[199](index=199&type=chunk)[204](index=204&type=chunk) - Salaries, wages and benefits expense increased by **$84 million** (**9.4%**) in Q2 2025 and **$141 million** (**8.0%**) in H1 2025, driven by increases in per-employee expense and FTEs[200](index=200&type=chunk)[205](index=205&type=chunk) [All Behavioral Health Care Services](index=60&type=section&id=All%20Behavioral%20Health%20Care%20Services) This sub-section presents consolidated results for all behavioral health care operations, including Same Facility performance, provider tax impacts, and contributions from new facilities All Behavioral Health Care Services (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $1,880,076 | $1,726,032 | $3,627,725 | $3,382,099 | | Income before income taxes | $396,188 | $359,500 | $733,613 | $679,438 | | Salaries, wages and benefits | $977,156 | $895,494 | $1,905,322 | $1,767,690 | | Other operating expenses | $383,841 | $351,579 | $747,425 | $698,847 | | Supplies expense | $58,401 | $57,084 | $113,848 | $114,008 | - Net revenues increased by **$154 million** (**8.9%**) in Q2 2025 and **$246 million** (**7.3%**) in H1 2025, primarily from Same Facility growth[211](index=211&type=chunk)[216](index=216&type=chunk) - Income before income taxes increased by **$37 million** (**10.2%**) in Q2 2025 and **$54 million** (**8.0%**) in H1 2025, partially offset by losses from recently closed facilities in H1 2025[212](index=212&type=chunk)[217](index=217&type=chunk) - Other operating expenses increased by **$32 million** (**9.2%**) in Q2 2025 and **$49 million** (**7.0%**) in H1 2025, partly due to increased provider tax assessments[214](index=214&type=chunk)[219](index=219&type=chunk) [Sources of Revenue](index=63&type=section&id=Sources%20of%20Revenue) This section overviews the Company's revenue streams, including private insurers, Medicare, and Medicaid, and discusses the impact of healthcare reform and legislative changes - Revenue sources include private insurers (managed care plans), Medicare, state Medicaid programs, and direct patient payments[220](index=220&type=chunk) - The "One Big Beautiful Bill Act" (July 4, 2025) is expected to significantly decrease federal funding for state Medicaid programs, potentially leading to reduced payments and increased uncompensated care[223](index=223&type=chunk) - The ACA's provisions, including DSH payment reductions and value-based purchasing programs, continue to impact reimbursement[224](index=224&type=chunk)[349](index=349&type=chunk)[351](index=351&type=chunk) - UHS receives substantial reimbursement from various state Medicaid supplemental payment programs, which are subject to annual approvals and potential reductions[262](index=262&type=chunk)[264](index=264&type=chunk) [Overview](index=63&type=section&id=Overview) This sub-section outlines the diverse sources of revenue for the Company's hospitals, emphasizing reliance on private insurers, Medicare, and Medicaid, and the trend of outpatient services - Revenue is derived from private insurers (including managed care), Medicare, state Medicaid programs, and direct patient payments[220](index=220&type=chunk) - Hospital revenues depend on inpatient occupancy levels, medical and ancillary services, outpatient procedures, and negotiated payment rates[221](index=221&type=chunk) - The percentage of patient service revenue from outpatient services has generally increased due to medical technology advancements and payer pressure[221](index=221&type=chunk) - Collection of amounts due from individuals is typically more difficult than from governmental or business payers, unfavorably impacting the collectability of patient accounts[222](index=222&type=chunk) [Sources of Revenues and Health Care Reform](index=63&type=section&id=Sources%20of%20Revenues%20and%20Health%20Care%20Reform) This sub-section discusses the significant influence of federal and state healthcare reforms on the Company's revenues, particularly potential reductions in Medicare and Medicaid funding - Federal and state governments are considering additional ways to limit increases in Medicare and Medicaid funding, which could adversely affect future payments[223](index=223&type=chunk) - The "One Big Beautiful Bill Act" (July 4, 2025) will substantially decrease federal funding for state Medicaid programs, likely resulting in states reducing Medicaid payments to UHS[223](index=223&type=chunk) - The ACA introduced reductions to Medicaid DSH payments, scheduled to begin in 2026[224](index=224&type=chunk) - The Supreme Court's ruling in California v. Texas dismissed a challenge to the ACA's constitutionality, but the impact of the Kennedy v. Braidwood Management decision on ACA HIV preventive care coverage is unknown[226](index=226&type=chunk)[227](index=227&type=chunk) - The ACA expanded fraud and abuse provisions, making it easier for government agencies and private plaintiffs to prevail in lawsuits against healthcare providers[228](index=228&type=chunk) [Medicare](index=65&type=section&id=Medicare) This sub-section details the Company's reimbursement under the Medicare program, including IPPS and Psych PPS, annual payment rule updates, DSH payments, and sequestration impacts - All acute care hospitals and many behavioral health centers are certified Medicare providers, with amounts received generally significantly less than customary charges[233](index=233&type=chunk) - Acute care hospitals are reimbursed under IPPS based on MS-DRGs; the IPPS 2026 final payment rule provides for a **3.3%** market basket increase, with an estimated overall increase of **2.7%** for UHS[234](index=234&type=chunk)[236](index=236&type=chunk) - Psychiatric hospitals are paid under Psych PPS; the Psych PPS final rule for FFY 2026 estimates a **2.5%** market basket increase, leading to an overall payment increase of **1.7%** for UHS[241](index=241&type=chunk)[243](index=243&type=chunk) - CMS is proposing to shorten the 340B Remedy recoupment transition from 16 years to 5 years, increasing the annual offset to **2%** from CY 2026, with an estimated **$13 million** impact on UHS's projected 2026 results[248](index=248&type=chunk)[253](index=253&type=chunk) - CMS is proposing to phase out the Inpatient Only (IPO) list over a 3-year period, beginning with removing 285 mostly musculoskeletal procedures for CY 2026[249](index=249&type=chunk) - The **2%** Medicare payment reduction (sequestration) has been extended through 2032[240](index=240&type=chunk) [Medicaid](index=71&type=section&id=Medicaid) This sub-section focuses on Medicaid as a significant revenue source, detailing state supplemental payment programs and the impact of the "One Big Beautiful Bill Act" on funding and eligibility - Medicaid is a joint federal-state funded health care benefit program, with most state payments made under PPS-like systems or negotiated rates, generally significantly less than customary charges[259](index=259&type=chunk)[261](index=261&type=chunk) - UHS receives annual Medicaid revenues of approximately **$100 million** or greater from each of California, Texas, Nevada, Illinois, Pennsylvania, Washington, D.C., Kentucky, Tennessee, Massachusetts, Virginia, Mississippi, and Florida[262](index=262&type=chunk)[404](index=404&type=chunk) - The "One Big Beautiful Bill Act" (July 4, 2025) will reduce SDP payments, limit provider taxes, and institute work requirements for Medicaid eligibility, potentially decreasing Medicaid revenues and increasing uncompensated care[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[327](index=327&type=chunk) - UHS estimates its aggregate annual net benefit from state Medicaid supplemental payment programs will be reduced by approximately **$360 million to $400 million** by 2032 due to the OBBBA[328](index=328&type=chunk) Aggregate Net Benefit from All Supplemental Medicaid Programs (amounts in millions) | Metric | Projected Full Year 2025 | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Supplemental Medicaid Programs Revenues | $1,754 | $464 | $352 | $817 | $666 | | Total Supplemental Medicaid Programs Provider Taxes | $(571) | $(134) | $(117) | $(251) | $(229) | | Aggregate net benefit from all Supplemental Programs | $1,183 | $330 | $235 | $566 | $437 | [Managed Care](index=87&type=section&id=Managed%20Care) This sub-section discusses the growing importance of managed care companies as a revenue source, noting lower payments per patient but secured price increases from commercial payers - The percentage of business from managed care programs is expected to continue to grow[343](index=343&type=chunk) - UHS typically receives lower payments per patient from managed care payers than from traditional indemnity insurers, but has secured price increases from many commercial payers[343](index=343&type=chunk) - The "Surprise Billing Interim Final Rule" and related litigation have caused significant delays in the processing of claims through the independent dispute resolution (IDR) process[346](index=346&type=chunk) [Commercial Insurance](index=89&type=section&id=Commercial%20Insurance) This sub-section addresses revenue from private health care insurance, noting that reimbursement rates are based on negotiated contracts and subject to efforts by insurers to limit payments - Private insurance reimbursement varies among payers and states and is generally based on contracts negotiated between the hospital and the payer[344](index=344&type=chunk) - Commercial insurers are continuing efforts to limit payments for hospital services by adopting discounted payment mechanisms, which may negatively impact operating results[345](index=345&type=chunk) [Other Sources](index=89&type=section&id=Other%20Sources) This sub-section describes services provided to uninsured patients, including evaluations for ability to pay, qualification for state assistance, and substantial discounts offered - UHS hospitals provide services to uninsured individuals, evaluating their ability to pay based on federal and state poverty guidelines and qualifications for Medicaid or other state assistance programs[347](index=347&type=chunk) - Patients without health care coverage who do not qualify for Medicaid or indigent care write-offs are offered substantial discounts to settle outstanding account balances[347](index=347&type=chunk) [Health Care Reform](index=89&type=section&id=Health%20Care%20Reform) This sub-section reiterates the impact of the ACA and subsequent legislation on healthcare reimbursement, focusing on Medicaid DSH reductions, value-based purchasing, and readmission programs - The ACA and subsequent federal legislation require annual aggregate reductions in federal Medicaid DSH allotment, with **$8 billion** annually from FFY 2026 through 2028[349](index=349&type=chunk) - Value-based purchasing programs, including public reporting of quality data and preventable adverse events, continue to impact hospital reimbursement, with HHS reducing inpatient hospital payments by **2%** in FFY 2017 and subsequent years to fund rewards for quality performance[350](index=350&type=chunk)[351](index=351&type=chunk) - Hospitals in the top **25%** of national risk-adjusted Hospital Acquired Conditions (HAC) rates face a **1%** reduction in total Medicare payments, with the program reinstated in FFY 2024 after being suppressed due to COVID-19[353](index=353&type=chunk) - The Hospital Readmission Reduction Program (HRRP) assesses penalties on hospitals with excessive readmissions for designated conditions, with payment adjustment factors up to a **3%** reduction[354](index=354&type=chunk) - UHS participates in Accountable Care Organizations (ACOs) to promote accountability and coordination of care, aiming to share in Medicare program savings from improved quality and operational efficiency[355](index=355&type=chunk) - All acute care hospitals have met the applicable meaningful use criteria under the HITECH Act; failure to continue meeting these criteria would adversely affect future net revenues[340](index=340&type=chunk) [Other Operating Results](index=92&type=section&id=Other%20Operating%20Results) This section analyzes key components of the Company's operating results, specifically focusing on interest expense and the provision for income taxes, and their impact on profitability - Interest expense decreased by **$14 million** (**28%**) during the three-month period ended June 30, 2025, and by **$26 million** (**26%**) during the six-month period ended June 30, 2025[360](index=360&type=chunk)[361](index=361&type=chunk) - The provision for income taxes increased by **$23 million** during the second quarter of 2025 and **$52 million** during the first six months of 2025, primarily due to higher pre-tax income and a decrease in tax benefit from share-based payments[364](index=364&type=chunk)[365](index=365&type=chunk) [Interest Expense](index=92&type=section&id=Interest%20Expense) This sub-section provides a detailed breakdown of interest expense, highlighting the decrease in both three-month and six-month periods ended June 30, 2025, compared to 2024 Interest Expense, Net (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Revolving credit facility | $2,692 | $5,324 | $4,486 | $12,570 | | Tranche A term loan, extinguished | $- | $38,305 | $- | $77,777 | | Tranche A term loan, 2029 | $16,996 | $- | $34,188 | $- | | Senior Notes (various maturities) | $17,325 | $11,632 | $34,840 | $23,265 | | Amortization of financing fees | $1,252 | $1,258 | $2,504 | $2,514 | | Other combined interest expense | $(837) | $1,732 | $2,194 | $3,844 | | Capitalized interest on major projects | $(8,166) | $(8,999) | $(14,749) | $(17,577) | | Interest income | $(349) | $(353) | $(756) | $(668) | | **Interest expense, net** | **$35,364** | **$48,899** | **$75,420** | **$101,725** | - Interest expense decreased by **$14 million** (**28%**) in Q2 2025 and **$26 million** (**26%**) in H1 2025[360](index=360&type=chunk)[361](index=361&type=chunk) - The decrease was due to a net **$12 million** (Q2) and **$27 million** (H1) reduction in aggregate interest expense on revolving credit, term loan A, and senior notes, driven by lower average cost of borrowings (**3.95%** in Q2 2025 vs. **4.84%** in Q2 2024) and decreased average outstanding borrowings[360](index=360&type=chunk)[361](index=361&type=chunk) [Provision for Income Taxes and Effective Tax Rates](index=94&type=section&id=Provision%20for%20Income%20Taxes%20and%20Effective%20Tax%20Rates) This sub-section analyzes the Company's provision for income taxes and effective tax rates, explaining increases in both three-month and six-month periods ended June 30, 2025, compared to 2024 Provision for Income Taxes and Effective Tax Rates (amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $110,773 | $87,676 | $209,573 | $157,940 | | Income before income taxes | $473,385 | $382,006 | $893,813 | $718,092 | | Effective tax rate | 23.4% | 23.0% | 23.4% | 22.0% | - The provision for income taxes increased by **$23 million** during Q2 2025 and **$52 million** during H1 2025[364](index=364&type=chunk)[365](index=365&type=chunk) - This increase was primarily due to higher pre-tax income and a **$2 million** (Q2) and **$10 million** (H1) decrease in the net benefit recorded in connection with ASU 2016-09 related to share-based payments[364](index=364&type=chunk)[365](index=365&type=chunk) [Liquidity](index=94&type=section&id=Liquidity) This section assesses the Company's liquidity by analyzing cash flows from operating, investing, and financing activities, and outlines expected capital expenditures for the remainder of 2025 - Net cash provided by operating activities decreased by **$167 million** to **$909 million** in H1 2025, primarily due to unfavorable changes in accounts receivable and accrued/deferred income taxes[367](index=367&type=chunk)[368](index=368&type=chunk) - Net cash used in investing activities increased to **$577 million** in H1 2025 (from **$437 million** in H1 2024), mainly due to higher property and equipment additions and foreign exchange contract outflows[369](index=369&type=chunk) - Net cash used in financing activities decreased to **$319 million** in H1 2025 (from **$628 million** in H1 2024), driven by lower debt repayments and increased additional borrowings[369](index=369&type=chunk)[370](index=370&type=chunk) - Expected capital expenditures for the full year 2025 are **$950 million to $1.1 billion**, with **$445 million to $595 million** anticipated in the remainder of the year[371](index=371&type=chunk) [Net cash provided by operating activities](index=94&type=section&id=Net%20cash%20provided%20by%20operating%20activities) This sub-section details the changes in net cash provided by operating activities, which decreased by $167 million in the first six months of 2025 compared to 2024, primarily due to unfavorable changes in accounts receivable and income taxes - Net cash provided by operating activities was **$909 million** during the six-month period ended June 30, 2025, a decrease of **$167 million** from **$1.076 billion** in the comparable 2024 period[367](index=367&type=chunk) - The decrease was attributed to an unfavorable change of **$159 million** in accounts receivable and **$83 million** in accrued and deferred income taxes, partially offset by a **$142 million** favorable change from increased net income and non-cash adjustments[368](index=368&type=chunk) - Days sales outstanding (DSO) were **50 days** at June 30, 2025, compared to **51 days** at June 30, 2024[367](index=367&type=chunk) [Net cash used in investing activities](index=95&type=section&id=Net%20cash%20used%20in%20investing%20activities) This sub-section outlines the Company's investing activities, showing an increase in net cash used in the first six months of 2025, primarily driven by higher property and equipment additions and net cash outflows from foreign exchange contracts - Net cash used in investing activities was **$577 million** during the first six months of 2025, compared to **$437 million** in the comparable 2024 period[369](index=369&type=chunk) - Investing activities in H1 2025 included **$505 million** for property and equipment additions and **$66 million** in net cash outflows from foreign exchange contracts hedging U.K. investments[369](index=369&type=chunk) - Investing activities in H1 2024 included **$450 million** for property and equipment additions and **$7 million** in net cash inflows from foreign exchange contracts[369](index=369&type=chunk) [Net cash used in financing activities](index=95&type=section&id=Net%20cash%20used%20in%20financing%20activities) This sub-section details the Company's financing activities, indicating a decrease in net cash used in the first six months of 2025 compared to 2024, primarily due to lower debt repayments and increased additional borrowings, despite significant share repurchases - Net cash used in financing activities was **$319 million** during the first six months of 2025, a decrease from **$628 million** in the comparable 2024 period[369](index=369&type=chunk) - H1 2025 financing activities included **$379 million** for common share repurchases, **$95 million** from additional borrowings, and **$26 million** for dividends pa

Group 1 - Barclays raised the target price for Starbucks from $106 to $115 [1] - Barclays increased the target price for Cisco from $77 to $82 [1] - Barclays adjusted the target price for Universal Health Services from $257 to $259 [1] - Barclays lowered the target price for Spotify from $800 to $750 [1]

Core Insights - Universal Health Services Inc. reported second-quarter adjusted earnings of $5.35 per share, exceeding the consensus estimate of $4.92 [1] - The company generated sales of $4.28 billion, reflecting a year-over-year increase of 9.6%, surpassing the consensus estimate of $4.24 billion [1] Acute Care Hospitals - Adjusted admissions at acute care hospitals increased by 2.0%, while adjusted patient days rose by 1.1% year over year [2] - Net revenue per adjusted admission increased by 3.8%, and net revenue per adjusted patient day increased by 4.7% [2] - Net revenues from acute care services increased by 7.9% on a same facility basis [3] Behavioral Health Care Facilities - Adjusted admissions at behavioral health care facilities increased by 0.4%, and adjusted patient days increased by 1.2% [4] - Net revenue per adjusted admission rose by 8.6%, while net revenue per adjusted patient day increased by 7.8% [4] - Net revenues from behavioral health care services increased by 8.9% on a same facility basis [4] Company Operations - Universal Health operates 29 inpatient acute care hospitals and 338 inpatient behavioral health facilities, along with 61 outpatient facilities [5] Guidance - The company raised its fiscal year 2025 adjusted earnings guidance to $20.00-$21.00 per share, compared to the previous range of $18.45-$19.95 [6] - Sales guidance for 2025 was narrowed to $17.09 billion-$17.31 billion, against the previous range of $17.02 billion-$17.36 billion [6] - The forecasted adjusted EBITDA for 2025 was revised to approximately $2.46 billion-$2.543 billion, up from the prior range of $2.36 billion-$2.48 billion [6] Analyst Insights - Guggenheim Partners noted that adjusted EBITDA-NCI of $643 million exceeded the consensus estimate of $615 million, but core performance was weaker than expected due to adjustments [7] - Analyst Jason Cassorla indicated that higher 2025 EBITDA could lead to increased share repurchase, with a leverage ratio of 1.9x providing flexibility for returns [8] - Despite a recent ~15% drop in stock price, UHS is trading at historically low valuation levels, with cautious investor sentiment regarding future growth in the behavioral health segment [9]