UHS(UHS) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION 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] - They are condensed and omit certain footnote disclosures typically found in audited statements, as permitted by SEC regulations[29] Item 1. Financial Statements (unaudited) 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 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 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 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 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] - Total equity increased from $6.749 billion at January 1, 2025, to $7.086 billion at June 30, 2025[19][22] - 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] Condensed Consolidated Statements of Cash Flows 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 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][14][17] - Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted[29] (1) General 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] - The financial statements are unaudited and include only normal recurring adjustments[29] - 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] (2) Relationship with Universal Health Realty Income Trust and Other Related Party Transactions 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] - The Company leases five hospital facilities from the Trust, with lease terms extending to 2026, 2033, and 2040[39][129] - Financial liabilities related to failed sale leaseback transactions with the Trust were approximately $72 million at June 30, 2025[35] - 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] - 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] (3) Other Noncurrent liabilities and Redeemable/Noncontrolling Interests 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] - Outside owners hold noncontrolling interests ranging from 5% to 49% in various acute care and behavioral health facilities[49] - Redeemable noncontrolling interests, totaling $60 million at June 30, 2025, reflect minority ownerships with put options, requiring reclassification from noncontrolling interest[49][50][51] - UHS purchased a 20% ownership interest in a Pennsylvania behavioral health facility in April 2025 after the minority owners exercised their put option[52] (4) Treasury 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] - 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] - 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][58] - 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] - 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] - 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] (5) Fair Value Measurement 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] 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 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][72] - 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][75] - 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][96] - 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] - 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] - UHS has committed to expend no less than $75 million over a projected 12-year period in healthcare infrastructure in Washington, D.C.[86] (7) Segment Reporting 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] - Segment income before income taxes is the primary profitability measure used by the CODM group[101] 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] (8) Earnings Per Share Data and Stock Based Compensation 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] - 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] - 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] (9) Dispositions and acquisitions 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] - UHS received $3 million from the sales of assets and businesses during the first six months of 2025[112] - There were no acquisitions during the first six months of 2024, and $5 million was received from the sales of assets and businesses[113][114] (10) Dividends 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] - Dividends of $26.4 million, or $0.40 per share, were declared and paid during the six-month period ended June 30, 2025[115] - Dividend equivalents applicable to unvested restricted stock units were accrued during 2025 and 2024 and will be paid upon vesting[115] (11) Income Taxes 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] - 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] - As of January 1, 2025, unrecognized tax benefits were approximately $2 million, which would favorably affect the effective tax rate if recognized[118] (12) Revenue Recognition 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] - The Company uses a portfolio approach for assessing collectability due to a large volume of similar contracts with similar classes of customers[123] 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 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] - 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] 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 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] - 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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] - 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] 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] - Acute care facilities include 29 inpatient hospitals, 34 free-standing emergency departments, and 10 outpatient centers & 1 surgical hospital[139] - 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] - Acute care services accounted for 56% of consolidated net revenues in Q2 2025, while behavioral health accounted for 44%[135] Forward-Looking Statements and Risk Factors 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][140] - Risks include potential reductions in Medicaid and other state-based revenue programs, especially in states like California, Texas, and Nevada[141][404] - 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][405] - The healthcare industry faces inflationary pressures on salaries, wages, benefits, and supplies, which could increase expenses faster than anticipated[142][147][148] - Increased interest rates have significantly raised interest expense, reducing free cash flow and access to capital markets[142] - Cybersecurity threats, including ransomware attacks, pose a heightened risk, potentially leading to significant costs, data loss, and reputational damage[143] - 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] Critical Accounting Policies and Estimates 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] - Recent accounting standards are summarized in Note 14 to the Condensed Consolidated Financial Statements[146] Results of Operations 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][156] - Net income attributable to UHS increased by 22% to $353 million in Q2 2025 and by 22% to $670 million in H1 2025[156][159] - 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] Clinical Staffing, Inflation, future Medicaid reductions and Tariffs 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][148] - The "One Big Beautiful Bill Act" (July 4, 2025) is expected to reduce Medicaid enrollment and expenditures, potentially increasing uncompensated care[149][151] - Significant tariffs or other restrictions on imported pharmaceutical ingredients, medical devices, and equipment could escalate costs and disrupt supply chains[152] - UHS is requesting and negotiating increased rates from commercial insurers and implementing productivity enhancement and cost reduction initiatives[153] Financial results for the three-month periods ended June 30, 2025 and 2024 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] - 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][157] Financial results for the six-month periods ended June 30, 2025 and 2024 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] - 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] Adjustments to self-insured professional and general liability reserves 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] - 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] Acute Care Hospital Services 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][185] - Income before income taxes for acute care increased by $15 million (7%) in Q2 2025 and $70 million (17%) in H1 2025[181][186] - 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][187] Acute Care Hospital Services-Same Facility Basis 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][173] - Inpatient admissions increased by 2.2% in Q2 2025 and 2.1% in H1 2025[168][173] - 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][175] All Acute Care Hospital Services 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][185] - 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][186] - 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][187] Charity Care and Uninsured Discounts 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 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][216] - Income before income taxes increased by $37 million (10.2%) in Q2 2025 and $54 million (8.0%) in H1 2025[212][217] - Salaries, wages and benefits expense increased by $82 million (9.1%) in Q2 2025 and $138 million (7.8%) in H1 2025[213][218] Behavioral Health Care Services-Same Facility Basis 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][204] - Inpatient admissions increased by 0.6% in Q2 2025, while adjusted admissions decreased by 0.6% in H1 2025[199][204] - 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][205] All Behavioral Health Care Services 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][216] - 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][217] - 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][219] Sources of Revenue 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] - 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] - The ACA's provisions, including DSH payment reductions and value-based purchasing programs, continue to impact reimbursement[224][349][351] - UHS receives substantial reimbursement from various state Medicaid supplemental payment programs, which are subject to annual approvals and potential reductions[262][264] 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] - Hospital revenues depend on inpatient occupancy levels, medical and ancillary services, outpatient procedures, and negotiated payment rates[221] - The percentage of patient service revenue from outpatient services has generally increased due to medical technology advancements and payer pressure[221] - Collection of amounts due from individuals is typically more difficult than from governmental or business payers, unfavorably impacting the collectability of patient accounts[222] Sources of Revenues and Health Care Reform 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] - 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] - The ACA introduced reductions to Medicaid DSH payments, scheduled to begin in 2026[224] - 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][227] - The ACA expanded fraud and abuse provisions, making it easier for government agencies and private plaintiffs to prevail in lawsuits against healthcare providers[228] 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] - 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][236] - 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][243] - 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][253] - 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] - The 2% Medicare payment reduction (sequestration) has been extended through 2032[240] 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][261] - 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][404] - 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][324][325][327] - 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] 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 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] - 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] - 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] Commercial Insurance 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] - Commercial insurers are continuing efforts to limit payments for hospital services by adopting discounted payment mechanisms, which may negatively impact operating results[345] Other Sources 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] - 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] Health Care Reform 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] - 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][351] - 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] - 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] - 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] - 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] Other Operating Results 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][361] - 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][365] Interest Expense 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][361] - 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][361] Provision for Income Taxes and Effective Tax Rates 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][365] - 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][365] 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][368] - 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] - 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][370] - 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] Net cash provided by operating activities 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] - 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] - Days sales outstanding (DSO) were 50 days at June 30, 2025, compared to 51 days at June 30, 2024[367] Net cash used in investing activities 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] - 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] - 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] Net cash used in financing activities 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] - H1 2025 financing activities included $379 million for common share repurchases, $95 million from additional borrowings, and $26 million for dividends pa