Universal Health Services, Inc. Reports Financial Results for Three and Six Months Ended June 30, 2012 and Revises 2012 Full Year Guidance Consolidated Results of Operations, As Reported - Three and six-month periods ended June 30, 2012 and 2011:

KING OF PRUSSIA, Pa., July 26, 2012 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $107.6 million, or $1.10 per diluted share, during the second quarter of 2012 as compared to $103.6 million, or $1.04 per diluted share, during the comparable quarter of 2011.  Net revenues increased 1% to $1.73 billion during the second quarter of 2012 as compared to $1.71 billion during the second quarter of 2011. 

Reported net income attributable to UHS was $236.2 million, or $2.41 per diluted share, during the first six months of 2012 as compared to $217.8 million, or $2.20 per diluted share, during the comparable period of 2011.  Net revenues increased 3% to $3.53 billion during the first six months of 2012 as compared to $3.44 billion during the comparable period of 2011. 

Consolidated Results of Operations, As Adjusted – Three and six-month periods ended June 30, 2012 and 2011:

For the three-month period ended June 30, 2012, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Consolidated Statements of Income Information ("Supplemental Schedule"), was $109.1 million, or $1.12 per diluted share. There were no such adjustments required to our reported net income attributable to UHS for the second quarter of 2011.    

As reflected on the Supplemental Schedule, included in our reported results during the second quarter of 2012, was a net favorable after-tax impact of $3.4 million, or $.03 per diluted share, consisting primarily of the 2011 portion of net Medicaid supplemental revenues recorded during the quarter and an unfavorable after-tax charge of approximately $5.0 million, or $.05 per diluted share, related to the revenues and expenses recorded in connection with the implementation of electronic health records ("EHR") applications at our acute care hospitals (as discussed below in Accounting for HITECH Act incentive payments and EHR expenses).  The net Medicaid supplemental revenues related primarily to new supplemental Medicaid programs initiated in certain states in which we operate behavioral health care facilities.  These supplemental programs commenced during the second quarter of 2012 and were retroactive to July, 2011.

For the six-month period ended June 30, 2012, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, was $219.8 million, or $2.25 per diluted share. There were no such adjustments required to our reported net income attributable to UHS for the first six months of 2011.    

As reflected on the Supplemental Schedule, included in our reported results during the first six months of 2012 was the above-mentioned unfavorable after-tax charge of approximately $5.0 million, or $.05 per diluted share, recorded in connection with the implementation of EHR applications and an aggregate favorable after-tax impact of $21.4 million, or $.21 per diluted share, consisting of the following:

  • a favorable after-tax impact of $18.8 million resulting from an aggregate cash payment of approximately $36 million received by us in connection an agreement entered into with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services (referred to collectively as "HHS").  After reductions for estimated related expenses and the portion attributable to third-party non-controlling ownership interests, this agreement, which was part of an industry-wide settlement with HHS related to litigation that was pending for several years contending that acute care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system during a number of prior years, favorably impacted our pre-tax consolidated financial results by $30.2 million during the first six months of 2012;
  • a favorable after-tax impact of $4.3 million representing the 2011 portion of the net Medicaid supplemental reimbursements earned pursuant to the Oklahoma Supplemental Hospital Offset Payment Program ("SHOPP"). Pursuant to the terms and conditions of the SHOPP program, which was retroactive to July, 2011, we estimate that we are entitled to annual net reimbursements of approximately $14 million during each of the state's fiscal years of 2012 and 2013;
  • an aggregate unfavorable after-tax impact of $5.1 million resulting from: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($2.4 million unfavorable after-tax impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($2.7 million unfavorable after-tax impact), and;
  • a net favorable after-tax impact of $3.4 million consisting primarily of the above-mentioned, 2011 portion of net Medicaid supplemental revenues recorded during the second quarter of 2012.

Acute Care Services – Three and six-month periods ended June 30, 2012 and 2011:

During the second quarter of 2012, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) decreased 1.3% and adjusted patient days increased 0.7%, as compared to the second quarter of 2011. Net revenues at these facilities decreased 2.2% during the second quarter of 2012 as compared to the comparable quarter of the prior year. At these facilities, net revenue per adjusted admission decreased 0.9% while net revenue per adjusted patient day decreased 2.9% during the second quarter of 2012 as compared to the comparable quarter of the prior year. The declines in net revenue per adjusted admission and adjusted patient day were largely due to difficult comparisons to the prior year quarter when our net revenues were favorably impacted by positive changes in payor mix of patients treated at our hospitals and a stabilization of uninsured patient volumes. On a same facility basis, the operating margin at our acute care hospitals decreased to 16.1% during the second quarter of 2012 as compared to 17.8% during the second quarter of 2011. We define operating margin as net revenues less salaries, wages and benefits, other operating expenses and supplies expense (excluding the impact of the items mentioned above and excluding the EHR impact, as indicated on the Supplemental Schedule).

During the first six months of 2012, at our acute care hospitals on a same facility basis, adjusted admissions increased 0.4% and adjusted patient days increased 0.9%, as compared to the comparable six-month period of 2011. Net revenues at these facilities decreased 0.5% during the first six months of 2012 as compared to the comparable period of 2011.  At these facilities, net revenue per adjusted admission decreased 0.9% while net revenue per adjusted patient day decreased 1.4% during the first six months of 2012, as compared to the comparable period of 2011. On a same facility basis, the operating margin at our acute care hospitals decreased to 17.6% during the first six months of 2012, as compared to 19.2% during the comparable six-month period of 2011.

We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. Our acute care hospitals provided charity care and uninsured discounts, based on charges at established rates, amounting to $266 million and $239 million during the three-month periods ended June 30, 2012 and 2011, respectively, and $581 million and $462 million during the six-month periods ended June 30, 2012 and 2011, respectively.

Behavioral Health Care Services – Three and six-month periods ended June 30, 2012 and 2011:

During the second quarter of 2012, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 3.3% while adjusted patient days increased 0.2%, as compared to the second quarter of 2011. Net revenues at these facilities increased 4.1% during the second quarter of 2012, as compared to the comparable quarter in 2011. At these facilities, net revenue per adjusted admission increased 0.4% while net revenue per adjusted patient day increased 3.5% during the second quarter of 2012 over the comparable quarter in 2011. The operating margin at our behavioral health care facilities owned during both periods increased to 28.6% during the second quarter of 2012, as compared to 26.9% during the second quarter of 2011. 

During the first six months of 2012, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 6.2% while adjusted patient days increased 1.5%, as compared to the comparable period of 2011. Net revenues at these facilities increased 4.7% during the first six months of 2012, as compared to the comparable period of 2011. At these facilities, net revenue per adjusted admission decreased 1.4% while net revenue per adjusted patient day increased 3.2% during the first six months of 2012 over the comparable period of 2011. The operating margin at our behavioral health care facilities owned during both periods increased to 27.7% during the first six months of 2012, as compared to 26.7% during the comparable period of 2011. 

Accounting for HITECH Act incentive payments and EHR expenses:

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

During 2011, we began implementing EHR applications at certain of our acute care hospitals and will continue to do so, on a hospital-by-hospital basis, until completion which is scheduled to occur by the end of June, 2013. As of June 30, 2012, EHR applications have been implemented at nine of our acute care hospitals, the majority of which occurred during the second quarter of 2012.  Our acute care hospitals will be eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, assuming they meet the "meaningful use" criteria.  One hospital met the "meaningful use" criteria during the first half of 2012 (occurred during the second quarter) and we anticipate that eight additional hospitals will qualify by the end of 2012.

As reflected on the Supplemental Schedule, our consolidated results of operations for the three and six-month periods ended June 30, 2012 include an after-tax charge of approximately $5.0 million, or $.05 per diluted share, recorded in connection with the implementation of EHR applications. This charge, which on a pre-tax basis amounted to $8.0 million, net of $1.9 million attributable to third-party, non-controlling ownership interests, consists of $2.0 million of revenue offset by $8.3 million of salaries, wages, benefits and other operating expenses and $3.5 million of depreciation and amortization expense.  The EHR-related revenue recorded during the second quarter of 2012 consists of state Medicaid EHR incentive payments attributable to an acute care hospital that met the "meaningful use" criteria during the quarter. 

During the six-month period of July 1, 2012 through December 31, 2012, based upon our scheduled EHR implementations and anticipated "meaningful use" qualifications, we anticipate recording approximately $32 million of EHR revenues and $18 million of EHR-related incremental expenses resulting in a favorable after-tax impact of approximately $9 million, or $.09 per diluted share.  Combined with the above-mentioned EHR-related revenues and expenses recorded during the first six months of 2012, we estimate that our consolidated results of operations for the year ended December 31, 2012 will include approximately $34 million of EHR revenues and $28 million of EHR-related incremental expenses resulting in a net favorable after-tax impact of approximately $4 million, or $.04 per diluted share.          

Revised 2012 Full Year Guidance:

Against the backdrop of a sluggish economic recovery, and based upon the operating trends and financial results experienced during the first six months of 2012, our revised estimated range of adjusted net income attributable to UHS, for the year ended December 31, 2012 is $4.25 to $4.35 per diluted share. This revised guidance, which excludes the estimated favorable $.04 per diluted share EHR impact mentioned above and the impact of the other items reflected on the Supplemental Schedule for the six months ended June 30, 2012, represents a decrease of approximately 2% to 3% from the previously provided range of $4.33 to $4.48 per diluted share.    

This guidance range also excludes the impact of future items, if applicable, that are nonrecurring or non-operational in nature including items such as, but not limited to, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits and other material amounts that may be reflected in our financial statements that relate to prior periods. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures.

Conference call information:

We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on July 27, 2012. The dial-in number is 1-877-648-7971.  A live broadcast of the call will be available on our website at www.uhsinc.com.  Also, a replay of the call will be available on our website following the completion of the conference call.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:

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

This press release contains forward-looking statements based on current management expectations.  Numerous factors, including those disclosed herein, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A-Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2011 and in Item 2-Forward-Looking Statements and Risk Factors in our Form 10-Q for the quarterly period ended March 31, 2012), may cause the results to differ materially from those anticipated in the forward-looking statements.  Many of the factors that will determine our future results are beyond our capability to control or predict.  These statements are subject to risks and uncertainties and therefore actual results may differ materially.  Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof.  We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

During the first quarter of 2012, we adopted the Financial Accounting Standards Board's Accounting Standards Update No. 2011-07, "Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities," which required health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). As a result, the provision for doubtful accounts for our acute care and behavioral health care facilities is reflected as a deduction for net revenues in the accompanying consolidated statements of income for the three and six-month periods ended June 30, 2012 and 2011. The adoption of this standard had no impact on our financial position or results of operations.

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