Good day, and thank you for standing by. Welcome to the fourth quarter 2024 Universal Health Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Steve Filton, Executive Vice President and CFO. Please go ahead.

Thank you, and good morning. Marc Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the fourth quarter ended December 31, 2024. During the conference call, we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections, and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, we recommend a careful reading of the section on risk factors and forward-looking statements in our form 10-K for the year ended December 31, 2024. We would like to highlight certain developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to Universal Health Services per diluted share of $4.96 for the fourth quarter of 2024. After adjusting for the impact of the items reflecting the supplemental schedule included with the press release, our adjusted net income attributable to Universal Health Services per diluted share was $4.92 for the quarter ended December 31, 2024. During the fourth quarter of 2024, on a same facility basis, adjusted admissions to our acute care hospitals increased 2.2% over the fourth quarter of the prior year. Same facility net revenues in our acute care hospital segment increased by 8.7% during the fourth quarter of 2024 as compared to last year's fourth quarter, driven primarily by a 5.3% increase in net revenue per adjusted admission. Meanwhile, operating expenses continue to be well managed. The amount of premium pay in the quarter, for example, which declined from a peak of $153 million for the first quarter of 2022, was $60 million in the fourth quarter of 2024, remaining consistent with the previous two quarters. For the full year of 2024, our strong Acute Care revenues combined with effective expense controls resulted in a 13% increase in EBITDA even after excluding the growth in Medicaid supplemental payments. During the fourth quarter, same facility revenues at our behavioral health hospitals increased by 11.1% driven primarily by an 8.7% increase in revenue per adjusted patient day. Excluding the year-over-year growth in Medicaid supplemental payments, the same facility revenue increased by 7.4%.

Included in our operating results during the fourth quarter of 2024 were aggregate net incremental reimbursements of approximately $50 million recorded in connection with various state supplemental Medicaid programs, including $31 million of additional net reimbursements from the Nevada state directed payment program covering the six-month period of July 1, 2024, through December 31, 2024. These net reimbursements were more than the supplemental program projections included in our earnings guidance for the full year of 2024 as revised on July 24, 2024. As a result of unfavorable trends experienced during the past several years during the fourth quarter of 2024, we recorded a $35 million increase to our reserves for self-insured professional and general liability claims. Our operating results for the full year of 2024 included a $79 million increase to our self-insured professional and liability reserves. Our cash generated from operating activities was $658 million during the fourth quarter of 2024, as compared to $452 million during the same quarter in 2023, and $2.067 billion during the full year of 2024 as compared to $1.268 billion during 2023. We spent $944 million on capital expenditures during 2024, which was consistent with our original forecast for the year. In our acute division, we opened West Henderson Hospital in Las Vegas, late in 2024 and plan to open Cedar Hill Medical Center in Washington DC, in the next few months. We forecast that these facilities will be EBITDA positive in 2025 on a combined basis. In both of our segments, we continue to invest in the expansion of our outpatient presence and the broadening of our continuum of care. For the full year of 2024, we acquired $599 million of our own shares pursuant to our share repurchase program. Since January 1, 2019, we have repurchased more than 29.2 million shares representing approximately 32% of our shares outstanding as of that date. As of December 31, 2024, we had $1.17 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility.

The core operating assumptions underlying our 2025 operating results forecast which was provided in last night's release, largely reflect the historical trends in the respective businesses with EBITDA growth in the mid-single digits. We expect continued improvement in salary and wages and general cost trends that will remain largely stable in 2025. As noted in our 10-K filed yesterday, our 2025 operating results forecast excludes any supplemental Medicaid revenues in Tennessee and the District of Columbia, pending CMS's approval of those programs. As the 10-K schedule reflects, our 2025 forecast assumes total consolidated Medicaid supplemental payments will decrease slightly as compared to 2024. We believe demand for our behavioral services remains solid. And our same facility adjusted patient day growth in 2025 and our facilities located in the US is forecasted to be in the 2.5% to 3% range. We've accelerated technology investments in our behavioral hospitals to improve patient care including electronic health record implementations, and expanded use of patient monitoring automation. We acknowledge that the current political environment has created a level of uncertainty, especially as it relates to ongoing Medicaid reimbursement. Our 2025 forecast is based on current Medicaid reimbursement projections, in connection with various programs that could be subject to change. In our acute business segment, we are pleased that 80% of our hospitals currently have an A or B U E rating, well above the national average. And in our behavioral division, we saw significant improvement in patient experience scores in 2024. We are focusing on continued improvement of these metrics in 2025. We are now pleased to answer your questions.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please your question has been answered or you're still with yourself from the queue, please press star one one again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Andrew Mok with Barclays. Your line is open.

Hi. Good morning. The 2025 EBITDA guidance is up 5% to 11%, which is higher than typical growth rates this despite state supplemental payments forecasted to be down year over year. I'd love to hear a little bit more color on what's driving the higher underlying growth in 2025. Thanks.

Sure, Andrew. Well, I mean, there's a couple of things. I mean, number one, you know, just the core growth core EBITDA growth that Marc talked about in the two segments, I think it's being driven by a return as he described, the sort of historical norms solid volume growth, pretty robust pricing, and I think, you know, very effective expense control. And, you know, I think we don't have the pressures on our operating expenses that, you know, were a drag during the COVID years. The wage inflation, the very high use of premium pay, not necessarily related to COVID, but the acute side, the professional fee expense pressures that we faced in 2023, etc. So I think, you know, as our commentary reflected in our prepared comments, we're expecting, you know, a much more stable operating environment outside of potentially the reimbursement changes that, you know, are being discussed. In addition to that, as you know, I think our comments indicated, you know, we incurred a significant amount of incremental expense in 2024. That we are hoping, you know, will not recur in 2025. And so that's, you know, another source of upside in the earnings. And then, you know, and I know you were really talking about operating earnings, but from an EPS perspective, we then get a boost from a reduction in interest expense as well as, you know, a continued reduction in our share count.

And then maybe just to follow-up, the guidance range, I think, is $127 million wide, which is higher than previous years despite better operations and visibility. So why is the range of outcomes here wider than usual and, you know, where are the puts and takes within that range? Thanks.

Yeah. I mean, I think, and I think Marc commented on this in the prepared remarks. We acknowledge that the items that are sort of beyond our control, you know, in terms of government reimbursement and potential changes in that regard. You know, we've tried to provide some level of caution and conservatism in the guidance and that think part of that is the wider range that we've provided.

Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is open.

Hey, great. Thank you very much. Just wanted to go back to the slide decrease in DPP that you're foreseeing for next year. There any way to parse out how much of that is just overall conservatism versus foreseeable changes in specific programs?

Then I think the main reason for the decline is, as we've disclosed in each quarter, you know, during 2024, we've recognized some DPP payments that were related to prior periods. And I think that's the main reason for the decline is that some of the DPP payments and DPP revenues that we recognized in 2024 really related to prior periods. There may be some programs that have small declines next year, but I think that that's the main reason driving the decline.

Thanks. And then just to follow-up on the malpractice reserves, just how are you thinking overall about adequacy at this point? You know, are we at a point where there is a reasonable cushion, or are there trends that you're seeing now that could increase the probability of another adjustment this year? Thanks.

Yeah. So I think it's worth noting that in establishing our malpractice reserves, we use a third party actuary who evaluates our claims history, pending claims, industry trends, etc. You know, it's a relatively comprehensive analysis. Historically, we've tried to set and establish our reserves sort of at the midpoint of the range that our third party actuary provides to us. Given some of the volatility in that area and some of the pressure, we tried this year to move a little bit towards the higher end of the range, so we are hoping that there's an element of conservatism built into those reserves and that, you know, there won't be a need for another uptick in 2025. Obviously, you can't be assured of that, but we feel like we've taken a pretty prudent position here. Thank you.

One moment for our next question. Our next question comes from Ann Hynes with Mizuho. Your line is open.

Hi. Good morning. Thank you. Can we talk about behavioral same store patient days? I remember thinking, and maybe I'm remembering incorrectly, that you thought you would be exiting 2024 at about 2%, which I believe it was below 2%. So what was the driver of that? And I think you said in guidance, you assume it's gonna accelerate to 2.5% to 3%. Can you just tell us what the drivers of that acceleration are?

Yeah. So and in fact, Ann, I think for the first two thirds of the quarter, October and November, we were tracking sort of in that 2.5% range and feel pretty good about things. You know, I remember and honestly, probably my last public appearance was at your conference in early December, and I remember telling people that I thought we were doing well except, you know, it was always hard to predict what would happen in the back half of December with the holidays. That's always sort of unpredictable. And in fact, we did see a fairly dramatic decline in our outpatient day volumes in behavioral in the back half of December. I think having the Christmas and New Year's holidays right in the middle of the week on a Wednesday really sort of made those last two weeks, particularly for that child and adolescent population, you know, a much softer result than we were anticipating and quite frankly we've experienced historically. Volumes tended to rebound in early January, which led us to believe that, you know, that was really kind of a temporary transient sort of thing. And we've struggled a little bit over the last month mainly because of difficult winter weather around the country, particularly in places that quite frankly are not, you know, generally used to or equipped for winter weather. You know, we've seen school closures on a pretty large scale in places like Virginia and Tennessee and Kentucky and Mississippi places that don't, you know, generally close schools in the wintertime. But again, I think we feel that those are transient dynamics and that for the full year, you know, getting to that 2.5% to 3% patient day growth, you know, should not be sort of a heroic metric to achieve.

Great. And then staying on the behavioral topic, Medicare Medicaid rates have been good for Universal in the industry. Can you remind us what they actually were in 2024 and what you expect in 2025?

Yeah. I mean, so what's built into our guidance for 2025 would say, same store behavioral revenue growth, in the 6%, 7%, 8% range. And again, I think that sort of 2.5% to 3% volume and 3% to 4% price. To be fair, that 3% to 4% and that 3% to 4% price is exclusive of any changes in supplemental payments, you know, that's just what I would describe as core pricing. Our core pricing, and I think that's sort of the crux of your question, has generally been better than that over the last several years, and we'll continue to press our payers and hope to do better than that. So if there's an element of conservatism in our behavioral projections, it's probably on the pricing side of the equation.

Alright. Thank you.

One moment for our next question. Our next question comes from Justin Lake with Wolfe Research. Your line is open.

Thanks. Good morning. Wanted to move over to the policy stuff. Specifically looks like you know, the bigger ticket items like caps are off the table on Medicaid. Sub discussions that maybe provider taxes would be a place they would pivot to. You know, I know you are sophisticated on this stuff. What are you hearing there in terms of the appetite to look at provider taxes is an area of savings within this?

Yeah. So I would say and I think you know this. I mean, I think the administration has really made no sort of definitive public statements about provider taxes. You know, the point that, you know, we've made and I think, you know, our peer companies have made is there appears to be wide support for these provider taxes or directed payment programs around the country. In a large number of states, you know, including states of all political stripes. And so I think one of the things that we're learning or observing from this debate within Congress over the budget bill is that there is a fair amount of support, again, I think, throughout the country for Medicaid programs, and protecting Medicaid programs hasn't been a whole lot of discussion specifically about direct payment programs. But we believe that there is significant political support at the state level for those programs in a great many states.

And I just want to add to what Steve just said there because we're clearly monitoring this very closely. Talking, you know, off the record with many of the folks, not just in Washington, but in states. And I think that's a key point. The folks in Congress are hearing from the governor's offices in many of these states. And, like Steve said, it's a bipartisan effort. It's not just the Democratic states, but it's many of the large Republican-led states as well. So that tends to suggest that the pushback is significant. I think we're in a better position than sometimes what we see on the news.

Great. And then just another question on DPP. I know you've got, you know, some dollars potentially coming in DC and Tennessee. You guys do a great job of giving color on that in your 10-Ks. Looks like you're not projecting that. Anything to read into that for 2025, like, any change in your level of confidence that this stuff comes through at the end of the day?

So, you know, we believe that our 2025 forecast reflects our historical practices when it comes to DPP, and that is, once a program has been approved and is in place, even though all these programs have to be renewed and reapproved annually. We presume that programs that have been approved historically will continue to be approved and they remain in our forecast. The two programs, you know, you referenced, Tennessee and Washington DC, are new programs that have only been partially approved. So for instance, Tennessee, the actual program has been approved and the dollars have been approved for the back half of 2024, but it still requires CMS approval of the eleven fifteen Medicaid waiver. And so until full approval is granted, we haven't included any of those Tennessee dollars. The DC approval is pending in its entirety, and we haven't included any of those dollars either in Q4 or in our 2025 guidance. In both cases, the state or the district hospital associations tell us and, you know, tell their constituents that you know, they have not heard anything from CMS suggesting that the programs are problematic in any way and they expect them to be approved.

Thanks. Appreciate all the color.

One moment for our next question. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open.

Hey, good morning, guys. Thanks for taking my questions. Leverage is now below sort of two times here. Can you just remind us what your targeted leverage ratios are here? And today, you know, using all of your free cash flow to do share repurchases? At what point do you start borrowing to maintain your leverage ratios? And using those borrowings to increase your share repurchases.

Thanks, Pito. So, you know, I think we have historically operated at a leverage level, you know, generally in sort of the high twos, approaching three. We're certainly comfortable at a level like that. And I would think that, you know, that's, you know, where we would generally target things in the future. I think, you know, our guidance for the year presumes that, you know, we'll use the bulk of our free cash flow for share repurchase. The possibility that we could lever up and use, you know, even more than that is certainly a real possibility. And not something we've decided today. You know? But, you know, again, in our guidance I think we were reasonably conservative in thinking that, you know, our share repurchase levels would be around what they've been several years in that sort of $600 million to $800 million range.

Okay. But so, you know, like, intellectually, the, you know, we could be thinking about you guys starting actually using leverage here to at least maintain some leverage above where it is today. You look at the macro level to start increasing beyond free cash flow?

I think that's fair. And I think that, you know, if you look at our historical practices, there certainly have been times where we have done that. Sure.

Okay. Fair enough. And then on behavioral, you know, you mentioned closing hospitals quarter. You know, has it impacted, you know, like, your EBITDA when you close those facilities? You know, like, how many other facilities do you look at for portfolio trimming for 2025? And, you know, with such a larger, you know, supply demand balance in behavioral, I guess, you know, why is there a need to close any of these facilities?

You. Yeah. I think if someone wanted to take the time and, for instance, take a look at our portfolio of behavioral facilities, let's say, ten years ago and where we are today, you know, I think that you would find that portfolio rationalization is sort of an ongoing part of, you know, our behavioral strategy. And that, you know, the portfolio of hospitals that we have today is different than it was ten years ago. We sold some facilities. We've consolidated a number of facilities. We've set and retooled facilities to provide different services. We've done any number of things. It's a large portfolio and generally, you know, an individual facility is not material with the portfolio, so we don't necessarily disclose or discuss in detail when we do these things. But it's really that aspect of it. And, you know, when you ask, you know, sort of what what's the rationale for that or what causes that while we acknowledge or or we would agree with your overall comment that I think behavioral demand has been strong during this period, obviously, demand for particular services in a particular area and particular reimbursement dynamics, all those things can change in the interim. And, you know, we do react to those things. And, you know, effectively, you know, try and and look at those facilities that are sort of least efficient, you know, lesser returning, and you know, trying to determine whether they have kind of a path to getting, you know, sort of more towards the bell curve of performance. And if they don't, we look for, you know, potential exit strategies, which again could be closure, could be sale, could be consolidation, could be retooling. All those things, I think, are always on the table.

Right. Thanks for your guys' investment.

One moment for our next question. Next question comes from Joanna Gajuk with Bank of America. Your line is open.

Hi. Good morning. Thanks so much for taking my questions. But it's first because I don't know that they're admitted, but yeah. Thanks for talking about your assumptions for your behavioral segment growth for 2025, but what do you assume for acute revenue growth, volumes versus pricing?

Yeah. So I think the assumptions for the Acute division are also, you know, mid single-digit revenue growth, probably a little bit more modest maybe in the 5%, 6% range. And I would say split pretty evenly between price and volume. So the 2.5%, 3% adjusted emission growth, 2.5%, 3% pricing growth. And, again, I think in both segments, in this environment where expenses have, you know, moderated wage inflation has moderated, use of premium pay is moderated. Position expenses are moderated. That mid single-digit revenue growth in both divisions should be sufficient to allow us to grow EBITDA and expand margins.

Thanks for that. And I guess on wages, because I think the nationwide data on wage growth for nursing because it showed some acceleration in late 2024. Are you seeing that, or is it just a function of some comp issue there?

Joanne, I'm sorry. When you said that the Nash data is showing what? I didn't hear what you said.

Yeah. Wages. Yeah. Wages. Like, acceleration is slightly. Nothing material, obviously, but.

Just kind of versus, you know, the earlier in 2024, then, like, somehow the couple of these last months in 2024 kinda showed a little bit higher growth year over year. So I don't know if you're seeing any of that. I mean, it sounds like you're thinking about, you know, kinda moderation in wage inflation for 2025. But I soon asked if there was anything that happened in late 2024 that, you know, kinda might have changed that view a little bit.

Yeah. So again, you know, clearly, we've seen a moderation in wage inflation, coming out of the pandemic over the last couple of years. And I would sort of characterize the wage environment as fairly stable. And, you know, I apologize. I didn't hear you the first time. But I think, you know, like you said, those national survey sort of suggest kind of an incremental pressure on wages. I don't think we're really seeing that to mean that we won't, but it doesn't feel like there's that sort of comprehensive pressure and, you know, no real significant pressure on wages that we were seeing a couple of years ago. It feels like the wage environment and basically the supply-demand environment for labor has stabilized pretty significantly. And as we lessen our dependence on temporary labor, our wages are overall continue to go down.

Not exactly. Thanks. Anytime I just squeeze in the last follow-up on the DPP discussion and how you were doing 2025 down versus 2024. So two items there. Right? Can you quantify how much was prior period that you recorded in 2024? And also because you also said there are some programs that expect that you expect to decline. So is it based in those in those states, particularly those programs are based on our enrollment, if that's what's happening. Some of these states gonna have a lower DPP dollars available to them because it's linked to enrollment? Thank you.

Yeah. So know, I think if you go back and, you know, look at our transcript, for the first three quarters, know, in each quarter, we called out how much prior period there might have been, and it strikes me that it was roughly sort of $15 million, $20 million a quarter. So you can extrapolate that, and it's, you know, maybe $60 million, $80 million of nonrecurring or out of period items that we had in 2024. And as I said to, you know, kind of a previous question, I think that the main driver. There may be individual programs that are showing sort of slight declines next year. But for the most part, once programs have been established, our historical experiences they stay at or grow. So, again, I don't think that the slight decline in DDP for next year that we're forecasting is mostly driven by the out of period stuff we had in 2024 rather than any real declines in the programs in 2025.

Thanks for that clarification. Appreciate it. Thank you.

One moment for our next question. Our next question comes from Stephen Baxter with Wells Fargo. Your line is open.

Hi, thanks. Just two quick ones. I was hoping, you know, first, just in case you know, I might have missed it, but sizing the full year amount that the medical malpractice expense came in above your initial plan and and how much of that you assume normalizes and becomes a tailwind to the year over year EBITDA growth? And then just another follow-up on the DPP discussion. I understand fully you're not including 2025 amounts for Tennessee or or for Washington DC at this point, you know, pending approval. But how do we think about, you know, what percentage of it, you know, DPP contribution that's in the guidance still for this year is tied to programs that do need to be at some point this year, so it might only have partial year coverage, you know, kinda as it sits today. Thank you.

Yep. So as far as malpractice goes, know, what we said in our prepared remarks was we had $79 million of additional malpractice reserves that we added or recorded, you know, above and beyond what we had in our original guidance. And for the most part, think, you know, we don't believe that those expenses recur. And so that contributes to some of the growth that we have in 2025. You know, we think we've been reasonably conservative. To be fair, that's a volatile area. That can change and does change, but we feel like we've been fairly prudent and fairly conservative in general. As far as your DPP question, you know, I think as a previous questioner indicated, you know, we have a significant amount about our DPP programs by state. And, you know, I refer everyone you know, I know we filed the ten K last night, so I'm sure people have not had a chance to review it in detail. We literally go through each program, you know, indicating what's been approved, what's not been approved. I mean, my guess is that probably half of the DPP money is in our forecast roughly, have been approved for next year already.

Thank you. One moment for our next question. Our next question comes from Sarah James with Cantor Fitzgerald. Your line is open.

Hi, Thank you. I wanted to go back to your strategy around the behavioral portfolio. Can you talk a little bit about areas that you're looking to expand? Are you guys looking at CTC or methadone clinics? Are you looking at more outpatient? Or is it really still focused on inpatient?

Yeah. I mean, we I think we've said in previous calls, Sarah, and I think this is true really of both segments, but specifically the behavioral business, think we're looking to build out our continuum of care, and then I think either Marc or I mentioned that in our prepared remarks. Which I think in behavioral specifically means building out the outpatient continuum. And I think that historically, building out the outpatient continuum generally meant on our campuses and sort of related to our inpatient programs. So patients who were discharged as inpatients often require, you know, continued follow-up care and often receive that care in our intensive outpatient or partial hospitalization programs. I think we've we've started to develop more of a presence in freestanding outpatient facilities around the country. We acknowledge that some people who are receiving outpatient care don't necessarily feel comfortable receiving it on the campus of an inpatient hospital or affiliated with an inpatient hospital. And so, yeah, we're finding that there is demand for freestanding outpatient care separate and apart from our hospitals. We continue to build out our outpatient capabilities as it relates to both active military and retired military. We have a specialization in that. We have begun and I think we've talked about this in previous calls. To establish a little bit more of a presence in the opioid disorder space. I think we are tending to do so again, more as part of a broader continuum of care rather than just flat out medically assisted treatment facilities that are just dispensing medication. You know, I think we feel like given our presence and such a broad continuum, you know, our real ability to provide a competitive or clinical advantage is being able to provide patients with sort of a whole continuum of care. Not just medically assisted treatment, whether that's methadone or Suboxone or whatever, but outpatient treatment, etcetera, inpatient treatment if that's required, etcetera. And so to the degree that we're entering or expanding our presence in that opioid space, I think it'll be in that context of integrating with our broader continuum of care.

Great. And can you give us an idea of the timeline to materiality of that, though, what does the pipeline look like, or how fast do you expect this business to grow?

Yeah. I mean, so again, I would make the point that we have a significant outpatient presence currently mostly associated with our hospitals on our hospital campuses. The freestanding sort of efforts I think, you know, reasonably could result in probably, you know, ten or so or dozen or so additional facilities each year. The OUD space requires, I think, a bit more of a development pipeline. So I think it's a little bit harder to project that. But again, I think the point that I make there is I think that's likely to be integrated with some of our existing continuum. But a little bit harder to predict and a little bit slower to ramp.

One moment for our next question. Next question comes from A.J. Rice with UBS. Your line is open.

Hi, everybody. I appreciate, Steve, that you guys are really the only one that's made comments about what it might mean if the exchange enhanced subsidies were to go away in 2026. I think you put about a $50 million headwind on that. Can you just, since you're the only one that's really done that, can you just flush out some of the key assumptions you've got in coming up with that number and how much variability you think there might be around that, or is that, you know, you have a pretty good target on that?

Yeah. So we made those comments or I made those comments back in the fall. And, honestly, A.J., I made them because I think people were generally overestimating the impact that we might have. If the subsidies were to go away, which I don't believe is a certainty. You know, in any event at the moment. But I made the point when I floated that estimate that it was very much a guesstimate. Really based on some pretty high level assumptions. About 5% of our acute admissions are exchange coverage patients right now. We assumed that about half of those folks would lose their coverage if the subsidies went away. Now, again, there's a lot of nuances that go along with that. Some might be able to get other coverage that might qualify for Medicaid in certain states, etc. But we assumed about half those folks would lose their coverage. We would lose the elective business that those folks were bringing to our hospitals now. And we presume they would still come to our hospitals for their emergency care. And, yeah, obviously, we wouldn't be reimbursed for that. And so that's the, you know, kind of the basis of these assumptions that we made. The other point I think that we made is, you know, this is, I think, largely an acute care dynamic. We don't separately track the number of exchange patients we have on the behavioral side, and largely because we don't think it's quite as significant. And I think that's historically been because so many of these exchange products have very high co-pays and deductibles that are often not relevant to providing, you know, coverage in a behavioral hospital where they're likely to incur much smaller bills than they would in a few hospitals.

Okay. Alright. Thanks for that. I just want to ask, maybe two aspects of the guidance. I want to see how they're if they're reflected in there. I think you've got some insurance revenue step up in 2025. Can you just comment on that? And is that a top line dynamic that doesn't affect the operating income and so on? And then the second thing I was going to ask about in the guidance is you opened West Henderson in Las Vegas late last year. You've got, I believe, a DC hospital that you're opening this spring. Do you think those are gonna have much impact on consolidated revenue and EBITDA, and how about on the same store numbers? Because those are two big markets. Do they draw away from your existing facilities enough to impact the same store trends?

Yeah. So as far as your first question about insurance revenue, a number of people, I think, you know, sort of noted that the revenue guidance that we issued last night is sort of above the mid-single digits that I talked about on this call. And I think your question addresses that. There's probably an assumption of about a $200 million increase in the revenues at our insurance subsidiary. So that affects that top line. As we've sort of discussed historically, our insurance subsidiary tends to operate at something pretty close to breakeven. So it's reflected on the revenue line, but not really reflected in a significant way. As far as your second question about the two hospital openings, we mentioned in our prepared remarks that we expect that the combination of West Henderson in Vegas and Cedar Hill in DC will be EBITDA positive. It will note that as we look at same store admissions and same store revenues and even same store earnings, that'll be a little bit, I think, distorting in our next year's numbers because both are opening in markets where we have an existing presence. And so there'll probably be some cannibalization of our existing business. So I think it will make our same store numbers look a little bit depressed, particularly admission numbers. But I think overall, West Henderson has gotten off to a very fast start as has been our experience when we opened hospitals in Las Vegas. We're expecting Cedar Hill to get off to a solid start as well. So either option shouldn't be a drag on earnings in 2024-2025.

Okay. Alright. Thanks a lot.

One moment for our next question. Our next question comes from Michael Ha with Baird. Your line is open.

Hi. Thank you. A quick two quick ones to start. Just to confirm on DPP for Tennessee and DC, is the total current, I guess, payment upside $169 million across the two? And what do you typically recognize in terms of the flow through down into earnings on DPP?

Yeah. So, Michael, I don't have our 10-K right in front of us, but that number sounds reasonably close, but people can validate that. We disclosed the numbers on both our expected benefit from both those programs in the 10-K. And as to your second question, you know, we generally, you know, have the view because we disclose our DPP numbers that is net of the provider tax. So we assume those numbers, you know, generally drop to the bottom. We those reimbursements are really meant to provide for frankly, what's been inadequate Medicaid reimbursement for, you know, many years. So, you know, the immediate impact is a significant boost to our earnings, but it's really making up in our minds for, you know, deficient earnings in the past.

Got it. Thank you. And then maybe a quick one and then another longer one. For flu season, you know, I don't haven't heard you mention it. We're seeing one of the strongest in recent history. Any impact on one Q? And then my real question would be just the return to historical margins, you're there in behavioral. A lot quicker than I think everyone expected. Looks like acute margins is really the next, you know, phase and the embedded margin improvement seems quite powerful. I guess at this kind of pace of margin improvement over the past year, it would be fair to say you might only be about a year or two away from getting back to the pre-COVID levels. And then what does that path look like? What needs to happen operationally for that to materialize? Is it more like, a return to normative patient mix levels or other efforts initiatives in flight? Any comments here would be great. Thank you.

So as to your question about the flu season, I think what we found is the flu season, which started earlier than usual for us in 2024, excuse me, in 2023, started later in 2024, although seems to be more intense once it got going. Overall, I think when we look at our respiratory cases for the fourth quarter, not altogether different in 2024 than they were in 2023. To your point, I think the flu season and busy flu season as continued into the first quarter. Think, you know, generally, we always have the view that a busy flu season or frankly not a busy flu season tends not to have a really significant impact on earnings. Flu and respiratory cases tend to not be the most profitable cases that we have. So overall, I think when we look back on, you know, annual results, we tend not to, I think, you know, cite a busy flu season or a non-busy flu season, that's something that moves the needle in a significant way. Although we acknowledge that volumes have been impacted, particularly will be impacted in Q1 by the busy flu season. As far as your margin question goes, you know, I think, you know, mainly directed towards the acute hospitals. We've mentioned before, I think, that there are some structural hurdles that make it difficult for the acute business to necessarily return to pre-COVID margins. Things like the significant increase, like, 150 basis point increase in position expenses that we experienced in mostly in 2023. The continued shift of profitable procedural and surgical business from inpatient to outpatient. But generally, you know, our margins have been improving in that business. And I think we'll continue to improve, like you said, over the next couple of years whether or not during that period we can get all the way back to pre-COVID margins, I'm not sure or I'm not certain about that. Think to your point, we've gotten there on the behavioral side. I think we'll continue to grow those and so as a result, I think we will get back to consolidated pre-COVID margins over the course of the next couple of years.

Thank you. One moment for our next question. Our next question comes from Benjamin Raskin with JPMorgan. Your line is open.

Hi. Thanks for the question. Just on premium pay, you mentioned premium pay at about $60 million coming in flat quarter over quarter versus your previous goal of exiting the year at about $50 million a quarter. Is that more opportunistic unit usage to manage throughput during Q4? And then with acute volumes, I mean, that you know, moderating a bit for 2025, where do you see premium pay leveling out in this coming year?

I think one of the challenges in terms of further reductions to premium pay is that one of the things that occurred during COVID was more and more nurses chose to work as temporary or traveling nurses preferring the flexibility that came with those jobs. And, you know, so of those nurses have returned to full-time work in our hospital. We'll certainly try and attract more, but I do think there has been kind of that structural shift, and there are just more nurses who are wanting to and are willing to work as temporary and traveling nurses. So I think, realistically, you made the comment in, you know, in our prepared remarks that we've run it about that $60 million a quarter of premium pay for the last three quarters. Might we be able to tweak that a little bit lower? Sure. But I don't see really significant savings from driving that number a whole lot lower than where it is today.

Great. Thanks for the color there. And then as just a follow-up, you know, I know it's early here, but had some conversations on tariffs and know, proposed reciprocal tariffs. Just curious how you're thinking about the potential impact of supply spend and maybe where your fixed pricing stands for your 2025 supply spend or where you have any other pricing buffers within your supply contracts. Thanks.

Yeah. So the challenge about making any sort of, you know, terribly meaningful comments about the impact of tariffs on our results is twofold. One is really trying to figure out what the tariffs are going to be, what countries, what the rates of the tariffs are gonna be. As you know, they've changed quite a bit just in the four or five weeks of the new administration. The good news, I think, which you've sort of alluded to in your question is that a great many of our supply contracts are multiyear contracts that essentially have a pricing protection so that you know, the risk of tariffs or the risk of increased costs really fall on the manufacturer while those contracts are in place. So I think our sense, and we certainly didn't really provide for any significant impact on our supply expense in 2025 from the tariffs. And I think that's, you know, generally our point of view. It's entirely possible that that changes depending on these dynamics and as you suggested, retaliatory tariffs and that sort of thing, we'd have to see how that plays out in sort of the real world before being able to quantify this in any more meaningful way.

Understood. Appreciate the comments here.

One moment for our next question. Our next question comes from Scott Fidel with Stephens. Your line is open.

Hi. Thanks. Just can you give us the split when looking at the net supplemental payments 2024, the $1.016 billion. Just what the split is between acute and behavioral health from that, and then similarly, with the projection for 2025, you know, whether that split seems similar or if there's any directional change around that.

Yeah. I mean, honestly, I don't have it right in front of me, Scott. I think the split relatively evenly between the two segments. But I can move that with you after you'd be more precise about that. And, no, I don't think this would change as much in 2025. Again, as we've sort of talked about before, I think the 2025 assumption is that most the programs kind of continue at their current level.

Okay. Got it. And then just want to follow-up on AJ had asked a bit about the increase in the insurance revenue. You know, we were just looking at the CMS data this week. Looks like your MA plan actually had some healthy growth. So that seems to be a driver of that, probably not where I would see that getting to $200 million though. So see, maybe if you could just walk us through, you know, clearly, it does look like the MA piece is a driver of that, but maybe just sort of walk us through from a product perspective, you know, what's building up to that $200 million.

So our subscriber population is split pretty evenly between MA patients and commercial patients. I think most of the growth next year is in the MA population, but we do have both MA patients and commercial patients. So, you know, we're just, you know, again, it's a relatively small plan. But as we continue to gain more experience in the hap, you know, establish a track record in the various markets where the plan operates, you know, we're able to attract more patients, etc. So you know, the $200 million, I think, is reflective of the amount of new subscribers that we have.

Got it. If I could just one quick question to a last one. Just just around accruals that you have in the balance sheet, legal accruals for behavioral litigation. Just any updates on sort of where you ended the year on that and sort of, you know, how that may have sort of evolved in terms of any assumptions there. Thanks.

Yeah. So, again, I mean, in the legal section of our 10-K, you know, we, you know, describe the status of the two large malpractice cases and malpractice verdicts that we had in 2024. You know, I suggest you know, people can read through those. We don't have specific reserves established for those cases. They're going both going through in appeal process and significant. Obviously, as I said earlier, when our third party actuary goes through their exercise, they're taking into account all of cases, decided cases, pending cases, appeal cases, etc. as well as cases that have, you know, not reached that level and they're putting a value on cases, you know, that are, you know, incurred or not yet sort of, you know, been filed, that sort of thing. So all that, I think, has been taken into account in the actuarial calculations.

Okay. Thank you. One moment for our next question. Our next question comes from Ryan Langston with TD Cowen. Your line is open.

Hi. Thanks. The SWB for performance and behavioral was the strongest, I think, in actually quite some time. Can you maybe just update us on the labor trends on BH? Like, if that was just related to specific facilities, geographies, or job classes? And I guess how does, if at all, the fourth quarter, like, inform the 2025 guidance?

Yeah. I mean, I think we have been saying for a number of quarters now that the labor supply demand dynamic within behavioral has clearly improved. From, you know, the really significant pressures that we experienced during the pandemic. And so, you know, I think you are seeing a combination of things that are really sort of contributing to that strong performance. I think number one, productivity has been improving. You know, where we've got the, you know, the right number of people for the right number of patients to care for patients safely and providing top-quality care. But, you know, we've also seen a moderation in the use of premium pay and outside temporary labor, and we've seen a moderation in wage inflation and all those things I think are contributing to the strong, sort of productivity and efficiency performance that you've noted.

Got it. Then just piggybacking on the leverage and the share repo, kind of where the shares are trading and kind of what's going on in the market. Like, is there a potential that the repo in 2025 are maybe more front-loaded than maybe they have been in the sort of last couple of years? Thanks.

Yeah. I mean, obviously, you know, when you when you talk about what's going on in the market, that changes day by day. So it's a little bit hard to make, you know, a judgment about exactly, you know, how the trajectory is gonna look for the year, but it's certainly a consideration on our part. What I would say historically is know, our share repurchases tend to be kind of more programmatic and ratable rather than really trying to time market changes, etc. I don't think we view ourselves as, you know, particularly good at market timing. What we do believe and what we try and take advantage of is know, the prospects of the business. We have a lot of confidence in the business. And, you know, we're willing to invest in, you know, buying back our own EBITDA, what we think are pretty attractive multiples. And I think that's the case now. And honestly, I think it's been the case and probably will be the case for some time. So I wouldn't commit to any particular sort of trajectory for this year. But, you know, as we have been for the past several years, I'm sure we will continue to be an active repurchaser.

Thank you. One moment for our next question. Our next question comes from Jamie Perse with Goldman Sachs. Your line is open.

Hey. Good morning, guys.

Jamie, could I just interrupt? But this is gonna have to be our last question. We have we have another commitment after this.

Sure. Thanks for sneaking me in. I guess just on commercial payers, what are you seeing in terms of, you know, payer activity and denials prior authorization to midnight rule implementation, etc. and just sustainability of re-growth, particularly in the behavioral business. It's been very strong.

Yeah. So I think the second part of your question first. I mean, we've talked about this for some time now. Yeah. We've had really strong behavioral pricing over the last several years. I think that's a function in large part of the scarcity of supply of beds and care in the behavioral space. And as a consequence, you know, we've been able to negotiate, you know, higher wage from many of our payers, payers who, you know, really, you know, are struggling to find a place for their subscribers to be treated, etc. I don't know that that dynamic has changed a great deal. There's not a ton more, you know, particularly inpatient capacity, I think, in the space, etc. So, again, I think the pricing environment for behavioral remains strong. As far as sort of payer behavior, I don't know that we would, you know, sort of suggest that there have been a significant change. I think you know, this is a sort of a day-to-day issue with us. We find payer behavior broadly challenging. And, you know, it's kind of a daily struggle with us. We've devoted a significant amount of resources to making sure that, you know, our claim submissions are as efficient and as clean as possible, that our appeals processes are as efficient and as clean as possible. It's been a huge focus of ours, and, unfortunately, I think we'll have to remain that because as I you know, I don't see, you know, payers all of a sudden becoming, you know, much more lax in their utilization review and denial management, etc. So, you know, it would be great if that dynamic were to change in our industry, but it doesn't seem to be something that's likely to change in the near term.

Thank you.

So operator, I think that's gonna have to be the end of for us. We'd like to thank everybody for their participation. And look forward to talking with everybody after our first quarter results. Thank you, ladies and gentlemen. So that's conclude today's presentation. You may now disconnect, and have a wonderful day.