Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Universal Health Services Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Darren Lehrich, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Universal Health Services Third Quarter 2025 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then we'll open it up to Q&A. During today's 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, and our Form 10-Q for the quarter ended June 30, 2025. In addition, we may reference during today's call measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release. With that, let me now turn it over to Marc Miller for some introductory remarks.

Thank you, Darren. Good morning, everybody. Thank you for your interest in UHS. I also want to take this opportunity to welcome Darren to the UHS team. We look forward to having him in a dedicated Investor Relations function for our company. Turning to our third quarter 2025 results. We reported adjusted net income attributable to UHS of $5.69 per share representing a 53% increase from the third quarter of 2024. Revenue growth for the third quarter of 2025 was 13.4% year-over-year. Our third quarter performance reflects continued growth in our acute care operating environment, modest volume improvement in our behavioral health segment, and solid pricing across both segments. The third quarter included $90 million of net benefit from the recently approved supplemental Medicaid program in the District of Columbia. Steve will cover the details of this approval and other supplemental Medicaid program updates. Based on our operational performance year-to-date and the increased supplemental reimbursement in the District of Columbia, offset somewhat by additional professional and general liability reserves, we are increasing the midpoint of our 2025 adjusted EPS guidance by 6% to $21.80 per diluted share from $20.50 per diluted share previously. During the quarter, we experienced progress in our two most recent acute care hospital openings, West Henderson Hospital in Henderson, Nevada and Cedar Hill Regional Medical Center in Washington, D.C. Specific to Cedar Hill, we achieved accreditation in early September. As a result, the financial drag from our certification timing delay and start-up issues began to subside during the third quarter, and we expect to exit this year at breakeven or better, putting us in a stronger position at this facility heading into 2026. We believe the long-term outlook for Cedar Hill remains favorable due to demand for services and strong support within the community, as well as our long-standing presence in the district at the George Washington University Hospital. Our next de novo acute care hospital opening will be the Alan B. Miller Medical Center in Palm Beach Gardens slated for the spring of 2026. This project remains on track, and we are encouraged by significant interest in the new medical campus by members of the community and the health care professionals that serve patients within this fast-growing market. We have a long track record of expanding presence in core markets with new state-of-the-art hospitals and are excited to build on our existing presence on the East Coast of Florida. Separate from these new hospital projects, we've also been active on the outpatient side within our acute care segment, where we operate 45 outpatient access points, including freestanding emergency departments, surgery centers, and other ambulatory services. On a year-to-date basis, we've opened four freestanding EDs, bringing our total to 34 and we believe our FED strategy is highly complementary to our acute care operations by allowing us to capture incremental higher acuity outpatient volume within our markets. Within our behavioral health segment, we've taken a disciplined approach to new bed capacity growth, which has allowed us to focus on the highest potential expansion and de novo projects while we increasingly devote resources to accelerate our outpatient behavioral strategy. On the outpatient side of our behavioral segment, we operate approximately 100 access points, including step-down programs closely aligned with inpatient and residential operations, as well as step-in programs that allow us to reach patients in convenient community settings. We are on track to open 10 of these step-in programs this year under local brands, as well as our new wellness brand in a model that supports outpatient services through both virtual and in-person settings. Our strategies are designed to accelerate our outpatient growth rate, diversify our payer mix and allow us to be the provider of choice within the behavioral marketplace that continues to have strong demand across the continuum. The behavioral health care we provide serves an important need within the health care system and our society more broadly. With that, I will now turn the call over to Steve Filton for a financial review of the third quarter.

Thanks, Marc. I will highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $5.86 for the third quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $5.69 for the quarter ended September 30, 2025. We recognized approximately $90 million of net benefit during the third quarter of 2025 from the District of Columbia supplemental Medicaid program, which covered the time period from October 1, 2024, through September 30, 2025. Approximately $73 million of this benefit was recognized in our acute care results while the remaining benefit was recognized in our behavioral results. During the third quarter of 2025 on a same facility basis, adjusted admissions in our acute care hospitals increased 2.0% over the third quarter of the prior year. Acute care volumes were consistent with trends in the first half of 2025 with solid growth in both inpatient medical admissions and outpaced services during the third quarter and surgical volumes that increased slightly as compared to the prior year. Same facility net revenues in our acute hospital segment increased by 12.8% during the third quarter of 2025 on a reported basis as compared to last year's third quarter and increased 9.4% after excluding the impact of our insurance subsidiary and the prior period net benefit from the District of Columbia supplemental Medicaid program. Acute care same-facility revenue per adjusted admission increased by 9.8% during the third quarter of 2025 on a reported basis and increased 7.3% after excluding the impact of our insurance subsidiary and a prior period impact of the District of Columbia supplemental Medicaid benefit. Operating expenses continued to be well managed across labor, supplies and other expense categories. We have not experienced any noteworthy impact from tariff trade policies. Total operating expenses per adjusted admission increased by 4.0% on a same facility basis over last year's third quarter after excluding the impact of our insurance subsidiary. For the third quarter of 2025, our solid acute care revenues, combined with effective expense controls, resulted in a 190 basis point increase year-over-year in same-facility EBITDA margin to 15.8% after excluding the prior period impact of the District of Columbia's supplemental benefit. Turning to our behavioral health results, during the third quarter of 2025, same-facility net revenues increased 9.3% on a reported basis and were up 8.5%, excluding the prior period impact of the District of Columbia supplemental Medicaid program. Same-facility revenue growth was driven by a 7.9% increase in revenue per adjusted patient day as compared to the prior year. Excluding the prior period impact of the District of Columbia supplemental, same-facility revenue per adjusted patient day increased 7.1% during the third quarter of 2025. Same-facility adjusted patient days increased 1.3% as compared to the prior period's third quarter with volume growth modestly improving as compared to 1.2% in the second quarter and 0.4% during the first half of 2025. We expect further volume improvements during the fourth quarter, although we now believe a reasonable expectation for same facility adjusted patient day growth should be in the 2% to 3% range with our near-term expectations at the lower end of this range. Expenses in our behavioral health segment continued to be well managed with relatively stable margins during the third quarter leading to a 7.6% increase in same-facility EBITDA as compared to the third quarter of 2024 after excluding the prior period impact of the District of Columbia supplemental benefit. We continue to experience labor tightness in some markets, although hiring trends have improved steadily throughout the year. Our cash generated from operating activities was approximately $1.3 billion during the first 9 months of 2025 as compared to approximately $1.4 billion during the same period in 2024. We expect to collect the $90 million of District of Columbia supplemental payments during the fourth quarter of 2025. During the first 9 months of 2025, we spent $734 million on capital expenditures, close to 30% of which related to the new hospital in Florida and a replacement facility in California. During the 9 months ended September 30, 2025, we also acquired 3.19 million of our own shares at a total cost of approximately $566 million including 1.315 million shares purchased during the third quarter of 2025. Today, our Board of Directors authorized a new $1.5 billion increase to our stock repurchase program, bringing our total authorization to $1.759 billion, including amounts remaining under the previous authorization. Since 2019, we have repurchased approximately 36% of the company's outstanding shares and paid approximately $340 million in dividends to shareholders. In the absence of compelling acquisition opportunities over the near term, we expect to continue to prioritize our excess free cash flow for share buyback and dividends. As of September 30, 2025, we had approximately $965 million of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. Turning to an update on Medicaid supplemental payment programs. Our current projected 2025 full year net benefit from various previously approved programs is $1.3 billion. This figure includes amounts recorded during the third quarter for the previously mentioned District of Columbia program and additional amounts related to this program that are expected to be recorded in the fourth quarter of 2025, but it does not include programs pending CMS approval. As we discussed during our second quarter 2021 earnings call, the OB3 legislation includes several significant changes in the Medicaid program, including changes to state-directed payment programs and provider taxes. At this time, assuming no changes to our Medicaid revenues or other changes to related state or federal programs, we estimate that commencing with the 2028 fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro-rata basis by approximately $420 million to $470 million in 2032. This cumulative impact range has been increased to reflect recent supplemental program approvals. Given various uncertainties, including the evolving state-by-state interpretations and computations related to this legislation, our forecasted estimates are subject to change potentially by material amounts. That concludes our prepared remarks, and we're pleased to answer questions at this time.

Our first question comes from Justin Lake with Wolfe Research.

Steve, thanks for all the information. I was wondering if you could provide an update on the pending approvals in states like Florida and Nevada. Can you share some insights on the potential DPP there that might benefit the company if those get approved? Additionally, could you give us a brief update on the exchange contribution? What is the current run rate on exchange volume in revenue year-to-date? Also, what are your updated thoughts on the estimates if those subsidies expire?

Sure, Justin. So as far as any new potential Medicaid supplemental benefits, we've been disclosing for I think several quarters that there is approval of a pending plan or expansion of the pending plan in Florida that we estimate would result in about a $47 million annual benefit to us. That program remains pending CMS approval, and the state of Florida seems confident that it will be forthcoming at some point. Additionally, I think we learned this quarter that there's another approximately $30 million of Nevada DPP increase, again, pending CMS approval. So on a combined basis, these two states would represent somewhere in the $75 million to $80 million range. To the best of our knowledge, there are no other material programs or approvals pending. As far as your second question about exchange contribution, the percentage of our total adjusted admissions, acute care admissions that are exchange patients is in the 6% to 6.5% range. That number has been ticking up. Most of those patients are in two states in Texas and Florida. And so I think all the public companies have been reporting increases, and we have a smaller footprint in those states than some of our peers, but our numbers have been picking up as well. We have previously given an estimate assuming that the exchange subsidies don't get extended about a $50 million to $100 million negative impact on us annually. Given the increase in exchange volumes, we're probably trending towards the higher end of that range. As far as sort of any prediction about how the exchange subsidy issue is to be resolved, I don't think we have any particularly pressing insight into that and what we're watching how this develops in Congress along with everybody else.

Our next question comes from Jason Cassorla with Guggenheim.

Great. Just wanted to check in on '25 guidance. You increased the midpoint by a little over $90 million. Can you just walk through the bridge to the updated guidance, how that's split between the five quarters of D.C. DPP, the malpractice reserve increase, the legal settlement in the quarter and outperformance? And then you have about a $50 million guidance range at the low and high end, not significant range by any means, but just thoughts on what you need to see to trend towards the high end or the low end of guidance at this point.

Yes. So Jason, I think you largely captured the components of the guidance increase. As you said, at the midpoint, it's in that $90 million to $95 million range. That's made up of $140 million of increased DPP. The biggest chunk of that, of course, is the D.C. number. That's $90 million that we recorded in the third quarter and another $25 million that we expect to record in Q4. So that's $115 million of new DPP. There's another $25 million of miscellaneous increases across a variety of spaces, none of which are singularly material to get us to the $140 million increase in DPP. And then we deduct from that the $35 million malpractice increase that we described in our press release and another $18 million in a legal settlement that we described in an 8-K that we filed a few weeks ago, and that gets you to that sort of low to mid-90s number. Effectively meaning that we're assuming from a core business perspective, the trends that we expected when we increased guidance last quarter will continue. When you talk about sort of what it takes to get us to maybe the higher end of that, we're talking about, I think, the two businesses running same-store revenue increases in the 5% to 7% range. And what gets us to the higher end is if we land at the higher end of that range, either through volumes or pricing. So I think all of that is pretty consistent with what we've said previously.

Okay. Maybe just as a follow-up, just checking in on managed care activity and state budgets in relation to your behavioral health business. I mean it looks like behavioral health length of stay continues to hold on. Pricing remains favorable. I guess are you seeing any different behavior as it relates to managed care at this juncture for behavioral? And we're hearing multiple states enacting budgets that are reducing behavioral rates. Just any thoughts on the state budget situation across your markets stepping into 2026 would be helpful.

Yes. I mean I think we have consistently found that managed care players are aggressive in their utilization management and their management of length of stay and their management of where patients are treated, meaning in inpatient or outpatient settings. I don't know that that's changed materially. As you point out, our length of stay has remained fairly constant. A lot of that is I think a function of our aggressive behavior in terms of documenting the medical needs of patients, et cetera, which we are very much focused on. And so we, again, have not seen significant changes in payer behavior to date. We understand that payers are under some pressure, but we also understand that their subscribers do need behavioral treatment. Given our market presence and clinical reputation, we continue to be a preferred provider for many of those managed care companies. As far as state budgets are concerned, the only state budget that I'm aware of where there have been actual Medicaid cuts is in North Carolina for behavioral. It's not a state that's material to us. I think about 2% of our behavioral beds are in the state of North Carolina. Other states have talked about state budget cuts for Medicaid, and we're sort of tracking that. But at the moment, I've not seen anything that affects us in any sort of material way.

Our next question comes from Whit Mayo with Leerink Partners.

I'm just curious how West Henderson is performing now and any cannibalization of that on overall volumes within the quarter? And then my second question is just on Cedar Hills, whether or not you think it can offset the headwinds. So if it was, let's say, a $50 million drag with start-up losses this year, that $50 million will reverse itself. But any thoughts on maybe the growth next year?

Yes, as Marc mentioned, West Henderson has been doing well and has shown positive EBITDA since its opening, which is impressive for a new hospital. This performance likely impacts our same-store numbers and volumes, and we estimate it could contribute about a 50 to 60 basis point reduction in our same-store adjusted admissions. Essentially, without West Henderson included, our same-store adjusted admissions might be higher by that amount due to some of their admissions overlapping with our existing hospitals. We anticipate West Henderson will continue to improve through 2026. Regarding Cedar Hill, as noted last quarter, it incurred a loss of $25 million in the second quarter, which we projected would repeat in the latter half of the year. They did lose that amount in the third quarter, but as Marc stated, we expect them to break even in Q4 and achieve better results next year. The $50 million loss we faced in 2025 should help create a positive environment for 2026, assuming Cedar Hill at least breaks even, although we believe they will perform better and become profitable in 2026. However, any improvement beyond breakeven will likely be offset by opening and start-up losses from the ABM Medical Center in Florida, and we will provide more detailed guidance in February.

Our next question comes from Ben Hendrix with RBC Capital Markets.

I appreciate your commentary on your outpatient surgical initiatives. I was wondering if you could give us a little bit more color on what you're seeing in terms of surgical trends, both inpatient and outpatient and what case mix is looking like in the quarter and just how that's contributing overall to the volume growth for the acute care hospital segment?

Yes. I think in our prepared remarks, we made the comment that outpatient surgical trends increased slightly over the prior year in the quarter, and that actually was an improvement over the first half of the year when I think they were actually down. We're encouraged by that. We've noted that I think some of the surgical softness or softness in surgical volumes has been difficult comparisons with prior years where we were seeing some benefit from the catch-up of deferred and postponed procedures that have been deferred and postponed during COVID. I think we're starting to anniversary that, and it feels to us like surgical volumes are returning to more normal levels. As for case mix, it was up slightly in the quarter, not a big driver of improvement, maybe 30 basis points.

Our next question comes from Raj Kumar with Stephens.

Just on the BH side, maybe just trying to kind of understand overall supply/demand dynamic. You've seen kind of like same-store revenue growth of high single digits on a same-store basis while volumes have kind of been slightly negative to slightly positive throughout the year. So maybe just trying to understand what the dynamics are in terms of your increasing staffing and should we expect kind of better volume growth kind of in subsequent quarters? Or is this kind of more just in order to maintain capacity that you're kind of pushing into these same-store revenue trends?

Yes. Raj, I mean, I think that we've talked at some length in previous quarters. If there are two broad overarching dynamics that I think have muted behavioral volumes. One, as I think we mentioned in our prepared remarks, has been a labor scarcity issue. It's not pervasive; I think it exists in maybe one-quarter to one-third of our hospitals where we struggle to fill all of our vacancies, whether that's nurses, therapists or non-degree professionals, the people that we describe as mental health technicians. However, in those specific facilities, volumes are often muted. We've stated in our prepared remarks that our hiring numbers are increasing incrementally, albeit. You see a little bit of that in the salary and wage data that you're referring to. I think the other piece of this is what we're finding, and I think we read through what a number of the managed care companies say, is that behavioral utilization broadly, and nationally, is up across the board. A lot of that seems to be on the outpatient side. I believe we think we can do a better job of capturing more of that outpatient activity through better focus as well as new and additional dedicated outpatient facilities. Obviously, that focus and those facilities require additional staff, and we've been staffing up for that, and to some degree, I think the increase that you're alluding to in salaries and wages is something that's preparing us to be able to treat and absorb more patient volume.

Great. And then maybe as a quick follow-up. You had a step-up in kind of acquisition spend in the quarter, and I'm assuming that's kind of more on the outpatient behavioral acceleration that you've spoken to. So maybe what could we expect forward from a capital deployment on M&A on that front?

Yes. The acquisition spending that you referred to is actually mostly about $35 million or $40 million in the U.K. in the quarter, and that's mostly on the inpatient side. I think we've talked about the fact on the outpatient side in the U.S. creating a greater presence in the outpatient space really doesn't require a tremendous amount of new capital. It's probably $1 million or $2 million on average to create one of the step-in outpatient clinics. Again, I think the bigger challenge in those places is finding the appropriate number of therapists more than it is a significant capital spend.

Our next question comes from A.J. Rice with UBS.

Maybe a couple of quick things here. I think in your updated guidance, there's about $25 million of sort of miscellaneous DPP payments. And it seemed like in the back half of the year that are incremental, is that more in the third quarter? Or was that something that will be booked in the fourth quarter? And on the litigation settlement in Nevada, was that booked in the third quarter? Or is that going to be booked in the fourth quarter?

Yes. So the litigation settlement was recorded in the third quarter, and it's reflected in our non-same-store acute results. The additional DPP, I think, is spread pretty ratably between the third and fourth quarters.

Okay. I know your pricing on both businesses was quite strong by historic standards, even when excluding the DPP payments. Is there anything notable about that? Is this level of year-to-year pricing gains sustainable? Any thoughts on that?

Taking it segment by segment, on the acute side, our revenue per adjusted admission saw an increase of nearly 10%. Half of this increase is related to DPP, implying that about 5% comes from core results. This figure is on the higher side, and we believe that sustainable pricing for acute care lies more in the range of 3% to 3-plus percent. The excess seen this quarter is attributed to various revenue cycle initiatives aimed at making our billing clean and complete, ensuring denial appeals are appropriately handled, and resolving disputes with several payers. There are a few minor one-time items, including an opioid settlement, and we've reported our profits from the accountable care organization. Overall, we expect that sustainable acute care pricing will be around the 3% mark. On the behavioral side, excluding the DPP impacts, we have maintained a pricing range of 4% to 5%. In the recent quarter, we were likely at the higher end of this range, partly due to some pressures from Medicaid state reductions. We think the sustainable level of behavioral pricing might be slightly lower, perhaps between 3.5% and 4.5%, but it should still provide a positive outlook and a beneficial tailwind for the business.

Our next question comes from Craig Hettenbach with Morgan Stanley.

On the behavioral side, you mentioned kind of a slight improvement in hiring. Can you just talk about more broadly how you think about capacity versus demand in behavioral and kind of what that means for volume growth?

Yes. I mean we've said that I think we think a reasonable level of volume growth in the behavioral business in the intermediate and long term is sort of 2% to 3% adjusted patient day growth. We're still a little shy of that and feel like there's a chance we can get there exiting this year. But if we don't, I think it's a reasonable target for next year, particularly at the lower end of that range. To get there, we need to continue to be able to fill our vacancies and reduce our turnover, things that have been happening, and I think we can improve. We continue to make incremental progress and expect that we'll continue to make incremental progress.

Got it. And then just a follow-up on capital allocation on the back of the increased buyback authorization. Your net leverage is at kind of the low end of history. Just how you're thinking about that? And any targets there and how that might influence capital deployment going forward?

Yes. I mean we've been an active acquirer of our shares for a number of years now. We've said in our prepared remarks that since 2019, we've repurchased more than one-third of our shares. We continue to view share repurchase, particularly at the current stock price levels as a compelling use of our capital. We have seen an elevation in our activity in share repurchases, largely, I think, tied to the increase in our free cash flow. Our expectation is that at a minimum, we'll continue to devote most, if not all, of our free cash flow to share repurchase, absent any other compelling opportunities. Might we choose to increase that and leverage up even more to do that? We might. That's something that we'll decide as we move along.

Our next question comes from Kevin Fischbeck with Bank of America.

Great. Maybe I'll ask a behavioral question again, maybe slightly differently. I guess like when we've historically thought about this long-term supply-demand imbalance within behavioral, you at least had a competitor who is growing very quickly now. It seems like they're slowing, and they're closing down capacity in certain locations. Is there anything else that you're seeing more broadly? Because 2% to 3% isn't a Herculean number, I don't think, but it also is easier to underwrite when someone else is growing much faster. Is there a competitive dynamic that's going on that's maybe skewing things as a part of the market that we don't see every day? Or anything else that you would point to that might say that the broader market is, in fact, growing faster than we can see from the outside?

Yes. I mean the first thing is it's difficult for us, I think, to comment on operating trends in a competitor. We just don't have access to enough detail to really have, I think, useful insight in that regard. In terms of sort of what gives us confidence that there is increasing demand out there, I did reference before that a great many of the managed care entities over the last several quarters in explaining an increase in their medical loss ratios and utilization have cited behavioral care as a significant chunk of that. While we don't have access to their data, we do have access to claims data that we look at fairly carefully. What we see is increased behavioral utilization on the outpatient side, in particular, being delivered in non-traditional settings, including emergency rooms and urgent care centers. Given the clinical product that we can offer in our inpatient and outpatient facilities, I believe we have the opportunity to capture an incremental amount of that. As you point out, it’s not a Herculean effort. We are targeting 2%. That's a huge gap to fill.

Let me just add also, Steve's made the point. I mean some of the limitations have been on staffing. As that stabilizes, we do think that there are significant opportunities that we can take advantage of. We've been very responsible for the last few years in our growth. Other competitors have been a little bit more aggressive, now probably didn't make sense some of the moves that they've made, and they're having to temper that and go backwards. We're on the same path that we've been on. We've been responsible in the way we've looked at it. We've held off some supply increases, adding beds because of a lack of staffing in some of those markets. As that stabilizes, we're going to have even more opportunities to grow going forward. So we feel really good about where we are with that.

Okay. Then maybe just then follow-up on the outpatient side of the equation because to your point, you do have some advantages here as far as your in-network location position, contracts, and things like that. But it sounds like you're not capitalizing, or you haven't capitalized on it historically. Can you talk a little bit about the barriers? Is it just lack of focus? Are there markets where you are doing it well and that are blueprint? I mean, how can we get confidence that you're going to get that if hiring has been the issue because hiring has been an issue for a while now? Why will you be able to capture that volume going forward?

What we've talked about in the last couple of quarters, Kevin, is I think two things. One is just an increased focus. We've conceded that for most of our decades-long history as a behavioral health provider, it has been very inpatient-centric. While we've always had outpatient programs, they just haven't been a focus. We've reorganized such that throughout the organization now, there are dedicated personnel to developing clinical programs, business development, referral sources, et cetera, dedicated to outpatient focus. I believe that's going to make a significant difference. The second component of outpatient behavioral health we've talked about quite a bit in the last few calls. There are two components of behavioral outpatient: one is step-down business and the other, step-in business. Patients who enter the behavioral system in an outpatient setting prefer freestanding outpatient settings. We have the necessary existing referral relationships, managed care contracts, et cetera, that should allow us to establish a footprint in that step-in freestanding business more quickly than a competitor might be able to do.

Our next question comes from Matthew Gillmor with KeyBanc.

I wanted to ask about the acute performance. As you think about volume trends and expense trends that Steve discussed, is there any geographic variation to call out to highlight, particularly in some of your larger markets like Las Vegas?

Yes. Obviously, there's always some variation in performance. We've been asked about the Vegas economy in the last couple of calls. I think it's fair to say that our Vegas results are very similar to our overall results. Our performance in that market is remaining stable and consistent with our overall portfolio in the acute care business. Other than that, no, I don't think there's anything really significant from a geographic perspective.

Okay. Fair enough. And then a quick follow-up on the pending SDP approvals. You mentioned Florida and Nevada. Is there a way for us to think about how that breaks down the net benefit between acute and behavioral?

Well, first of all, I would say that the Las Vegas number is predominantly acute. I don't have a breakout in front of me for the Florida number. We can provide that in the future.

Our next question comes from Benjamin Rossi with JPMorgan.

Just wanted to touch on operating cash flow development. You noted that some of the drag year-to-date has been coming from unfavorable changes in AR. I know you're expecting to get some of that back next quarter as you collect on the D.C. approval, but do you have any theories as to the drivers behind this unfavorable trend? And then is it fair to attribute some of this to a broader payer utilization management trends?

Yes. I think our belief is that the increase in our AR is almost exclusively a function of the $90 million of D.C. DPP that we intend to collect or expect to collect in the fourth quarter. And then the new receivables, both in D.C. where we didn't get our Medicare certification until early September. There were virtually no collections in both Cedar Hill in the third quarter and even West Henderson as its business continues to grow, its AR continues to grow. I think once we sort of factor in those dynamics, we're finding our days in receivables to be quite consistent with historical levels.

Our next question comes from Stephen Baxter with Wells Fargo.

I think you touched on this a little bit, but just hoping you could elaborate more on the change in surgical you saw in the quarter going from down slightly as of last quarter to up slightly this quarter. I guess where are you seeing that improvement come from? And I think this has kind of been bounced around a little bit, but just wondering if you feel like there's been any kind of pull-forward evidence that we've seen for maybe exchanges, other populations where coverage loss is a bit of a concern going forward.

Yes. I think we've seen the improvement in surgical volumes relatively across the board. I would say cardiology and cardiac services have been particularly strong. As for pull-through, are exchange patients accelerating care in anticipation of potentially losing their coverage, I don't think we're seeing that. We've made the comment before that that exchange population seems to behave more closely to the Medicaid population, meaning it tends to be emergency room-centric as opposed to a lot of elective cases. We don't believe there is a significant pull-through impact.

Our next question comes from Michael Ha with Baird.

On behavioral volumes, I just wanted to confirm, you're now expecting 2% to 3% growth in the fourth quarter, but closer to the low end. And then should we expect next year to be consistently in that 2% to 3% range? And then on acute pricing strength, even excluding the D.C. DPP, 5% is pretty strong, especially off a tough prior year comp. I know, Steve, you mentioned case mix, revenue cycle initiatives, other one-timers, but how much did exchange volumes contribute to pricing? And I know you mentioned 2% to 3% is still a pretty good long-term target. Just to confirm, you're still confident on 2% to 3% even in the face of exchange volume declines over the next couple of years.

Yes. So you threw out a lot of numbers, Michael. I'm not sure that I follow all of them. Again, I'll repeat I think that our view of the sustainable acute care model is 5%, 6% revenue, same-store revenue growth, split pretty evenly between price and volume. So 2.5% to 3% price, 2.5% to 3% volume. On the behavioral side, maybe 6% or 7% same-store revenue growth, 2% to 3% volume, 3.5% to 4.5% pricing.

Our next question comes from Ryan Langston with TD Cowen.

I appreciate the commentary on capital deployment, but the leverage ratios just keep coming down despite the share repurchase activity. I know you mentioned the new Florida Medical Center. But have you contemplated any additional areas you could increase capital spending or, absent M&A and again, additional spending, are you just comfortable letting those ratios decline?

Yes. I don't think we anticipate our leverage ratios getting any lower than they currently are. Obviously, we're not looking for ways to spend capital just to increase our leverage ratios, whether that's acquisition-type opportunities or CapEx. We'll continue to invest where we think we can earn a compelling return. We've intentionally kept our leverage ratios low in an environment where there has been some level of uncertainty. I think that's been a prudent approach. As we start to experience more certainty, we may be more comfortable increasing those leverage levels.

Our next question comes from Joshua Raskin with Nephron Research.

Yes. I guess one that just left maybe an updated view on where you think margins can trend in the next few years, sort of think about prepandemic levels versus the progress you guys have made since the pandemic? And maybe specific areas where you think there's opportunity to expand margin in each segment?

Yes. I think just sort of mathematically, Josh, the general sense is if we can achieve the revenue targets that I just outlined in my last response, 5%, 6% on the acute side and 6%, 7% on the behavioral side. Costs at the moment are not rising faster than that. They're rising more at the 4% range. As has been the case with the historical model, there should be an opportunity for EBITDA growth and margin expansion. Given stable operating costs and relatively stable demand and pricing, we're looking at margins in both businesses able to continue to improve.

And maybe the follow-up, and it's probably a silly question, but how do you go back? I know let's exclude some of the government segments that are paid. But when you're negotiating with managed care companies, if you're seeing that revenue number, I think the core acute number of 5% that you guys are throwing out, if you're seeing numbers in that ballpark and costs are not going up as high, what's sort of the conversation with the payers and the justification around above-average rate increases that we've been seeing lately?

The point that I would make on this is not exactly what you're pointed to. When we sit down with these managed care companies, we've got much better information than we had years ago. Even though we feel like we're doing well in a number of our areas, we still see some of our pricing lagging competitors in certain markets, which we really point out in our negotiations. That’s where we're able to have a positive effect for ourselves because we're still behind what they're paying some of our competitors.

Thank you, everyone, for participating in today's call and also for your interest in UHS. Hope you have a great rest of your day. Thanks.

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