Good day, and thank you for standing by. Welcome to the Q4 2025 Universal Health Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Darren Lerick, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to Universal Health Services' fourth quarter 2025 earnings conference I'm Darren Lerick, Vice President of Investor Relations. With me this morning are our President and CEO, Mark Miller, and our Chief Financial Officer, Steve Filton. Mark 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 this section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31st, 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 Mark Miller for some introductory remarks.

Thank you, Dan. Good morning, everybody joining our call. Thank you for your interest in UHS. We closed out 2025 with strong results. Revenue growth for the fourth quarter was 9%. percent, adjusted EBITDA net of NCI increased 10 percent, and adjusted EPS increased 20 percent as compared to the fourth quarter of 2024. For the full year 2025, revenue growth was 10 percent, adjusted EBITDA net of NCI increased 15 percent, and adjusted EPS increased 31 percent. Our fourth quarter and four-year performance were highlighted in particular by continued strong expense management in acute care, sequential volume improvements in behavioral health, solid pricing across both segments, and significant share repurchase activity. Looking back on 2025, I'm very proud of the progress we've made across the organization in several critical areas. We strengthened our growth agenda with the addition of new inpatient capacity, while also intensifying our focus in the outpatient arena through the addition of new service locations across both segments. We demonstrated financial discipline by managing expenses well in the face of a dynamic operating environment. And we accelerated the pace of technology adoption to improve clinical outcomes and drive greater operating efficiency. Speaking first to our growth agenda, over the past two years, we've opened two new acute care hospitals and laid the groundwork for significant new acute care capacities to come online during 2026, with three inpatient expansions, totaling 178 licensed beds in Florida, California, and Nevada, and a state-of-the-art 156-bed De Novo Hospital in Palm Beach Gardens, Florida that will open in the second quarter. In our behavioral segment, we've taken a disciplined approach to new bed capacity during 2025, as we devoted more resources to accelerate our outpatient behavioral strategy. In 2026, we have two behavioral de novo projects, totaling 264 beds, including a joint venture project with the Jefferson Health System in Pennsylvania. On the outpatient side, we operate 119 outpatient behavioral locations, including 10 new freestanding centers opened under our 1,000-branches wellness brand during 2025. We are on track to open at least 10 more branches of the occasion during 2026, and our team continues to pursue opportunities to accelerate our outpatient behavioral growth rate and diversify our segment, payer mix, and service offerings to sustain our leadership position as a provider of choice. In terms of expense management, our acute care margins improved in 2025 due to reduced contract labor costs and strong supply chain management performance. Labor productivity also improved through a 2% reduction in same facility acute care length of stay, and this remains an area of opportunity for us in 2026. In our behavioral segment, margins were stable in 2025 as compared to 2024, even as we made investments in staffing capacity to relieve some of our labor constraints that have held back our volume growth in certain markets. These investments position us more strongly for volume improvements during 2026. Finally, from a technology perspective, we've deployed AI and advanced technologies in two primary domains within our business, in our operations to impact quality and patient experience, and in our administrative operations to increase efficiency. We have a strong team in place with demonstrated success in evaluating and deploying technology at scale across both acute care and behavioral health divisions. On the operational side, we fully rolled out Agentec AI to improve post-discharge care and reduce readmissions. In 2026, we are focused on rolling out new patient safety technology and behavioral health. And in acute care, we're deploying AI across several departments and functions to improve health and outcomes. On the administrative side, we enhanced our acute care revenue cycle operations by deploying AI-based solutions to improve documentation and streamline our claims appeals process. Over the next several quarters, we will be rolling out process improvements and new technology in our behavioral health revenue cycle operations. In behavioral health, we are also leveraging AI features and an existing digital tool to streamline the referral and intake process to improve response times to new referrals and improve volumes. In closing, we are optimistic about the future because we continue to invest in our people, our facilities, and in technology that will improve quality, patient experience, and operating efficiency. With that, I'll now turn the call over to Steve Stilton for more details on the quarter and our financial outlook for 2026.

Thanks, Mark. I will highlight a few financial and operational trends and outline our 2026 financial guidance before opening the call up to questions. The company reported net income attributable to UHS for diluted share of $7.06 for the fourth 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 $5.88 for the quarter ended December 31, 2025. During the fourth quarter of 2025, on a same facility basis, adjusted admissions at our acute care hospitals were flat as compared to the fourth quarter of the prior year. Acute care volumes were impacted in part by softness in the Las Vegas market due to factors that we consider somewhat transitory in nature, including lower respiratory case levels on a year-over-year basis. Excluding the Las Vegas market, our facility acute care volumes would have increased by 1% during the fourth quarter. Same facility net revenues in our acute care hospital segment increased by 6.9% during the fourth quarter of 2025 on a reported basis as compared to last year's fourth quarter and increased 5.2 percent after excluding the impact of our insurance subsidiary. Acute care same facility revenue per adjusted admission increased by 5.4 percent during the fourth quarter of 2025. Operating expenses continued to be well managed across labor supplies and other expense categories Excluding the impact of our insurance subsidiary, same facility acute care salaries, wages, and benefits increased 4.4 percent, and supply expense increased 1.8 percent over last year's fourth quarter. Same facility contract labor was 2.4 percent of acute care segment revenue, or 20 basis points lower year-over-year. For the fourth quarter of 2025, our solid acute care performance resulted in 10.4 percent growth in same-facility segment EBITDA and a 50 basis point improvement in same-facility segment EBITDA margin to 14.8%. For the full year, same-facility segment EBITDA margin improved 150 basis points to 15.8%. Turning to our behavioral health segment results, during the fourth quarter of 2025, same-facility net revenues increased 7.2%, supported by a 5.6% increase in same facility revenue per adjusted patient day and a 1.5% increase in same facility adjusted patient days as compared to the fourth quarter of 2024. Expenses in our behavioral health segment increased at a slightly higher pace than revenue due to growth in headcount in certain markets where volumes have been impacted by staffing constraints. For the fourth quarter of 2025, behavioral segment headcount growth was 3.1%. Total same facility labor expense growth, including the increase in headcount, was 7.3% per adjusted day in the U.S. Overall, we believe expenses were well managed during 2025, leading to total behavioral health segment EBITDA growth of 6.9% in the fourth quarter and 7.8% for the full year 2025. Cash generated from operating activities was $1.9 billion for the 12 months ended December 31, 2025, as compared to $2.1 billion during 2024. Cash flows during 2025 were impacted by $50 million related to an increase in receivables at our two most recent DeNovo hospitals, and $145 million related to the timing of payments for certain Medicaid supplemental programs. During 2025, we spent $1 billion on capital expenditures, approximately 35% of which related to the DeNovo Hospital in Florida and major expansions in Florida and California. During 2025, we also acquired 4.65 million of our shares at a total cost of 899 million, including 1.46 million shares purchased during the fourth quarter of 2025. At December 31, 2025, we had 1.425 billion of repurchase authorization available pursuant to our stock buyback program, and we had approximately $900 million in aggregate available borrowing capacity, pursuing to our $1.3 billion revolving credit facility. Turning to our outlook for 2026, we expect revenue to range between $18.4 billion and $18.8 billion, representing growth of 6% to 8%. We expect adjusted EBITDA net of NCI to range between $2.64 billion and $2.79 billion, representing growth of 2% to 8%. We expect adjusted net income attributable to UHS per diluted share to range between $22.64 and $24.52, representing growth of 4% to 13%. Our guidance assumes same facility volume growth to be in a range of 2% to 3% for both segments for the full year 2026, although it's likely will be below this range during the first quarter due primarily to the winter storms, which we are currently assessing in our behavioral health segment and the Washington, D.C. operations of our acute care segments. We expect capital expenditures in 2026 to range between $950 million and $1.1 billion, reflecting the culmination of spending for several large inpatient projects that will come online during the first half of 2026. Our guidance includes several assumptions unique to the 2026 operating environment as follows. We assume an adverse pre-tax earnings impact of approximately $75 million related to reductions in the health insurance exchanges. We assume that exchange volumes will decline by 25 to 30 percent, and approximately 10 to 20 percent of this volume will shift to other forms of coverage, with the vast majority shifting to self-pay or uninsured. The exchange headwind is concentrated in our acute care segment based on historical utilization patterns. For the full year 2025, exchanges represented approximately 6% of acute care segment adjusted admissions and slightly less than 5% of the segment's revenue. We expect a negative pre-tax earnings impact of approximately $35 million in our behavioral segment associated with the recently enacted California inpatient psychiatric hospital staffing regulations that will go into effect on June 1, 2026. The regulation is expected to increase labor costs due to the need to adjust the mix of licensed nursing staff at our facility. Our 2026 estimate includes a higher burden of recruiting and training costs and some short-term census disruption as our California operations ramp up to comply with the regulations. Beyond 2026, the ongoing costs are expected to be approximately $30 million after considering a full year of higher labor costs. Our 2026 outlook assumes a total net benefit from Medicaid supplemental payments of $1.36 billion and includes a new Nevada supplemental program that was approved this month but but does not include any other new programs pending approval. As compared to 2025, we expect the net benefit from Medicaid supplemental payments to increase by approximately $23 million. Our 2026 outlook assumes approximately $50 million of favorability related to improvements at Cedar Hill. We assume that incremental improvements we expect to make at Cedar Hill beyond the breakeven level will be offset by startup costs associated with our de novo hospital in Palm Beach Gardens. Finally, we expect a favorable pre-tax earnings impact of approximately $50 million, comprised of three smaller and discrete items, including a one-time legal settlement recognized in 2025 that we do not expect to reoccur, operational improvements in our Nevada health plan with revenue growth at similar levels as in 2025, and modest contributions from behavioral segment M&A completed in 2025, primarily in the UK. In conclusion, we're pleased to share a positive growth outlook for 2026, which assumes core growth from our consolidated operations of approximately 5%, underpinned by the strength of our markets, continued expense management, and ongoing efficiency opportunities. Operator, that concludes our prepared remarks, and we're pleased to answer questions at this

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. You will hear the automated message rising your hand is raised. If you would like to remove yourself from the queue, please press star one one again. We also ask that you limit yourself to one question and one follow-up. As well, wait for your name and company to be announced before proceeding with your question. We'll have a moment while we compile the Q&A roster. The first question for the day will be coming from the line of A.J. Rice of UBS.

Thanks. Yeah, two things. First of all, just to drill down a little bit more on the guidance for 26, I know you mentioned 2% to 3% volume growth across both the segments. Give us any flavor on what's embedded in pricing, or is it more of the same what you saw this year across the two segments, are you assuming any change in managed care rates or whatever?

Sure. So, AJ, I mean, I think on the acute side, our guidance implies a 3% to 4% pricing increase. That's in line. If you look at sort of the 10-year average of pricing increase in acute care, I think it's averaged right around 4%. You know, and I think that's, you know, continues to be, or that pricing is supported by a steady increase in acuity over that period that we expect will continue. On the behavioral side, we're expecting pricing in the sort of 2 to 3 percent range, and we acknowledge that that's, you know, somewhat lower than we've been running for the last several years. As you know, we've been expecting that price, a really strong pricing in the last several year to begin to moderate at some point as these increased, you know, contract prices have begun to anniversary, et cetera. I think we're starting to see that evidence. So slightly lower pricing expected in April compared to the last several years, but I think also again in line with historical rates.

Okay. And I appreciate all the comments that Mark offered on the AI applications, and it does seem like hospitals and health systems are an AI-rich environment for opportunities. The question I get asked, and it's not an easy one, but how do you think about how that translates into operating performance in terms of the financial impact of those applications and over what time frame might we start to see that have an impact on revenues or margins, those type of things that you're calling out? Yeah.

So I think, you know, as Mark described in his comments, A.J., you know, we have focused and I certainly believe we, like most, are in the early innings of this, you know, AI game. I think, you know, our initial efforts have really focused on administrative efforts like within our revenue cycle management. I think Mark, you know, alluded to, you know, claims appeals and coding and, you know, we've used that, I think, to, you know, great effectiveness. I think, you know, really what we're doing, you know, and, you know, otherwise, you know, I think you also referred to, you know, post-discharge activities. So historically, a nurse would make a post-discharge follow-up phone call with a patient to ensure where they're being compliant with their medications and, you know, their diet and follow-up appointments for physicians. And, you know, now we're using an AI agent to make those calls in many cases. And so, you know, in both cases, I think we're driving efficiencies. It allows us to reduce headcount. You know, it improves the outcomes as, you know, measured by, you know, revenue cycle metrics or, you know, reduction in re-admissions, which I think Mark alluded to. So, again, I think it's impossible to precisely quantify, even precisely quantify what we've been able to achieve, but certainly precisely, it's difficult to precisely quantify what the opportunities may be, but we think they're significant.

Okay. Thanks a lot.

Thank you. One moment for the next question. And our next question is coming from the line of Anne Hines of Mr. Who. Securities, your line is open.

Great. Thank you. With any of your acute care volumes of 2% to 3%, can you let us know what you're assuming, surgical volume versus medical volume? And then with the Nevada market, how did that market do in 2025, and how do you expect it to grow in 2026? Thank you.

And so I think surgical volume in 2025, you know, lagged our overall by a slight amount. It was positive, our surgical volume growth in Q4 was positive over last year's fourth quarter, so, you know, we're encouraged by that. I think that, you know, our expectations for next year are somewhat similar, that surgical volumes probably don't grow quite as fast as our overall volumes, but I think I'd sync up pretty closely. As far as Nevada goes, I think Nevada in 2025 has grown in line with the rest of the acute division. I think, you know, historically that market has tended to grow faster. It was a little bit challenged in 2025. There's been, you know, much reporting of, you know, tourist volumes and, you know, tourist activity in Las Vegas being down in 2025. And that's impacted us, I think, you know, to a small degree. We don't get a lot of patient activity directly from the tourist population, but obviously it has a cascading effect. We're encouraged by the fact, however, that employment, you know, trends have remained, you know, quite stable in Las Vegas, and that historically has been the leading indicator of sort of how we're going to do and how the economy is going to do there. And, you know, the casino or gaming industry reports, I think, you know, pretty bullish prospects for their, you know, 2026 convention and conference bookings. So, you know, we're assuming that the Vegas market, you know, experiences a bit of an uptick in 2026.

Thank you. One moment for the next question, please. And our next question is coming from the line of Justin Lake of Wolf Research. Your line is open.

This is Anna on for Justin. Can you share what you're seeing on exchange volumes so far, given there are a significant number of members that haven't paid their premiums yet? And I know that in Feb and March the plans don't have to pay the provider on members that don't pay premiums. Are you able to see this information from plans, and what's your level of visibility on the potential bad debt here?

Yeah, Anna, so as I said in our prepared remarks, we're assuming a 25 to 30 percent decline in exchange volumes. That's largely based on CBO and other sort of public projections. We've seen, we've already seen a decline in exchange volumes in the first couple of months of the year. I don't think quite to that extent, but I think as your question alludes to, we believe that, you know, some of the early reporting on how much exchange volume has been lost is understated because, you know, the insurance companies won't report exchange volumes down until people start to miss premiums, et cetera. So, yeah, I mean, and that's a challenge for us because we are in the position sometimes times of verifying a patient's insurance with a payer and the payer, you know, verifying their insurance. And then when we bill the payer, the payer comes back to us and says the premiums haven't been paid and they don't pay, they won't reimburse the charges at that point. That has always been a risk for us. Obviously, it'll be an increased risk, you know, in this period where there's a dramatic decline in exchange volumes. but we believe that we've accounted for that in our assumptions. But I think, you know, one of the things, you know, all of us, meaning all the hospital companies, have made estimates about what's going to happen with the exchanges, et cetera. But the truth is we're going to need a few more months to really see how this sorts out, you know, what the real loss in volume is, how many of these people who lose their exchange coverage can get other coverage, et cetera. So we've made our best estimates. We feel comfortable with the estimates we've made. But I think, you know, we're all going to become – be able to be more precise over the next few months as we get more and more accurate data.

Thank you. One moment for the next question. And the next question will be coming from the line of Andrew Mock of Barclays. Your line is open.

Hi. Steve, you mentioned a $35 million headwind from the new California behavioral staffing requirement for 2026, but also noted a $30 million annual ongoing impact. Can you give us a bit more detail the nature of the headwind and help us understand why, you know, the headwind from the mid-year implementation wouldn't annualize into a larger run rate headwind?

Andrew, you know, the task before us is that the new California staffing requirements don't necessarily require us to increase our headcount overall. I think actually we have in excess of the headcount that they're requiring, but it is a different mix of staff and is more heavily skewed to licensed professionals, particularly RNs. So we're going to have to change our staffing models in, you know, a number of our facilities. We will hire more RNs. We think that there is some sort of upfront investment in doing that, you know, potentially startup costs, you know, increased recruiting costs, et cetera. There might be, I think, as I indicated in my prepared remarks, in the first couple of months, we may not have all the slots filled, and therefore we're anticipating, you know, potential short-term volume disruption. But once we are fully staffed, which we think we will be at some point in 2026, then I think the ongoing costs are reduced, and we won't have those start up and sort of, I'll call investment infrastructure investment costs duplicated in 2027 and beyond, which is why the annual impact in 2027 and beyond, or the expected annual impact, is actually a little bit less than what we're expecting for a partial year of the regulations in 2026.

Thank you. One moment for the next question. The next question will be coming from the line of Ben Hendricks of RBC Capital Markets. Please go ahead.

Thank you very much and good morning. We've heard carriers talk a lot about accelerated behavioral trend for a while now and it sounds like your outpatient development is addressing that. Can you talk a little bit more about where the demand is on the outpatient behavioral side in terms of the types of services and the types of services that are being offered in the development you completed in 2025 and what do you expect for 2026 and then how should we think about the optimal behavioral business mix over the long term between the inpatient and outpatient? Thanks.

Yeah. Ben, let me answer. This is Mark. So, you know, our outpatient strategy continues to progress. Right now, outpatient services represent about 10% of our behavioral segment revenue. You know, we expect that to continue to grow. As I said on the prepared remarks, we already operate close to 120 outpatient locations where we offer either step-down services or step-in services. So to the step-down location, we have transitional services such as partial hospitalization, intensive outpatient, following an acute care, an acute psychiatric step. And we typically operate these locations and their satellite clinics under our local brand of our inpatient facilities, and they're often close to those facility campuses. The step-in services are for patients entering behavioral system on an outpatient basis, so people that we've not even had yet as inpatient. The payers continue to look for in-network providers with scale to offer these types of step-in services as an alternative to inpatient care. So we think our step-in model offers comprehensive outpatient services, which would include things like IOP, counseling, virtual care. And, you know, we think the demand for that's going to only continue to grow in 2026. In a number of markets, we've now branded this under what we're calling thousand branches, wellness. Thus far, you know, we were in development and we expect to open at least 10 of these branches locations in 26. So I think that we have a good ramp up already planned. And we expect there's going to be many more opportunities to expand in all of these areas going forward.

Thank you. Thank you. One moment for the next question. And our next question is coming from the line of Stephen Baxter of Wells Fargo. Please go ahead.

Yeah, hi, thank you. Just wanted to follow up on California for a couple of points there. I guess as you're kind of building up to that long-term $30 million run rate impact, does that really just reflect kind of the changes directly on the incremental staffing side, or are you thinking that there could be any spillover impact to your base wage structure, potentially related to maybe your consumer or your competitors trying to, you know, maybe hire in the same way that you are? And then as you think about, you know, potential reimbursement in California, I know California budgets are not exactly flush at the moment, but is there any prospect for potentially seeing any offset on the reimbursement side anywhere in the near future?

Yeah. So, Stephen, I think, you know, our, again, assumptions were, you know, you know, the cost of replacing current staff with, you know, staff with a higher license. And we acknowledge certainly as we went through this exercise that all acute behavioral facilities in California would have to be going through the same exercise. So we did our best to project what wage inflation might be and what, you know, might be required in terms of recruitment incentives and that sort of thing. You know, obviously, this is new to all of us, and so, you know, we're making certain guesses and estimates, but we think we've been reasonably conservative in our approach. You know, again, acknowledging that others will be going through the same process as As far as reimbursement goes, you know, your point is well taken. We will certainly make every effort to work with all of our payers, whether they be government payers, you know, the Medi-Cal program in California, or, you know, our private commercial payers to get them to acknowledge this increased cost on our part, you know, how that will sort out ultimately, I don't know. We certainly have not forecast or budgeted anything for that, but we will certainly, you know, focus our efforts on that.

Thank you. For the next question. The next question is coming from the line of Jason Kersoria of Luggenheim Partners. Please go ahead.

Good morning. Maybe just stepping back for behavioral, you're expecting accelerating volumes, but a bit of deceleration in pricing growth. I guess if you look at that 2% to 3% volume and 2% to 3% rate growth as the go-forward status quo, would you still expect that to translate into organic margin expansion, or has that equation changed in terms of how you think about margin expansion for that business?

Yeah, so obviously those assumptions, you know, 2% to 3% patient day or adjusted patient day growth, 2% to 3% pricing growth, result in 4% to 6%, you know, a 4% to 6% revenue growth projection. You know, we think generally that that revenue growth level will exceed the level of the increase in operating costs. I mean, we made the point in our operating – excuse me, in our prepared remarks that in 2025 our operating costs were a little bit elevated by, you know, know, kind of an investment in headcount and hiring and filling vacant positions in markets where that has been a headwind or an obstacle to, you know, reaching our targeted volume I think that, you know, headcount increase will clearly moderate in 2026 and, you know, leave us at a point where I think, you know, wage inflation and other operating cost inflation, you know, should not necessarily exceed, you know, the growth in revenue, which, you know, will allow for a margin expansion. And then I would just also add, you know, following on to, you know, Mark's comments about the growth in outpatient, you know, generally outpatient margins are better than inpatient margins. So to the degree that we're successful in growing the outpatient business faster than an inpatient, that should also help margin expansion in behavioral.

And if I could follow up just quickly, I wanted to ask about the acute length of stay opportunity. You flagged it a little bit in the prepared remarks. You know, it looks like length of stay has been coming down a little bit, still slightly above pre-pandemic levels. Case mix has been rising. That probably offsets a little bit. But maybe can you just help a little bit more unpack in terms of AI technology or other efficiencies that could bring that stat lower and drive better throughput, just anything more on the length of stay would be helpful.

Yeah, so a couple of observations, Jason. I mean, one is I think on an acuity-adjusted basis, and I think that's the appropriate way to look at length of stay because the sicker a patient is, the longer they're going to have to be in the hospital. But on an acuity-adjusted basis, LLS is actually below pre-pandemic levels, and I think we're reflects, you know, improvements that we've made. And you know, you make the point, I mean, there's all kinds of, I think, you know, reporting opportunities, there are, you know, technology opportunities, better communication with our physicians. But honestly, I think probably the single biggest obstacle we faced in not reducing late to stay further is the supply of sub-acute capacity, whether that's in skilled nursing facilities, nursing homes, long-term rehab facilities, et cetera. There's been, I think, a lack or a dearth of capacity in many markets in those areas, and sometimes we're just holding patients, waiting for an available bed or an available spot. We think that will improve over time and will continue to improve. So along with our own internal initiatives, you know, we think the marketplace for sub-acute capacity will also expand.

Thank you. One moment for the next question. The next question is coming from the line, Matthew Gilmore of KeyBank. Please go ahead.

Hey, thanks for the question. I want to ask about the Medicaid supplementals. We appreciate the transparency you all provide. For the programs that are not yet approved, like Florida and I think maybe California, do you have any sense for where those approval processes stand with CMS? And we were also curious if you had any visibility on the rural health transformation funding and what that opportunity could be.

Sure, Matthew. So our commentary on the Florida program has been pretty consistent, and I think it's been pretty consistent because the commentary from the state of Florida has been pretty consistent. They submitted a program or, you know, kind of a program refinement, they're expecting it to be approved. I think, you know, it would be fair to say that it's taken longer to get approved than they expected or maybe than we expected. But they've not changed their view that ultimately the approval will be forthcoming. We've quantified the benefit to us as best as we could to be in that sort of $45 to $50 $50 million range once approval is obtained and, you know, we haven't recognized it, we haven't included it in our guidance, but, you know, would do so, you know, once that approval is forthcoming. As far as California is concerned, we've been also reasonably consistent in our comments We think that the California program faces more hurdles, is not nearly as certain, you know, in its likelihood to be approved. It may need to be modified in significant ways. And as a consequence, while we think if it is ultimately approved, it could be measurably beneficial to us. We've in no way tried to quantify that or predict, you know, how successful California will be in working with CMS to get their program modified in a way that ultimately, you know, would lend itself to CMS approval. As far as the rule program goes, you know, we, you know, lobbied hard and worked hard in the, you know, the structure of this program is largely up to the states and we have worked with the states in which we operate. We think that there could be a potential benefit to us. We acknowledge that it's a relatively small percentage of our facilities, you know, carry either the rural or rural referral center designation. So we don't think that the benefit ultimately would be material. But obviously, you know, to the degree that, you know, we could obtain any additional reimbursement, it would be positive, but not expecting it to be materially positive.

Great.

Thank you. One moment, please, for the next question. And our next question is coming from the line of Petro Chikori of Deutsche Bank. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. Excluding the cash received during COVID, your leverage ratio is the lowest that I've seen for well over a decade. Is there any leverage ratio where you say enough is enough and you maintain a leverage and put the rest in the repo? Or do we end the year leverage down another, you know, tenth of a turn or more?

So, Peter, I mean, I think our, you know, ideal, you know, leverage is in the, you know, two to three range. And to your point, you know, we've been at the low end of that for a while. We've done so with the idea that, you know, we wanted to keep ourselves sort of maximum flexibility to respond to any opportunities that might arise. We still think that's, you know, kind of a prudent position. We've been, as you know, a pretty active acquirer of our own shares and will continue, I think, to be so. You know, we think that investing in the repurchase of our own shares is a pretty compelling investment in the current environment, but, you know, don't necessarily expect to lever up dramatically in the absence of, you know, real compelling, you know, M&A opportunities. Don't expect our leverage to go any lower either. I would certainly make that point.

Okay. Fair enough. If I sort of stay on that point, you know, leverage keeps sort of coming down, you know, except for sort of one large, you know, behavioral asset out there, you guys can buy almost anything out there in the marketplace without needing to keep leverage this low, I guess, sort of follow up to the question, you know, I guess, why keep it this low, you know, unless there's sort of some large deals that you're looking at?

Yeah, I mean, part of the issue in terms of, you know, being prepared or having the capacity to do M&A is you don't know when those opportunities are going to arise, you know, you don't know how big they're going to be, et cetera. So, you know, I'm not suggesting to you that we're keeping our leverage at a current level because of a, you know, one specific anticipated, you know, potential deal. But, you know, I think there are a lot of interesting assets in the marketplace. And as we think about how those assets could fit into our strategy, again, we'd like to keep that flexibility available to us.

Thanks so much. And then sort of follow up here on just AI. Look, this has been a huge focus for investors, obviously, in the last 90 days. You know, a lot of people talk about rep cycle management, and you talked about streamlining your referral process. Can you give us, like, real examples about actual efficiencies in terms of timing, cash collections and efficiencies from cost savings that this stuff can actually achieve for you guys?

Let me jump in here. I mean, I think it's hard to pinpoint exact numbers for you on this. I would tell you that, you know, over the past several years, you know, we've done a lot to accelerate, you know, our pace of technology adoption. You know, we were an early investor with Hippocratic AI, and we think that they are doing some terrific things in this space. We're one of the primary health systems that they're working with. And so what we get is we get a look at everything they're rolling out. We get an opportunity to pilot different things and give feedback for those different things. We'll start to pay off, you know, in the coming quarters and years. Some examples, you know, Steve already talked about post-discharge calls and the need ultimately for less staff to do some of these things. And that's certainly already paying off in decreased expenses for us. But I think that as they roll out, you know, their various AI solutions, you know, we're going to have a front seat to a lot of those things. And we've just been very impressed with where they're going and what they're doing. But other things that we're looking at right now, I mean, our entire rounding process that we – it is so important to improving quality, maintaining quality, maintaining safety. We're looking to revamp that with different types of technology that we're testing right now. That could have a significant impact in us going into the future. not just on course savings, but on our increases in quality, you know, hopefully, honestly, you know, we would be able to impact positively, you know, our issues with malpractice and some things like that. So patient safety technology is a big part of what we're looking at. And then just other things like post-discharge, you know, bringing people into the facilities versus, you know, with our intake process, especially in the behavioral division. So, you know, we think a lot of these things have great promise. It's just hard to pin for the exact dollars at this point. Great.

Thank you. One moment for the next question. And our next question is coming up from the line of Craig Henenbach of Morgan Stanley. Please go ahead.

Yes, thank you. Going back to the behavioral business, as pricing starts to normalize, I know you've done a lot of work in the hiring front, as you've outlined, can you just talk about the confidence in terms of getting back into more of a steady cadence on the volume side of things?

Sure, Craig. So, I mean, I think if you look at the cadence in 2025, we find it encouraging. You know, we've seen sequential incremental improvement in behavioral patient or adjusted patient-day volume growth in each quarter of 2025. We exit 2025 within what we consider to be shouting distance of this 2% to 3% target growth range that we've set for ourselves for quite some time and have, you know, struggled to get there, but feeling, you know, confident, particularly when combined with the investments in staff and headcount that we've made in 2025, and I alluded to earlier, I think that, you know, that's what gives us the confidence that that 2% to 3% target in 2026 is definitely achievable.

Got it. And then just as a follow-up, from a capital investment perspective, any key highlights or areas for this year?

I don't look at anything extraordinary, and we're extraordinarily different, I guess I I should say, in the sense that, as we said in our prepared remarks, we've got several big new projects opening this year, a brand new de novo hospital on the east coast of Florida, a big tower on one of our Florida west coast hospitals, a replacement facility in Southern California that will open in the next couple of months, a couple of new behavioral joint venture hospitals opening during the year, you know, and then I think otherwise, you know, we're invested, I think as Mark indicated in his remarks, in, you know, building our outpatient footprint in both businesses, but also, you know, expanding the things that are, you know, very core and central to our acute inpatient business, which is, you know, emergency room capacity, surgical capacity, surgical equipment. None of that, I think, is terribly new or different, but, you know, it just continues to be a focus of ours.

Got it. Thank you.

Thank you. One moment for the next question. Our next question is coming from the line of Scott Fidel of Goldman Sachs. Your line is open.

Hi, this is Sam on for Scott. Scott, just curious, could you give us an update on your overall assessment of the healthcare policy risk, including the Medicaid work requirements and funding cuts, just your latest overall

Yeah, Sam, you know, I don't think any of the hospital companies have made an effort to – I shouldn't say they haven't made an effort, but they haven't produced any estimates on what the impact of the Medicaid work requirements will be beginning in 2027 because I think it's difficult to do. We don't exactly know, you know, what the specific work requirements are going to wind up in every state. We have a sense that it's likely that the people who are eliminated from the Medicaid as a consequence of those requirements are likely to be less heavy utilizers of the system. But all those variables, I think, kind of remain unsolved at this point. My guess is as the year goes on, the picture will get clarified and we'll all be able to make a better estimate. But at this point, I think it's not an accident that none of the hospital companies have really attempted to quantify with any precision what the impact of the Medicaid work requirements will be.

Thank you. One moment for the next question. Our next question is coming from the line of Benjamin Rossi of J.P. Morgan. Your line is open.

Good morning. Thanks for taking my question. Just following up on your 2026 outlook, how are you thinking about cash flow from operations this year? I know you mentioned some of the drag last year from the increase in AR related to the Medicaid supplemental payment programs, is that just largely timing related with new programs or is this baseline simply becoming larger as you're receiving more from these programs? I guess just curious if there's anything more discreet we should be considering regarding cash flow generation this year.

Yeah, Ben, I mean, I think that if you go back and take a historic approach to this, historically our cash flow from operations is equal to about 75 to 80% of our operating income, you know, less NCI. You know, that I think, you know, would be our view for 2026. I don't think, you know, again, there are always sort of timing issues with receivable collection, et cetera. But I think, you know, in, you know, using that measure consistent with the historical outcomes, you know, I think is a safe way to look at it.

Great. And just as a follow-up on supply trends, you know, you have a nice percentage across cost supply spend as a percentage of revenue during 4Q, how would you characterize your current supply dynamics during the quarter and then for 2026, I know you have a sizable degree of that supply spend in a multi-year fixed contract, but do you see any additional room this year for any cost offsets across supply spend?

Yeah, I mean, you know, I think as we indicated in our prepared remarks, supply costs were probably the most effectively controlled of all the expense categories in 2025. We're not necessarily anticipating, you know, significant pressure points. I think, you know, it turned out that, you know, tariffs, which were a concern potentially, you know, maybe a year ago, have not really impacted our industry in a measurable way, and I don't think we anticipate that they will. There's always, you know, opportunities for us to continue to be more efficient there. Most of those opportunities I would describe as opportunities to work with our clinicians in their supply preference, particularly for, you know, the high cost items. And so we remain focused in the area, but, you know, certainly as we think about any potential areas of cost exposure in 2026, you know, supplies are not high on that list. Thanks for the comments.

Thank you. One moment. And the next question will be coming from the line of Michael Haas. Your line is open.

Thank you. On behavioral health, over the past couple of years, you've been very vocal about the benefit of DPPs, how they've made Medicaid volumes in behavioral health much more profitable. And because of that, there's been a strong emphasis on driving more of these volumes. We've seen it materialized through your stellar behavioral health pricing performance. I know today you mentioned expectations of that to slightly normalize in 26, but that said, these DPP challenges are still here. They don't come down until starting 28, so no immediate shift. So looking forward as we enter 28, can you talk about your thoughts on the durability of long-term pricing? Should we think about 28 as sort of that starting year of more incremental changes lower? Also, how might you plan to potentially shift your Medicaid volume strategy over that time? Could that impact your long-term two to three volume target? And would any of those declines maybe be met with and offset by your outpatient business, maybe more commercial mix to that end? Sorry, a lot of questions. Overall, how are you thinking about all these different pieces?

Yeah, so it's a very comprehensive question, Michael. And I think in some respects, you know, you answered some of the questions you asked. But I will say, as you noted, that while DPP reimbursement is scheduled to begin to be reduced in 2028, we still have several – a couple of years ahead of us where the reimbursement remains intact. And as you know, those who follow our disclosures know, it's actually been increasing over the last couple of years as either new programs are being approved or existing programs are expanding or Medicaid utilization is expanding. And so, you know, we intend to largely try and take advantage of that benefit while it's out there, while at the same time, you know, thinking about and planning for, you know, a scenario in which that Medicaid business is not as profitable as it might be today. And as you suggested, you know, one of the major ways we'll do that is on the outpatient You know, I mentioned earlier in response to a different question that outpatient margins tend to be better than inpatient margins, and one of the reasons for that is the outpatient payer mix tends to be much more weighted to commercial than it is to Medicaid. So yeah, as we continue to grow and focus on our outpatient initiatives, which both Mark and I have spent some time on describing, you know, I think that will be a natural hedge to some degree against, you know, the DPP reduction risk that faces us in a few years.

Thank you. And one moment for the last question. Last question will be coming from the line of Ryan Langston of TD Cowan. Please go ahead. Great. Thanks for squeezing me in. Behavioral

FTEs grew, I believe, three and a half to four percent in 2025. You've talked in the past about

particular job classes being more difficult to fill. I guess, how should we think about that 3.5% to 4% growth in some of those more difficult categories of the growth rate, and how that translates into the 2% to 3% outlook for behavioral health growth.

Yeah, and we've made the point in the past, Ryan, that the behavioral staffing challenges are really different in every market. And in some markets, we're challenged with hiring sufficient nurses. In other markets, it could be therapists. And in other markets, it could be, you know, the non-licensed professionals, the people that we call mental health technicians. It really varies. And frankly, in many markets, you know, we're fully staffed and don't face those challenges. So I don't necessarily have a breakdown in front of me at the moment in terms of the headcount increase in 2025, you know, exactly, you know, which, you know, staffing categories it involved. My guess is it's sort of across the board because, you know, we hired where we needed to in each individual market. But I think the important thing from our perspective is we made a conscious decision in 2025 to really ramp up the hiring in those markets where staffing vacancies were an obstacle to further volume growth. And, you know, now having hired and filled not all, but many of those positions, I think it gives us, you know, greater confidence in meeting that 2% to 3% patient-day volume growth target in 2026.

Thank you. And I would like to turn the call back over to Darren for closing remarks. Please go ahead.

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

This does conclude today's conference call. Thank you so much for joining. You may now disconnect.