Earnings Call Transcript - UHS Q2 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the Second Quarter 2023 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. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Filton, CFO. Please go ahead.

Steve Filton, CFO

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 second quarter ended June 30, 2023. During the conference call, we'll be using words such as believes, expects, anticipates, estimates and similar words that represent forecasts, projections and forward-looking statements. I recommend a careful reading of the section on risk factors and forward-looking statements and Risk Factors in our Form 10-K for the year ended December 31, 2022, and our Form 10-Q for the quarter ended March 31, 2023. We'd like to highlight just a couple of 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 UHS per diluted share of $2.42 for the second quarter of 2023. 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 $2.53 for the quarter ended June 30, 2023. Our acute hospitals experienced strong demand for their services in the second quarter with adjusted admissions increasing 7.7% over the prior year. Even though the volume growth was skewed somewhat to lower acuity procedures, overall revenue growth was still a very robust 9.7%. While overall surgical volumes were solid, increasing about 5% from the prior year quarter, there was a continuing shift from inpatient to outpatient. Meanwhile, the amount of premium pay in the second quarter was $75 million, reflecting approximately 10% to 12% decline from the amount in the previous several quarters. The continued robust increase in acute volumes is the major reason that premium pay has not declined further. It's worth noting that our average hourly rate, which includes premium pay, was 4% lower than the second quarter of 2022. On a same-facility basis, EBITDA at our acute care hospitals increased 16% during the second quarter of 2023 as compared to the comparable prior year quarter. During the second quarter, same-facility revenues at our behavioral health hospitals increased by 7.8%, primarily driven by a 6.2% increase in revenue per adjusted patient day. The patient day growth in the quarter was greater at our acute behavioral hospitals versus our lower acuity residential treatment centers, which tended to drive up the revenue per day beyond the already relatively robust levels we've been posting for several periods. With a similar level of revenue growth in the first quarter, same facility EBITDA for our behavioral hospitals has increased 12% in the first half of the year compared to the comparable prior year period. Our cash generated from operating activities was $654 million during the first six months of 2023 as compared to $478 million during the same period in 2022. In the first half of 2023, we spent $337 million on capital expenditures and acquired $1.4 million of our own shares at a total cost of approximately $192 million. Since 2019, we have repurchased approximately 20% of the company's outstanding shares. As of June 30, 2023, we had $946 million of aggregate available borrowing capacity pursuant to our $1.2 billion revolving credit facility. In our acute care segment, we continue to develop additional inpatient and ambulatory care capacity. We currently have 24 operational freestanding emergency departments as well as three additional, which are expected to be completed and opened over the next six months and nine more which have been approved and are in various stages of development. Also, construction continues on our de novo acute care hospitals consisting of the 150-bed West Henderson Hospital in Las Vegas, Nevada, which is expected to open next fall; the 150-bed Alan B. Miller Medical Center in Palm Beach Gardens, Florida; and the 136 beds Cedar Hill Regional Medical Center in Washington, D.C., both of which are expected to open in 2025. In our behavioral health segment, we recently completed and opened the 120-bed River Vista Behavioral Health Hospital in Madera, California, and we broke ground on the 96-bed Southridge Behavioral Hospital in West Michigan, a joint venture with Trinity Health, Michigan, which is expected to open later next year. I will now turn the call over to Marc Miller, President and CEO, for some closing comments.

Marc Miller, President and CEO

Thanks, Steve. We were generally pleased with our second quarter results, as both of our business segments continued their transition into a post-pandemic world. As we anticipated, acute care volumes have continued their recovery trajectory, and have gradually begun to resemble the patterns we experienced before the pandemic. The comparison to last year's second quarter for our acute hospitals is the first apples-to-apples comparison of two low COVID volume quarters we have had since the pandemic began and the 60-basis-point year-over-year margin improvement in Q2 is a step towards a more extended margin recovery, we hope to sustain for the next several periods. In our acute segment, we highlighted the upward pressure on physician expense which tended to run at a rate of about 6% of revenues pre-pandemic, but is running closer to 7.6% in 2023. Based on the generally favorable operating trends in the first half of the year, we are increasing the lower end of our 2023 EPS guidance from $9.50 a share to $9.85 a share. As we have previously disclosed, our 2023 guidance had originally assumed recognition in the fourth quarter of 2023 of $25 million of supplemental revenues from a Nevada Medicaid program. The state has dramatically reduced the funding for this program, and we now believe our fourth quarter revenue recognition will be only approximately $3 million. This reduction has informed our decision not to change the upper end of our guidance range at this time. It is worth noting that we believe a new Nevada state directed program which we also have previously disclosed appears to still be on track for a 2024 implementation with a potentially materially favorable impact on our Nevada hospitals. We are pleased to answer questions at this time.

Operator, Operator

Thank you. Our first question comes from Jason Cassorla from Citi. Your line is open.

Jason Cassorla, Analyst

Great. Thanks and good morning. I just wanted to ask about acute care volumes. I guess, obviously, a strong result for the first half, but wondering how you're feeling about the trajectory of those volumes in the back half of the year. And I know it's early, but do you think this creates a new base from which you grow off of for next year, or do you think it still create kind of a set of difficult comps that you have to kind of overcome and work through in the first half of 2024? Just any color or commentary around that would be helpful.

Steve Filton, CFO

I believe part of what we are seeing in the first half of this year is something that providers and payers have anticipated for a while. During the pandemic, there was some deferral and postponement of procedures. Recently, both providers and payers have reported an increase in volumes, especially in lower acuity, elective, and surgical procedures, particularly among the Medicare population, which was more likely to defer care during the pandemic. It's challenging for providers like us to precisely determine how much of the current volume reflects an exhaustion of demand that was postponed. We reported a 10% adjusted admission growth in acute care for Q1 and nearly 8% in Q2, which are historically unprecedented numbers. Our expectation is that while volumes may moderate in the future, acuity will likely rise, leading us back to a mid-single-digit level of growth in acute care, which has been our long-standing model. Whether this will happen in the next couple of quarters or if we will see extended and enhanced volumes is hard to project. The past six months have been quite strong, with early indicators in July suggesting this trend continues, but we will have to wait and see. Our caution about guidance for the second half of the year is due to uncertainty regarding how quickly acute care volumes will moderate, but we feel generally optimistic about the overall acute care volumes, particularly those non-COVID volumes that suffered during the pandemic.

Jason Cassorla, Analyst

Got it. Okay. Thanks. And maybe just as a follow-up on the acute care physician subsidy expense. It sounds like that's coming in at an even greater pressure point than originally anticipated in guidance. I guess, one, is that fair? And curious if that level of spending is at a tipping point now where maybe you need to perhaps consider greater levels of in-sourcing or other strategies to help offset and create kind of a good guy sort of set up for '24 and beyond? Any just thoughts on that would be helpful. Thanks.

Steve Filton, CFO

We have acknowledged that 2023 would be a tough year concerning physician subsidy expenses. Back in February, we projected an increase in these expenses of about $55 million to $60 million. However, the actual rate of increase is likely happening at about twice that amount. This situation is somewhat temporary, as many of our contract service providers for specialty emergency room and anesthesiology coverage are experiencing significant financial difficulties, leading to notable bankruptcies in that sector. During this transition period, we need to either subsidize our current providers more or hire new ones. This involves a one-time financial expenditure to manage the shift. Ultimately, we believe that there is a finite number of ER and anesthesiology providers in the country, and once this disruption stabilizes, we expect that these expense increases will at least level off and ideally decrease in 2024, rather than continuing at this elevated rate.

Jason Cassorla, Analyst

Great. Thanks for the color.

Operator, Operator

Thank you, one moment for our next question. The next question comes from Ben Hendrix from RBC Capital Markets.

Ben Hendrix, Analyst

I was wondering if you could answer pretty much the same question on the softness in the behavioral that we saw this quarter versus first quarter. I think you had called out maybe some headwinds at some specific facilities. Just wanted to see kind of how that looks like in the back half? Is that an easy fix and what we can expect going forward?

Steve Filton, CFO

Yeah. Well, I'll go back to the point that Marc made earlier. The first quarter comparison was a bit anomalous because we were comparing kind of a low COVID volume in Q1 of 2023 with a very high volume in COVID quarter in 2022. So particularly on the behavioral side, that comparison was very favorable and volumes, revenue, EBITDA growth all looked very favorable in Q1. Q2 volume growth was a little more normalized, frankly, a little softer than we anticipated. I think that our acute behavioral volumes, and I made this comment in the prepared remarks, we're actually in line with our expectations, but the volumes in our residential treatment centers were somewhat lower than expectations as we kind of delved into those numbers. It really seems like they were focused on a handful of facilities that we're having specific issues with referral sources or regulatory issues that we believe will be corrected and largely resolved in the back half of the year, but didn't seem to be pervasive in any sort of company-wide or industry-wide sort of dynamic. So I think our view as we think about the behavioral business trajectory, the point that we've made for some time during the pandemic is that as COVID volumes eased, we would be able to hire more people. As we would be able to hire more people, we'd be able to generate more patient days, more volume, greater efficiencies, greater EBITDA growth. I think if you look at the first six months of the year, which, again, I made the point in my prepared remarks, EBITDA is up 12%. I think if you look at the last four quarters, EBITDA is up substantially. And I think that's how we're looking at the earning power of our behavioral business. A bit of a slowdown in Q2, but I think we think the long-term trajectory is much more reflective of the experience we've had over the last two to four quarters.

Ben Hendrix, Analyst

Thank you.

Operator, Operator

Thank you, one moment for our next question. We have a question from Andrew Mok from UBS. Your line is open.

Andrew Mok, Analyst

Hi. Good morning. Same-store inpatient admissions were up about 7% in the quarter. But I think in patient surgeries were only up about 1% or so. You mentioned lower acuity procedures, but I think those stats would imply some very strong medical growth or nonsurgical growth. Can you elaborate on the nature of the procedures you're seeing on the inpatient side? Thanks.

Steve Filton, CFO

Overall surgical growth increased by approximately 5% year over year in the second quarter, which we consider a strong result, particularly driven by outpatient procedures that rose by 8%, while inpatient procedures only saw a 1% increase. This disparity affects the acuity of cases. My perspective is that the volume growth in acute care likely reflects a portion of postponed and deferred procedures, which were generally of lower acuity. If individuals had urgent healthcare needs during the pandemic, those were addressed. However, the procedures that were postponed were mostly elective and discretionary, both in surgical and medical contexts. This explains the high volumes we are experiencing alongside a somewhat reduced acuity level.

Andrew Mok, Analyst

Got it. And just a quick follow-up. How is the Reno hospital tracking against expectations, can you help quantify the contribution that, that hospital had on same-store admissions growth in the quarter? Thanks.

Steve Filton, CFO

I don't have the specific admission numbers for the Reno hospital right now, but I can share that our 2023 guidance included a projected turnaround of approximately $25 million to $30 million for the Reno Hospital. We anticipated that this turnaround would occur more towards the end of the year, and I believe that's accurate. We saw an improvement of about $4 million to $5 million in Q2. Overall, we're expecting that level of improvement to continue for the entire year. I think the Reno Hospital is small enough that it hasn't significantly influenced admissions this quarter in either direction.

Andrew Mok, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Joshua Raskin from Nephron Research. Your line is open.

Joshua Raskin, Analyst

Hi, thanks. Good morning. Just the first question, getting back to the behavioral health margins. I think in the past, you've suggested, and I think you just alluded to this, Steve, that there just weren't enough clinicians to hire and that sort of slowed your volumes. Are you now able to find these clinicians? If so, where are they coming from? And are different categories, maybe nurses versus MDs, performing different roles? I'm just curious how you're feeling that capacity.

Steve Filton, CFO

Yes. Throughout the pandemic, we have consistently stated that prior to it, in late 2019 and early 2020, the labor market was quite tight, particularly in clinical fields like nursing, with overall unemployment rates near full employment. The pandemic worsened this situation, especially for sub-acute providers like behavioral health, as many nurses left for higher-paying jobs in acute care settings, such as COVID units and emergency departments. We believed that as COVID cases decreased, these pay opportunities would diminish, prompting nurses to return to their regular jobs. We have been observing this trend for the past 12 to 15 months, at least since early spring 2022. Currently, we see an increase in base wage rates to attract these professionals back. Wage inflation in behavioral health, or the average hourly rate increase in the second quarter compared to the prior year, is around 4.5% to 5%, which is certainly higher than during the pandemic. This is reflected in our overall salary increases. Overall, what we’ve shown, especially over the past three quarters, is our ability to hire more employees, which allows us to generate greater volumes and, consequently, growth in EBITDA and margin improvements. While the growth isn’t uniform each quarter, there is an element of timing involved as new hires need training and orientation, which can create some inefficiencies initially. However, I believe that we will continue to hire more people in behavioral health and admit more patients, leading to long-term growth in this sector.

Joshua Raskin, Analyst

Got you. Got you. And then just one more on United spoke about a large increase in the incidence of mental health utilization, just more people seeking services. Do you think that translates to more inpatient care, or is that a level of acuity that's been more steady on the inpatient side and maybe that's more lower acuity?

Steve Filton, CFO

Yes. My recollection from reading the United transcript was that they specifically talked about that increase being skewed to outpatient procedures. And, obviously, I think outpatient is a more highly competitive market for behavioral, there's a lot more competitors. I think our view is over the long-term, the more people who are getting care and getting appropriate assessments, et cetera, is good for our business, which tends to have a much broader continuum of care that includes more intensive outpatient and partial hospitalization and all sorts of inpatient care across many diagnoses. So I think we have a view that while we didn't necessarily experience that same growth in outpatient that United referred to specifically, I think, in their second quarter call, that ultimately down the road, we're likely to benefit from more and more people getting the appropriate level of behavioral care and assessment.

Joshua Raskin, Analyst

Great. Thanks.

Operator, Operator

Thank you. Our next question comes from Whit Mayo from Leerink Partners. Your line is open.

Whit Mayo, Analyst

Thanks. Steve, I appreciate the comments on Nevada and the supplemental Medicaid program changes. Any way to potentially size how you guys are thinking about the potential contribution of that in 2024? I know there's still some moving pieces and approvals that need to happen.

Steve Filton, CFO

Yeah. So we're waiting, Whit, for the state to resume more specific guidance about how their specific methodology is going to work, et cetera. But based on our broad understanding of how this program is going to work as I think Marc commented in his prepared remarks, our expectation is that this could have a materially favorable benefit on our Nevada hospitals. But we're anxiously waiting for the state to issue more specific or more specifics surrounding the calculations and the methodology and the size of the pool, et cetera, which we think could be forthcoming going to sort of say in the near intermediate term. But certainly, we think there'll be a lot more clarity by the end of the year.

Whit Mayo, Analyst

Yeah. Okay. No, that's helpful. We've gotten some questions around the Cerner Oracle EMR investments you guys are making, none of this is new. But just maybe remind us the income statement, CapEx impact, how many hospitals you're thinking about converting? I can't imagine that's all of your facilities, just timeline and any review of that initiative?

Steve Filton, CFO

Sure. As you mentioned, this information isn't actually new. We initially committed to implementing a behavioral EMR with Cerner a few years back. After Oracle acquired Cerner, they opted to make a press release, which is acceptable. However, to clarify, this isn't novel information. We already implemented EMR in several facilities in 2022 and plan to do more in 2023. The press release doesn’t specify the number of facilities involved. One media outlet inferred from our announcement, combined with the fact that we have 200 behavioral facilities in the US, that we would implement EMRs in all 200, which we have not yet committed to. There are also smaller residential facilities that might not justify such a large investment. Overall, I believe we will spend significantly less on behavioral EMR compared to the approximately $220 million to $230 million we spent on acute care EMR implementation a few years ago. The costs for behavioral EMR will be spread out over a five to six-year period, so I don't expect the investment to have a substantial individual impact. Additionally, we anticipate achieving operating efficiencies from the implementation, which should help offset a significant portion of that investment.

Whit Mayo, Analyst

Okay. Thank you.

Operator, Operator

Thank you. We have a question from A.J. Rice from Credit Suisse. Your line is open.

A.J. Rice, Analyst

Thanks. Hi everybody. I know you've experienced some good rate increases in the behavioral sector over the past year, especially since many states adjusted their rates midyear. I also understand there are ongoing discussions regarding the commercial aspect. While Medicare is easier to track, could you provide any updates on expectations for where rates might settle in the latter half of this year and into next year for commercial and Medicaid in the behavioral sector?

Steve Filton, CFO

Yes, I believe our comments on rate increases and behavioral have been quite consistent. Historically, revenue per day in the behavioral division has typically increased by around 2% to 3% annually, consistently before the pandemic. During the pandemic, that number rose significantly to about 5% to 6%. The main reason for this increase is our ability to take advantage of capacity constraints in the industry, particularly due to labor shortages. We have approached our lowest-paying contracts, either demanding higher rates or terminating those agreements, preferring to admit patients whose insurance compensates us more. In this setting, where we can only treat a limited number of patients, we have more flexibility in deciding who we treat and the fairness of our compensation. We anticipate that as we begin to admit more patients, our ability to leverage these conditions may decrease slightly, and the revenue per day increase might level out to about 4% to 5%. We did exceed 6% in the last quarter, influenced not only by the rate increases but also by the mix of acute and residential patients. Overall, our pricing environment in behavioral remains robust. We are actively pursuing this strategy, having terminated or signaled terminations in numerous markets with many payers. We feel confident there's significant opportunity to continue this approach in the foreseeable future.

A.J. Rice, Analyst

Okay. I know you talked about the new facility in Vegas and the trajectory there. But maybe stepping back, I know you've got concentrated portfolios in the acute side in Vegas and Southern California and D.C. and Southwest, Texas, any dispersion? Obviously, you had good overall volume growth. Was there much of a difference in the performance in those major geographic markets this quarter?

Steve Filton, CFO

Like many of our public peers, HCA and Tenet, have noted over the past year, their facilities in Texas and Florida are recovering at a faster rate compared to other regions. These states have rebounded from the pandemic more quickly, which has presented a challenging comparison for us since we have a smaller presence in Texas and Florida, focusing more on Nevada and California. However, we are beginning to see recovery in those areas as well. Our results in Nevada improved significantly this quarter, which is great news for us. It's important to highlight that our strong acute care performance, particularly the top-line and EBITDA growth of 16%, is broad-based rather than tied to a single market. Nonetheless, the notable improvement in Nevada results stands out for us this quarter.

A.J. Rice, Analyst

Okay. Thanks a lot.

Operator, Operator

Our next question, one moment. We have a question from Jamie Perse from Goldman Sachs. Your line is open.

Jamie Perse, Analyst

Hey. Thanks. Good morning. I just wanted to go back to the other operating expenses within acute for a second. You spoke about some of the bankruptcies for vendors in the space. Are there specific sort of one-time disruption costs in the $590 million you realized this quarter? I'm just trying to understand where we're going from here, if that's the right new baseline, or if you can take cost out at some point? Just any more color on the near term and how to model that line item?

Steve Filton, CFO

I previously mentioned that we expected a significant increase in physician subsidy expenses in our 2023 guidance. However, in the first half of the year, those expenses are tracking at twice what we anticipated. I believe this surge is primarily due to current disruptions. Providers are informing us that they are facing two scenarios: either they can no longer continue due to bankruptcy, which necessitates replacing them at generally higher costs—whether by contracting new services or hiring staff directly. Additionally, there are transition costs involved that I view as mostly one-time expenses. We expect these issues to persist for the next quarter, but we believe that by 2024, many of these emergency room and anesthesiology physicians will either be employed by hospitals or local and regional providers that are in a more stable financial position. As a result, we anticipate a leveling off of these expenses. While we can't predict the exact modeling for the future, the positive takeaway is that our acute care EBITDA was 16% higher in this quarter compared to last year's second quarter, despite the increased burden of physician expenses. Once these expenses stabilize next year, we expect it will enhance our earnings potential.

Jamie Perse, Analyst

Okay. And you and other hospitals have always talked about a strong margin profile on surgery. Just given the tailwinds that seem to be in the surgical space at this point, can you give us any color on how to think about profit margins in your surgical business or profit contribution on average from surgeries?

Steve Filton, CFO

I believe that if we consider our long-term acute care margins to be in the upper teens, let's say around 17%. Surgical margins are likely to be about five to ten basis points higher than that, while medical margins are expected to be five to ten basis points lower. There's significant variability based on the specific procedure, the length of stay, patient demographics, and other factors. Historically, surgical margins have been consistently higher than medical margins.

Jamie Perse, Analyst

Okay. Thanks for the color.

Operator, Operator

Thank you. Our next question will come from Scott Fidel from Stephens.

Scott Fidel, Analyst

Hi, thanks. Good morning. I want to get your initial thoughts on a couple of recent developments or proposals related to policy. The first is the CMS proposal regarding the intensive outpatient benefit for behavioral health in Medicare. Additionally, the Biden administration just released an updated proposal focused on health plans concerning mental health parity and its enforcement for in-network behavioral services. I'm interested in your initial thoughts on both proposals, particularly any potential risks and opportunities they may present.

Steve Filton, CFO

Yeah. So I'll tackle the parity one, which I know is the more recent one, Scott first. As you pointed out, I mean, I think the Biden administration announced yesterday that they were going to issue new rules on mental health parity, which they did this morning, and I appreciate your acknowledgment that we have not had a chance to review those. I think the broad context here is mental health parity legislation originally passed almost 15 years ago. But I think the industry has always been frustrated that the amount of adherence and an enforcement on the part of the government has never at least been as fulsome as the industry would have liked. And without reading the specific regulations or having a chance to read the specific regulations, I think the one positive that we take away is that the current administration seems focused on the fact that there needs to be better enforcement, there need – the mental health parity legislation originally was, I think, viewed very positively for the industry. And I do think it had a positive impact, but I think it should be more positive. And I think we would argue that there have been plans and payers that have sort of tried to dodge the intent of the legislation and we believe that any effort on the part of this administration to more aggressively enforce those parity laws is welcome. The intensive outpatient regulations, I'll sort of make repeat the same comments I was making just about United's commercial comments or commercial utilization comments before I think that any new developments that allow people or encourage people to get more access to in terms of outpatient or behavioral care in general are generally going to be positive for us. We have a lot of intensive outpatient offerings. But I think more than that, I think we had this complete continuum of care from very low acute outpatients or very high acute inpatient that the more people who are given access to care and behavioral diagnosis and assessment, I think that's generally good news for us. So I would say we view both of these developments as a positive. I think we view them consistent with I think general legislative and administrative sort of favorability to the behavioral business at both the federal and state level difficult to quantify the benefit for either of those in any sort of precise way.

Scott Fidel, Analyst

Got it. And then just one quick follow-up. Just on the Medicare volume sort of normalization that we've been seeing. Anyway, can you sort of tease out just in the second quarter, how I guess that's sort of skewed between outpatient and inpatient? Obviously, we know that it's felt seem to be sort of heavily driven by outpatient. But I'm interested whether you saw a pickup in the inpatient side on the Medicare volumes as well. Thanks.

Steve Filton, CFO

Yes, adjusted admissions rose nearly 8% this quarter. While some of this increase can be attributed to outpatient activity, there was also considerable growth in pure admissions. It's worth noting that the growth appears to lean towards lower acuity procedures, though not significantly. Overall revenue per adjusted admission in the acute sector grew by about 2% in this quarter. Typically, we would anticipate this figure to fall between 2% and 4%, so it is on the lower end. This trend seems to be less about the distinction between inpatient and outpatient care and more about a shift towards elective and deferred procedures that were delayed during the pandemic and are now being addressed in larger numbers.

Scott Fidel, Analyst

Okay. Great. Thank you.

Operator, Operator

Thank you. Our next question comes from Justin Lake with Wolfe Research. Your line is open.

Justin Lake, Analyst

Thanks. Good morning. First question, I wanted to ask about what you're seeing from the payers. I know you already got asked about pricing. But given Medicaid payers are heading into redeterminations, Medicare Advantage payers are talking about higher utilization. Steve, are you seeing any early kind of signs of increased medical management claims, denial, et cetera, the typical stuff that managed care will do when their costs are or might be a little bit higher?

Steve Filton, CFO

We are not currently observing a measurable impact from Medicaid redeterminations. Marc discussed the reasoning behind not adjusting the upper end of our guidance, particularly regarding the Nevada supplemental payment, which is significant. However, we anticipate that there could be an effect from Medicaid redeterminations in the latter half of the year that has not yet materialized in our two businesses. We are closely monitoring this situation. Additionally, many payers are reporting an increase in their medical utilization, leading us to expect more assertive actions on their part, such as limiting the length of stay for behavioral health or questioning the classification between inpatient and observation for acute care. While we haven't definitively seen these changes in a measurable way yet, it often requires a quarter or two for these trends to emerge. We are well-prepared and focused on this issue, looking to refine our contracts to clarify these matters upfront and enhance our billing and appeal processes. We are very aware of the potential for managed care payers to become more aggressive in their utilization review procedures.

Justin Lake, Analyst

I appreciate that. Maybe you can expand on your commentary around redeterminations. I know a lot of us are uncertain how this plays out. But one kind of line of thinking is that a bunch of people are going to be kicked off Medicaid, and a lot of them could end up on the exchanges or on private employer health plans, which pay a lot better, right, especially on the acute side, but even on the behavioral side. So how do you think about that vis-à-vis? Do you just think that is your concern that a lot of folks are going to be unfortunately removed from the roles and not pick up other coverage. Is it your market specific to you, given your geographic exposure, or do you think that's just broad-based? And what drives that?

Steve Filton, CFO

Yeah. So I think that, we generally concur, as your question sort of alluded to with the sort of broad way that a number of analysts both, I'm going to say, dispassionate analysts like CMS and the Urban Institute, et cetera, when they looked at the potential impact of redeterminations and then the number of sell-side folks have done exhaustive studies. And I think they all conclude largely the way you framed your question that ultimately, there will be a sufficient number of people who are redetermined off the Medicaid roles but who can requalify on better paying commercial products, commercial exchange products that the net impact to is positive one. I think our sort of skepticism or concern or caution is more short term or timing related in nature and that is as we go through the process and people get redetermined off, how quickly can they requalify for commercial products, et cetera. And again, I just don't think we've had enough time to really measure whether there could be sort of a short-term bump or a drain on this. But I think in the long run, we think we probably come out at least whole, if not somewhat ahead. The good news from my perspective is based on the redetermination data that I've seen, while there have been a lot of people redetermined off, a lot of those redeterminations a good chunk of them are sort of more for administrative reasons. Their paperwork is not up to date. Their address is not up today, whatever it may be. And so it feels like those people will be able to get back on the Medicaid roles quickly. So, it feels like maybe the impact in the long run is not going to be as significant as we might have thought. But again, our point of view is maybe some short-term uncertainty over the long term, I don't think we think this is really going to be a net negative for providers.

Justin Lake, Analyst

Got it. Thanks for all the color.

Steve Filton, CFO

Sure.

Operator, Operator

Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Your line is open.

Kevin Fischbeck, Analyst

Thank you. I want to revisit Marc's comments regarding both segments beginning to transition into a post-pandemic environment. How do you envision the two businesses of the company operating in that context? Should we assume that margins will resemble those of 2018 and 2019, or is there a possibility that margins could be higher or lower in the future? How is your approach to this path and the timing for reaching a state of normalization?

Steve Filton, CFO

Yes, Kevin, the answer varies for each segment. We've discussed this to some extent during this call and in previous ones. Regarding the behavioral segment, we believe that margins were affected during the pandemic due to labor shortages. Our perspective is that as we hire more staff, we can address more of the unmet demand. We expect to eventually return to margins comparable to 2019 and possibly reach peak margins like those in 2014 or 2015. However, this won't happen immediately; it's a gradual process of steady top-line growth alongside stable and semi-stable expenses. For the acute segment, the situation is a bit more complex. The acute care business did benefit during the pandemic from the severity of COVID cases and special reimbursements related to those patients. Therefore, it may be harder for this segment to regain pre-pandemic margins, as it needs to compensate for the COVID-related benefits. They've been working on this over the past few quarters, but the sustainability of the increased volume in acute care remains uncertain. Overall, we believe we are still 400 to 500 basis points below our pre-pandemic margins in that area. Marc noted in his comments that we recovered 60 basis points in Q2, which we see as an initial step toward recovery, and we hope to maintain that progress in the coming quarters.

Kevin Fischbeck, Analyst

Yeah. So it sounds to me like to some degree in both cases, it's the volume number that's going to get you back to where you were. I guess the behavioral one makes sense, labor is a constraint you fix that. The Q1 though, it's still a little bit unclear to me. I understand the concept of pent-up demand, but when you just finally got above 2019 levels when historically, you've been growing volumes a couple of percent per year, kind of well below that long-term trend line. What is it that makes you cautious to say that you wouldn't get back to that long-term trend line? Are the population growth, demographics and fundamental demand drivers in your markets really unchanged? So why do you get concerned at this as a bolus rather than the new normal?

Steve Filton, CFO

Yes. I still believe that we can return to pre-pandemic acute care margins. However, the recovery in acute care is more complex due to the pandemic's impact, which was largely negative for our behavioral business. Consequently, the recovery in behavioral services appears to be faster and stronger than in the acute sector. While there is some rapid recovery in acute care, it seems to be influenced by extraordinary volumes that may not be sustainable. Over time, with mid-single-digit revenue growth in the 5% or 6% range, we have typically achieved EBITDA growth and margin improvement. I see no reason we can't maintain that level of top-line growth going forward, although it may take longer to reach this point in acute care compared to behavioral services.

Kevin Fischbeck, Analyst

Okay. All right. So I think I got it, but just to make sure to it up, you're not saying that this year's volumes become a headwind to next year because there's some sort of unsustainable bolus. This is probably a good base, but we just shouldn't assume 7% volume growth, we should assume from here more normalized volume growth or are you saying that there could be a headwind next year from a comp perspective?

Steve Filton, CFO

Yes, it's difficult to predict, Kevin, but we achieved 10% revenue growth this quarter, which is historically high. While I can't provide guidance for 2024 at this moment, I doubt we can maintain that level of revenue growth. I believe the growth rate will likely moderate slightly, and the composition of that growth will shift to less volume and more pricing acuity. However, even if the growth slows to 6% or 7%, I still anticipate an increase in EBITDA and margin expansion.

Operator, Operator

Thank you. One moment for our next question. We have a question from Stephen Baxter with Wells Fargo. Your line is open.

Stephen Baxter, Analyst

Yes, hi, thanks. A follow-up on an earlier question. I wanted to see if you could expand a little bit more on the behavioral margins in the quarter. Usually pre-COVID margins increased sequentially in the second quarter. Obviously, you had a different experience this quarter with SWB and other OpEx as a percent of revenue up sequentially. Wondering what drove those increases? And how did margins internally compare to your expectations? And do you think we should see something closer to typical seasonality in the balance of the year? Thank you.

Steve Filton, CFO

Yes, this will have to be our last question. We had a few one-time items this quarter, including a loss of about $3 million from disposing of assets and an unfavorable exchange rate in the UK that cost us a couple of million dollars. Additionally, salaries increased slightly more than we anticipated. As I mentioned in a previous question, our ability to hire and fill vacant positions is encouraging, though it may lead to short-term inefficiencies. We have many new employees undergoing orientation and training, many of whom are less experienced, especially in behavioral care, compared to what we have historically dealt with. While this creates some inefficiency in the short term, I believe we should look at the bigger picture, considering the first six months of the year or the last four quarters as we have been recovering from the pandemic without being impacted by COVID and successfully hiring new staff. The overall results indicate that we will continue to grow revenue while also achieving the efficiencies that typically accompany that growth. This is fundamentally how we view the business. Thank you for your question.

Operator, Operator

Okay. I'd like to turn it back to Steve Filton for any closing remarks.

Steve Filton, CFO

Yes, just to thank everybody for their time this morning, and we look forward to speaking with everybody again after our third quarter.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.