Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $172.8 million, or $1.71 per diluted share, during the fourth quarter of 2014 as compared to $124.5 million, or $1.24 per diluted share, during the comparable quarter of 2013. Net revenues increased 17.0% to $2.11 billion during the fourth quarter of 2014 as compared to $1.80 billion during the fourth quarter of 2013. As anticipated, included in our net revenues during the fourth quarter of 2014 was approximately $11 million of additional net revenues recorded in connection with the Texas Delivery Service Reform Incentive Payment program which were applicable to the period of April 1, 2014 through September 30, 2014.
Reported net income attributable to UHS was $545.3 million, or $5.42 per diluted share, during the year endedDecember 31, 2014 as compared to $510.7 million, or $5.14 per diluted share, during the 2013 full year. Net revenues increased 10.7% to $8.07 billion during the twelve-month period of 2014 as compared to $7.28 billion during the comparable twelve-month period of 2013.
Consolidated Results of Operations, As Adjusted – Three and twelve-month periods ended December 31, 2014 and 2013:
Three-month periods ended December 31, 2014 and 2013:
For the three-month period ended December 31, 2014, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Consolidated Statements of Income Information (“Supplemental Schedule”), increased approximately 47% to $152.0 million, or $1.51 per diluted share, as compared to $103.6 million, or $1.03 per diluted share, during the fourth quarter of 2013.
As reflected on the Supplemental Schedule, included in our reported results during the fourth quarter of 2014 was an aggregate favorable after-tax impact of approximately $20.8 million, or $.20 per diluted share, consisting of: (i) a favorable after-tax impact of $11.7 million, or $.12 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to years prior to 2014, based upon a reserve analysis; (ii) a net favorable after-tax impact of approximately $8.6 million, or $.08 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of electronic health records (“EHR”) applications at our acute care hospitals, and; (iii) an after-tax impact of $493,000 relating to the charge incurred during 2014 in connection with the settlement of the Garden City matter, as discussed below.
As reflected on the Supplemental Schedule, included in our reported results during the fourth quarter of 2013 was an aggregate net favorable after-tax impact of approximately $20.9 million, or $.21 per diluted share, consisting of: (i) a favorable after-tax impact of $9.2 million, or $.09 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to years prior to 2013, based upon a reserve analysis, and; (ii) a net favorable after-tax impact of approximately $11.8 million, or $.12 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of EHR applications at our acute care hospitals.
Twelve-month periods ended December 31, 2014 and 2013:
For the twelve-month period ended December 31, 2014, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, increased approximately 29% to $581.8 million, or $5.78 per diluted share, as compared to $452.1 million, or $4.55 per diluted share, during the comparable twelve-month period of 2013.
As reflected on the Supplemental Schedule, included in our reported results during the year ended December 31, 2014 was a net aggregate unfavorable after-tax impact of approximately $36.4 million, or $.36 per diluted share, related to:
- an after-tax charge of $27.1 million ($43.2 million pre-tax), or $.27 per diluted share, incurred in connection with the previously disclosed $65 million settlement of the Garden City Employees’ Retirement System v. Psychiatric Solutions, Inc. (“Garden City”). This matter was a shareholder class action lawsuit filed in 2009 against Psychiatric Solutions, Inc. (“PSI”) and certain of its former officers alleging their violations of federal securities laws and we assumed the defense and liability of this matter as a result of our acquisition of PSI in 2010. This charge is net of approximately $17 million of commercial insurance recoveries that we were entitled to and a previously recorded estimated reserve;
- an aggregate after-tax charge incurred during the third quarter of 2014 of $22.7 million ($36.2 million pre-tax), or $.23 per diluted share, recorded in connection with the costs related to extinguishment of debt resulting primarily from the early redemption of our previously outstanding $250 million, 7.00% senior unsecured notes that were scheduled to mature in 2018 and the repayment of $550 million of borrowings pursuant to the terms of our previously outstanding Term Loan B facility which was scheduled to mature in 2016;
- a favorable after-tax impact of $11.7 million, or $.12 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to years prior to 2014, based upon a reserve analysis;
- an aggregate net unfavorable after-tax impact of $4.7 million, or $.04 per diluted share, related to the incentive income and depreciation and amortization expense recorded in connection with the implementation of EHR applications at our acute care hospitals, and;
- a favorable after-tax impact of $6.3 million, or $.06 per diluted share, resulting from a gain realized on the sale of a non-operating investment during the first quarter of 2014.
As reflected on the Supplemental Schedule, included in our reported results during the full year of 2013 was an aggregate net favorable after-tax impact of approximately $58.6 million, or $.59 per diluted share, consisting of: (i) a favorable after-tax impact of $47.0 million, or $.47 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to years prior to 2013, based upon reserve analyses, and; (ii) a net favorable after-tax impact of approximately $11.6 million, or $.12 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of EHR applications at our acute care hospitals.
Acute Care Services – Three and twelve-month periods ended December 31, 2014 and 2013:
During the fourth quarter of 2014, at our acute care hospitals owned during both periods (“same facility basis”), adjusted admissions (adjusted for outpatient activity) increased 5.5% and adjusted patient days increased 6.8%, as compared to the fourth quarter of 2013. Net revenues at these facilities increased 14.9% during the fourth quarter of 2014 as compared to the comparable quarter of the prior year. At these facilities, net revenue per adjusted admission increased 8.8% while net revenue per adjusted patient day increased 7.6% during the fourth quarter of 2014 as compared to the comparable quarter of 2013. On a same facility basis, the operating margin at our acute care hospitals increased to 18.1% during the fourth quarter of 2014 as compared to 14.1% during the fourth quarter of 2013. We define operating margin as net revenues less salaries, wages and benefits, other operating expenses and supplies expense (excluding the impact of EHR and other items as indicated on the Supplemental Schedules).
During the year ended December 31, 2014, at our acute care hospitals on a same facility basis, adjusted admissions increased 3.1% and adjusted patient days increased 6.5%, as compared to the 2013 full year. Net revenues at these facilities increased 10.0% during the 2014 full year as compared to the 2013 full year. At these facilities, net revenue per adjusted admission increased 6.6% while net revenue per adjusted patient day increased 3.3% during 2014 as compared to 2013. On a same facility basis, the operating margin at our acute care hospitals increased to 18.8% during the year ended December 31, 2014 as compared to 14.8% during the 2013 full year.
The increased operating performance experienced at our acute care facilities during 2014, as compared to 2013, was due in part to improving general economic conditions as well as a decrease in the number of uninsured patients treated at our hospitals. The decrease in the number of uninsured patients treated at our acute care hospitals was due primarily to the favorable impact of the Affordable Care Act which includes the expansion of Medicaid in certain states in which we operate and the enrollment of patients in newly created commercial exchanges.
We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. Our acute care hospitals provided charity care and uninsured discounts, based on gross charges, amounting to approximately $284 million and $234 million during the three-month periods ended December 31, 2014 and 2013, respectively, and $1.14 billion and $999 million during the twelve-month periods ended December 31, 2014 and 2013, respectively. The provision for doubtful accounts at our acute care hospitals decreased to approximately $130 million during the three-month period endedDecember 31, 2014 as compared to $291 million during the comparable quarter of 2013, and decreased to $590 million during the twelve-month period ended December 31, 2014 as compared to $1.02 billion during the 2013 full year. During the three and twelve-month periods ended December 31, 2014, as compared to the comparable periods of 2013, our acute care hospitals experienced a decrease in the aggregate of charity care, uninsured discounts and provision for doubtful accounts as a percentage of gross charges.
Behavioral Health Care Services – Three and twelve-month periods ended December 31, 2014 and 2013:
During the fourth quarter of 2014, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 6.8% while adjusted patient days increased 2.8% compared to the fourth quarter of 2013. At these facilities, net revenue per adjusted admission decreased 0.7% while net revenue per adjusted patient day increased 3.2% during the fourth quarter of 2014 as compared to the comparable quarter in 2013. On a same facility basis, our behavioral health services’ net revenues increased 6.3% during the fourth quarter of 2014, as compared to the comparable quarter in 2013, and the operating margins were 28.0% and 27.7% during the three-month periods ended December 31, 2014 and 2013, respectively.
During the twelve-month period ended December 31, 2014, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 4.7% while adjusted patient days increased 1.7% compared to the 2013 full year. At these facilities, net revenue per adjusted admission decreased 0.3% during the year ended December 31, 2014while net revenue per adjusted patient day increased 2.7% during the twelve-month period ended December 31, 2014as compared to the 2013 full year. On a same facility basis, our behavioral health services’ net revenues increased 5.5% during the full year of 2014, as compared to 2013, and the operating margins were 28.0% and 28.1% during the twelve-month periods ended December 31, 2014 and 2013, respectively.
Share Repurchase Program:
During the third quarter of 2014, our Board of Directors authorized a stock repurchase program whereby, from time to time as conditions allow, we may spend up to $400 million to purchase shares of our Class B Common Stock on the open market or in negotiated private transactions. In conjunction with this program, during the fourth quarter of 2014, we repurchased 321,500 shares at an aggregate cost of $32.7 million. Since inception of the program throughDecember 31, 2014, we repurchased 548,192 shares at an aggregate cost of $57.9 million.
2015 Full Year Guidance:
Our estimated range of adjusted net income attributable to UHS for the year ended December 31, 2015, is $6.15 to $6.55 per diluted share. This guidance range represents an increase of approximately 6% to 13% over the adjusted net income attributable to UHS of $5.78 per diluted share for the year ended December 31, 2014, as calculated on the attached Supplemental Schedule. The range excludes the below-mentioned unfavorable EHR impact of $.12 per diluted share expected during 2015.
During 2015, our net revenues are estimated to be approximately $8.7 billion to $8.8 billion representing an increase of approximately 8% to 9% over our 2014 net revenues.
During 2015, we expect to record approximately $15 million of EHR incentive income and approximately $35 millionof EHR-related depreciation and amortization expense resulting in a net unfavorable after-tax (and after income attributable to noncontrolling interest) impact of approximately $13 million, or $.12 per diluted share.
This guidance range excludes the impact of items, if applicable, that are nonrecurring or non-operational in nature including items such as, but not limited to, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits and other material amounts that may be reflected in our financial statements that relate to prior periods. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures.
Behavioral Health Care Acquisition in the United Kingdom (“UK”):
In February, 2015, we completed the acquisition of Orchard Portman House Hospital (renamed Cygnet Hospital-Taunton), a 46-bed behavioral health care facility located near Taunton in the UK. The acquisition of this facility expands our portfolio of hospitals providing behavioral health care services to older adults in the UK. Through our acquisition of Cygnet Health Care Limited in September, 2014, we acquired a total of 17 facilities located throughout the UK including 15 inpatient behavioral health hospitals and 2 nursing homes with a total of 723 beds.
Conference call information:
We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on February 27, 2015. The dial-in number is 1-877-648-7971.
A live broadcast of the conference call will be available on our website at www.uhsinc.com. A replay of the call will be available following the conclusion of the live call and will be available for one full year.
General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:
Universal Health Services, Inc. (“UHS”) is one of the nation’s largest hospital companies operating through its subsidiaries acute care hospitals, behavioral health facilities and ambulatory centers located throughout the United States, the United Kingdom, Puerto Rico and the U.S. Virgin Islands. It acts as the advisor to Universal Health Realty Income Trust, a real estate investment trust (NYSE:UHT). For additional information on the Company, visit our web site: http://www.uhsinc.com.
This press release contains forward-looking statements based on current management expectations. Numerous factors, including those disclosed herein, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A–Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2014), may cause the results to differ materially from those anticipated in the forward-looking statements. Many of the factors that will determine our future results are beyond our capability to control or predict. These statements are subject to risks and uncertainties and therefore actual results may differ materially. Readers should not place undue reliance on such forward-looking statements which reflect management’s view only as of the date hereof. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
Our acute care hospitals are eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, once they have demonstrated meaningful use of certified EHR technology for the applicable stage or have completed attestations to their adoption or implementation of certified EHR technology. However, there may be timing differences in the recognition of the incentive income and expenses recorded in connection with the implementation of the EHR application which may cause material period-to-period changes in our future results of operations. Pursuant to regulations, hospitals that do not qualify as a meaningful user of EHR by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year. We believe that all of our acute care hospitals have met the applicable meaningful use criteria and therefore are not subject to a reduced market basked update to the inpatient prospective payment standardized amount in federal fiscal year 2015. Under the HITECH Act, hospitals must continue to meet the applicable meaningful use criteria in each fiscal year or they will be subject to a market basket update reduction in a subsequent fiscal year.
We believe that operating income, operating margin, adjusted net income attributable to UHS, adjusted net income attributable to UHS per diluted share and earnings before interest, taxes, depreciation and amortization (“EBITDA”), which are non-GAAP financial measures (“GAAP” is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. In addition, we believe that, when applicable, comparing and discussing our financial results based on these measures, as calculated, is helpful to our investors since it neutralizes the effect in each year of material items that are nonrecurring or non-operational in nature including items such as, but not limited to, costs related to extinguishment of debt, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits, impairments of long-lived assets and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods. To obtain a complete understanding of our financial performance these measures should be examined in connection with net income, determined in accordance with GAAP, as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2014. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability. Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.
