Universal Health Services, Inc. Reports 2016 Second Quarter Financial Results

During the first six months of 2016, at our acute care hospitals on a same facility basis, adjusted admissions increased 5.8% and adjusted patient days increased 3.1%, as compared to the first six months of 2015. Net revenues from our acute care services increased 9.7% during the first six months of 2016 as compared to the comparable period of the prior year. At these facilities, net revenue per adjusted admission increased 2.2% while net revenue per adjusted patient day increased 4.8% during the first six months of 2016 as compared to the comparable period of 2015. On a same facility basis, the operating margin generated from our acute care services was 19.4% during the first six months of 2016 as compared to 19.8% during the comparable period of 2015.

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 $339 million and $263 million during the three-month periods ended June 30, 2016 and 2015, respectively, and approximately $684 million and $550 million during the six-month periods ended June 30, 2016 and 2015, respectively. The provision for doubtful accounts at our acute care hospitals amounted to approximately $179 million and $149 million during the three-month periods ended June 30, 2016 and 2015, respectively, and approximately $319 million and $274 million during the six-month periods ended June 30, 2016 and 2015, respectively.  Our acute care hospitals experienced an increase in the aggregate of charity care, uninsured discounts and provision for doubtful accounts, as a percentage of gross charges, during the three and six-month period ended June 30, 2016, as compared to the comparable periods of 2015.        

Behavioral Health Care Services – Three and six-month periods ended June 30, 2016 and 2015:

During the second quarter of 2016, at our behavioral health care facilities on a same facility basis, adjusted admissions decreased 0.3% while adjusted patient days increased 0.2% as compared to the second quarter of 2015. At these facilities, net revenue per adjusted admission increased 2.4% while net revenue per adjusted patient day increased 1.9% during the second quarter of 2016 as compared to the comparable quarter in 2015. On a same facility basis, our behavioral health services' net revenues increased 2.0% during the second quarter of 2016, as compared to the second quarter of 2015, and the operating margins were 28.1% and 28.7% during the second quarters of 2016 and 2015, respectively.   

During the first six months of 2016, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 0.5% while adjusted patient days increased 0.7% as compared to the comparable period of 2015. At these facilities, net revenue per adjusted admission increased 2.1% while net revenue per adjusted patient day increased 1.9% during the first six months of 2016 as compared to the comparable period in 2015. On a same facility basis, our behavioral health services' net revenues increased 2.7% during the first six months of 2016, as compared to the comparable period of 2015, and the operating margins were 28.0% and 28.6% during the first six months of 2016 and 2015, respectively.

Share Repurchase Program:

In February of 2016, our Board of Directors authorized a $400 million increase to our stock repurchase program, which increased the aggregate authorization to $800 million from the previous $400 million authorization approved during the third quarter of 2014.  Pursuant to this program, we may purchase shares of our Class B Common Stock, from time to time as conditions allow, on the open market or in negotiated private transactions. 

In conjunction with this program, during the second quarter of 2016, we repurchased 235,352 shares at an aggregate cost of $29.1 million (approximately $123 per share).  During the first six months of 2016, we repurchased approximately 1.6 million shares at an aggregate cost of $181.5 million (approximately $115 per share). Since inception of the program through June 30, 2016, we repurchased approximately 3.5 million shares at an aggregate cost of approximately $405.7 million (approximately $117 per share). 

Conference call information:

We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on July 27, 2016. 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, 2015 and in Item 2-Forward Looking Statements and Risk Factors in our Form 10-Q for the quarterly period ended March 31, 2016), 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.

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 related to the implementation of EHR applications at our acute care hospitals and other items that are nonrecurring or non-operational in nature including, 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, 2015 and our Report on Form 10-Q for the quarterly period ended March 31, 2016. 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.

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 did 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. 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.  

Universal Health Services, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
	Three months				Six months
	ended June 30,				ended June 30,
	2016		2015		2016		2015
Net revenues before provision for doubtful accounts	$2,638,848		$2,452,680		$5,258,441		$4,832,781
Less: Provision for doubtful accounts	207,993		177,476		377,788		332,224
Net revenues	2,430,855		2,275,204		4,880,653		4,500,557
Operating charges:
Salaries, wages and benefits	1,130,933		1,044,064		2,279,072		2,075,767
Other operating expenses	585,995		535,711		1,147,579		1,041,677
Supplies expense	254,422		240,979		509,672		479,720
Depreciation and amortization	101,411		97,257		205,460		196,255
Lease and rental expense	24,806		23,196		49,258		46,087
Electronic health records incentive income	0		(1,395)		0		(1,395)
	2,097,567		1,939,812		4,191,041		3,838,111
Income from operations	333,288		335,392		689,612		662,446
Interest expense, net	30,442		27,684		60,042		57,721
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