Universal Health Services Earning Up 35%, Uncompensated Care Equal to Full 2007 Results

Universal Health Services (NYSE: UHS) said Tuesday that its net income increased 35 percent to $54.2 million, or $1.07 per diluted share, during the second quarter ended June 30, 2008. The hospital operator, based in King of Prussia, Pa., attributed the increase to strong admissions growth and length of patient stays.

UHS said inpatient admissions at hospitals open at least one year grew 8.5 percent during the quarter. Patient days increased 3.1 percent.

During a conference call yesterday to discuss financial results, UHS chief financial officer Steve G. Filton said UHS had $114 million in bad debt expense during the quarter.  That equaled 12 percent of net revenues, which totaled $1.3 billion during the period. UHS also provided $143 million in charity care and uninsured discounts in the second quarter – the same amount as in the year ago period.

“As a percentage of net revenue, bad debts, charity expense and the uninsured discount in the second quarter were consistent with those levels we experienced for full year 2007,” Filton said.

In April, Moody’s Investors Service downgraded Universal Health Services Inc. due to concerns about UHS’s debt ratio (“Universal Health Downgraded by Moody’s,” April 3) and expectations that the company may continue to borrow more to fund acquisitions repurchases, capital investment, acquisition activity.

Moody’s also indicated the growth in UHS’s funded debt has outpaced the level of improvement in other operating indicators. The rating company was worried UHS’ cash flow might be strained to cover debt and interest payments as it continued to face weak volume and rising bad debt trends.

But UHS said yesterday Filton said “volume wise, collection wise, it strikes me that our performance was relatively stable throughout the quarter.”  

During the first six months of the year, UHS’ net revenues increased 8 percent to nearly $2.6 billion. Net income for the first half of the year totaled nearly $116 million or $2.27 per diluted share, up 34 percent over the year ago period. 

As a result, UHS raised its full year 2008 per-share earnings forecast from continuing operations to $3.80 to $3.90 from $3.70 to $3.80. UHS said it’s still in the market to buy good companies, but it is only interested in acquisitions that have a future.

“The rates are higher than they have been, but they are there,” said Alan Miller, UHS’ chief executive. “It is not a great number of availabilities as there have been in the past.”