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Universal Health Services (UHS) |
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WIKI ANALYSIS
Universal Health Services, Inc. (UHS) is the fifth largest for-profit hospital operator in America and the country's largest publicly-traded psychiatric and substance abuse facility operator.[1] Increased competition in the hospital industry have pressured margins in the company's hospital business from,[2] but UHS has compensated for this with strong earnings in its behavioral health segment.[3]
Because UHS receives the majority of its revenues from its hospitals, the company has been significantly impacted by a shift in the hospital industry towards physician-owned healthcare facilities, which has increased competition for the company's hospitals in urban markets.[4] Another drag on UHS's financial performance is bad debt expense resulting from rising numbers of uninsured patients nationwide.[5] UHS's behavioral health services segment, however, lets the firm benefit from a more favorable market environment and higher profit margins at psychiatric and substance abuse facilities (almost 20%, compared to about 7% in UHS's hospitals).[6]
Company Overview
UHS owns, operates or has under construction 25 hospitals (including a new facility being constructed) and 102 behavioral health centers located in 32 states. [7] Many of the company's facilities are located in suburban areas, but it also has a presence in urban markets, most significantly Las Vegas, Memphis, and Austin. UHS's facilities provide healthcare services, including general and specialty surgery, internal medicine, obstetrics, emergency room care, diagnostic care, and behavioral health services. The firm receives revenue from private insurers, including managed care plans, the federal government (under the Medicare program), state governments (under their respective Medicaid programs), and directly from patients. Over the past few years, the company's growth has been fueled by both acquisitions and the establishment of new operations in mid-size markets with above-average population growth rates. As a result, its acute care facilities are highly concentrated in three key geographies: Las Vegas, McAllen-Edinburg, Texas and San Bernadino, California.[8]
Business & Financial Metrics[9]
In 2009, UHS generated a net income of $260.4 million on total revenues of $5.20 billion. This represents a 30.6% increase in net income on a 3.6% increase in total revenues from 2008, when the company earned $199.4 million on revenues of $5.02 billion.
Business Segments[10]
UHS receives the majority of its revenues from its hospital facilities, while its behavioral health services segment accounts for most of the remainder.
- Acute Care Hospitals (73% of revenues): UHS's largest segment consists of 25 general hospitals, as well as surgical hospitals, ambulatory surgery centers and radiation oncology centers.
- Behavioral Health Services (25% of revenues): This segment consists of 102 centers, including residential facilities for teenagers, psychiatric hospitals, and substance abuse hospitals. Because average patient stays at these facilities are longer than in traditional hospitals (15.4 days in 2009 compared to 4.4 days in UHS's hospitals)[11] and their occupancy rates higher (73% in 2009 compared to 58% in UHS's hospitals), Behavioral Health has much higher profit margins than its sister segment.
- Other (1% of revenues): This is a catchall segment for expenses and revenues not associated with hospitals or BHS facilities.
Key Trends & Forces
It's always a relief when someone with ovbuios expertise answers. Thanks!
A Rising Number of Uninsured Patients Increases Costs
The number of uninsured patients has been rising throughout the nation.[12] Since hospitals are legally required to provide care to anyone who needs it, whether they are insured or not, UHS faces high expenses (specifically bad debt expense) from this trend.[13] Because uninsured patients make up 18% of the firm's revenues, higher than many competitors, UHS stands to lose more than its peers from this trend. At the same time, the percentage of uninsured patients has fallen in the past few years, which mitigates the potential negative impact of increasing bad debt expense on the firm.[14]
A Shortage of Qualified Physicians and Nurses Makes it Harder to Attract Patients
In order to increase or even maintain the breadth of specialized services available to its patients, UHS has to hire qualified physicians and nurses. This has become an industry-wide challenge as the nation faces a shortage in both professions. American physicians are getting older - in the last twenty years, the percentage of doctors over 55 years old has risen from 27% to 34%, meaning that many of them will be retiring in the coming years. In rural areas, where less than 10,000 of 212,000 physicians are surgeons, specialists are especially scarce. Rural doctors generally receive smaller salaries than their urban counterparts, adding to the challenges faced by UHS in recruiting for many of its locations.[15] UHS has attempted to attract physicians by offering them technologically advanced equipment and facilities as well as adequate support staff. Additionally, a nationwide shortage of skilled nurses has affected UHS, eroding profitability as salaries and benefits rise to recruit the necessary numbers of staff. Furthermore, some of UHS's markets have laws that require healthcare providers to employ a certain number of nurses in order to offer various services; if the company fails to meet these levels, revenues will fall. [16]
Competition
Unlike many peer firms, whose rural hospitals are virtual monopolies in their markets, all of UHS's facilities are located in geographical areas where other hospitals provide comparable services, creating a highly competitive market environment. In addition to other for-profit facilities, UHS has to compete with nonprofit hospitals, which benefit from government support and tax exemptions. The number of independent and physician-owned facilities in UHS's markets, ranging from inpatient facilities to outpatient surgical and diagnostic centers, has also grown rapidly over the last few years. [17]
UHS's diversified business model is a primary competitive advantage for the firm - it is unique among national hospital operators in maintaining a portfolio of behavioral health facilities. In fact, as competition among hospitals has increased over the past few years and profit margins have decreased, UHS's psychiatric and substance abuse facilities have actually become more profitable, since they receive more favorable Medicare reimbursement and face smaller risks of bad debt expense from uninsured patients than traditional acute care hospitals. Furthermore, UHS has has followed a much more conservative acquisition strategy than peer firms, boasting an organic growth rate above the industry average.[18] Industry operating metrics show that UHS, despite owning fewer hospitals than comparable peers, extracts higher profits from them; for instance, while UHS has fewer beds than larger peers, it boasts a significantly higher occupancy rate.
- Community Health Systems (CYH) owns or leases 100 hospitals in 28 states, all in rural areas. After the 2007 acquisition of Triad Hospitals, which doubled the size of the CYH network, the firm is the largest publicly traded hospital operator chain in the country. CYH follows an acquisition-based growth strategy.[19]
- LifePoint Hospitals (LPNT) owns 48 hospitals located throughout the United States, primarily in rural markets. The firm's revenue growth over the past few years has been driven primarily by acquisitions, as well as its 2005 merger with Province Healthcare, which doubled the firm's size. While the rural locations of its hospitals provide LifePoint with several competitive advantages, the firm's operating income has remained volatile, affected by the seasonality of earnings (dependent on the winter flu season), increasing numbers of uninsured patients, and employee turnover among qualified specialists.[20]
- Tenet Healthcare (THC) manages 59 hospitals in both urban and suburban areas. The firm's facilities are primarily clustered in three states - California, Florida, and Texas; as a result, demographic shifts in these states strongly affect the company's revenues and profitability.[21]
- Health Management Associates (HMA) operates 59 general acute care hospitals in rural areas across the Southeastern United States. All of its hospitals provide basic services such as general surgery and diagnostic care, while some also provide specialized services like cardiology and neurosurgery. HMA has distinguished itself from its peers by forming partnerships with physicians to stave off competition from independent and physician-owned facilities.[22]
References
- ↑ Investing Minds - Universal Health Services
- ↑ UHS 2007 10-K Section 7 -MD&A p.63
- ↑ UHS 2007 10-K Section 7 -MD&A p.53
- ↑ Palank, Jacqueline. "Hospitals Face Financial Squeeze." Wall Street Journal. April 30,2008.
- ↑ UHS 2007 10-K Section 7 -MD&A p.53
- ↑ UHS 2007 10-K Section 7 -MD&A p.53
- ↑ UHS 2009 10-K pg. 3
- ↑ UHS 2007 10-K Section 7 -MD&A p.55
- ↑ UHS 2009 10-K pg. 35
- ↑ UHS 2009 10-K pg. 117
- ↑ UHS 2009 10-K pg. 6
- ↑ Kaiser Daily Health Policy Report
- ↑ Emergency physicians treating more uninsured patients, survey finds
- ↑ UHS 2007 10-K Section 7 - MD&A p.56
- ↑ Davis, Robert. "Shortage of surgeons pinches U.S. hospitals." USA Today. February 26, 2008.
- ↑ UHS 2007 10-K Section 1 - Business p.14
- ↑ UHS 2007 10-K Section 1 - Business p.20
- ↑ Fitch Affirms Universal Health Services Inc.'s at BBB
- ↑ CYH Wikinvest Article
- ↑ LPNT Wikinvest Article
- ↑ THC Wikinvest Article
- ↑ HMA Wikinvest Article
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