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Operator: Good day and thank you for standing by. Welcome to the UHS 2025 Conference Call here. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like to now hand the conference over today’s speaker, Steve Filton, Executive Vice President and Chief Financial Officer. Please go ahead.

Steve Filton: Good morning. Thank you. Marc Miller is also joining us this morning. We both welcome you to this review of Universal Health Services results for the first quarter ended March 31, 2025. 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. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend the 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, 2024. We would 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 $4.80 for the first quarter of 2025. 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 $4.84 for the quarter ended March 31, 2025. During the first quarter of 2025, on a same facility basis, adjusted admissions to our acute care hospitals increased 2.4% over the first quarter of the prior year. Same facility net revenues in our acute care hospital segment increased by 5.0% during the first quarter of 2025 as compared to last year’s first quarter after excluding the impact of our insurance subsidiary.

Meanwhile, operating expenses continued to be well managed. Other operating expenses on a same facility basis increased by 2.6% over last year’s first quarter after excluding the impact of our insurance subsidiary. For the first quarter of 2025, our solid acute care revenues, combined with effective expense controls, resulted in a 21% increase in EBITDA after excluding the impact of Medicaid supplemental payments. During the first quarter of 2025, same-facility net revenues at our behavioral health hospitals increased by 5.5%, driven by a 5.8% increase in revenue per adjusted day. Adjusted patient days were relatively flat compared to the prior year quarter. The year-over-year patient day growth comparison was negatively impacted by the extra leap day in 2024 and challenging winter weather conditions experienced this year, early in the first quarter in certain markets.

We did experience a reacceleration of patient day growth in March. Our cash generated from operating activities decreased from $396 million during the first quarter of 2024 to $360 million this year due in part to delays in receipt of funds in connection with certain Medicaid supplemental payments in various states. We did receive $82 million of payments related to the Nevada supplemental program in April that were related to revenues recorded in the first quarter. In the first quarter of 2025, we spent $239 million on capital expenditures and acquired 1 million of our own shares at a cost of approximately $181 million. Since January 2019, we have repurchased approximately 30.3 million shares, representing 33% of our shares outstanding as of that date.

As of March 31, 2025, we had $1.02 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. I will now turn the call over to Marc Miller, President and CEO, for closing comments.

Marc Miller: Thank you, Steve. We are pleased with our first quarter operating results which on a consolidated basis exceeded our internal expectations. We were particularly encouraged by the control of our operating expenses in both business segments. Our first quarter operating results exclude any supplemental Medicaid revenues in Tennessee and the District of Colombia. Pending CMS approval of these new programs. For programs that were originally approved in previous years, we have continued to record those revenues under the assumption that programs will be reapproved. As these programs have been a recent focal point, I believe it is worth reminding people that these are federally authorized and state-approved programs in place for many years and they are designed to allow providers who have been historically underpaid by Medicaid to provide quality care to over 70 million Medicaid recipients nationally.

Even where these programs exist, our net Medicaid reimbursement generally remains below both average commercial and Medicare reimbursement. West Henderson Hospital in Las Vegas opened in late 2024 and posted a modestly positive EBITDA in the first quarter. Cedar Hill Regional Medical Center in Washington, D.C. opened recently and has experienced strong demand for its emergency room services from the outset. While we acknowledge a great deal of uncertainty in our external operating environment, we feel confident in our underlying businesses and based on current reimbursement and operating cost levels reiterate our full year earnings guidance. We’re pleased to answer questions at this time.

Operator: [Operator Instructions] Our first question comes from the line of Justin Lake of Wolfe Research.

Justin Lake: I wanted to focus on the behavioral side, Steve. I know you talked about leap year; you talked about weather, especially earlier in the year. Maybe you could give us an idea of what you saw in March, given weather would have been past you, the leap year impact would have been past you. So how did March volume, maybe even early April volume look? And any update on the full year guidance in terms of your thoughts around behavioral volume we should be assuming for the year?

Steve Filton: Yes. So our full year guidance that we presented in late February presumed behavioral patient day revenue growth of 2.5% to 3%. And we believe that is still a reasonable target and that remains our embedded target for our guidance. We accelerated from our sort of more muted flattish level, maybe even negative levels in January and February, I didn’t quite get to the 2.5% to 3% target in March. But feel like it was indicative of the fact that weather had kind of muted our volumes in — for 5 or 6 weeks in January and February. April is a little bit hard to say because obviously, we had Easter and Spring break in April but it feels like recent volumes, again, give us confidence that, that 2.5% to 3% should be achievable for the full year.

Justin Lake: Got it. And then maybe, Marc, you could just on the DPP side, it was good to hear that the things kind of started up again in Nevada. Any other states that you’re kind of focused on in terms of where you’re expecting to hear soon and any kind of updates beyond Nevada?

Marc Miller: Yes, I just think it’s Washington, D.C. and Tennessee.

Steve Filton: And Tennessee. In both cases, the state of Tennessee and the District of Columbia advise, not just us but their hospital community that they continue to expect approval, that’s the message they get from the folks they deal with at CMS. Obviously, timing is still somewhat up in the air. But again, kind of as your question alludes to, Justin, we’re encouraged that after a — would seem like a full pause in any new approvals or re-approvals by the Trump administration after they took office; a number of programs have been reapproved and there even have been a couple of new programs, not — none that affect us but the new programs have been approved. So, it feels to us like that process has sort of been resurrected or restarted and we view that as a hopeful sign. And again, most importantly, for us, the Nevada program was reapproved. And as I noted in my remarks, we were actually paid for the first quarter revenues in April.

Operator: Our next question comes from the line of Sarah James of Cantor Fitzgerald.

Sarah James: I just wanted to follow-up on Justin’s question a little bit. So if you’re still at 2.5% to 3% on behavioral volumes for the year, I think that implies a step up for the rest of the year that is above the guide range or above the high end of the guide range? Is it the right way to think about it?

Steve Filton: Yes. Mathematically, I think that’s correct, Sarah.

Sarah James: Okay, got it. And then the Nevada DPP that came in from the quarter, how many months was that related to? Because I think it was approved in April. So should we think about that as 4 months? And if so, are you running a little bit ahead on your DPP guide for the year?

Steve Filton: Yes. So no, that was just the first quarter payment that $82 million, I will remind people is the gross payment that we get from the state. It’s not net of our provider taxes. We’ve continued to pay the taxes on a regular basis. So we paid our taxes in Nevada in the first quarter. That growth amount that we received, the $82 million is in April related to the first quarter. But I think to your confusion, as you’re thinking, if you annualize that $82 million, it’s a lot more than the net benefit that we described and it’s because it doesn’t include the provider tax element.

Operator: Our next question comes from the line of Andrew Mok of Barclays.

Andrew Mok: Question on Tariff. Can you help us understand what actions you’re taking now to prepare for potential tariffs? And what your GPO has communicated to you thus far?

Steve Filton: Yes. So first of all, I’ll reiterate, I think at least one of our peer companies talked about from a tariff perspective, just sort of framing the issue. I think they said that they estimate about 60% of their supply chain purchases are sourced in the U.S. and Canada and Mexico. So at the moment are not subject to tariffs, another 15% are pharmaceuticals which are also at the moment, not subject to tariffs. So at the moment and I would say our numbers, we guesstimate are roughly the same. About 3/4 of our supply chain purchases are insulated from tariffs. The way we’re I think protecting ourselves or actively sort of dealing with the issue is we do find some vendors who have fixed contractual prices with us have started to include things like fees or segments or I’m not even sure how to describe them on their invoices, we’ve been sort of ignoring those, etcetera, because I think we believe they’re not part of the contract.

We continue to monitor any vendors who would tell us that they’re considering cancellation of contracts or they’re finding availability of products, problematic. We’re not really getting any of that feedback yet but certainly preparing if we do for alternatives — other sourcing alternatives, other pricing alternatives, etcetera. But at the moment, it feels like there’s not a great deal of pressure, again, in large part because I think a good chunk of our supplies are insulated from tariff impact at the moment.

Andrew Mok: Got it. And maybe just a follow-up on the behavioral side. Maybe weather aside, are you seeing any changes in your behavioral referral patterns or willingness of JV partners to work with UHS.

Steve Filton: No, I don’t think so. I know you said weather aside but I would just make the comment about weather. And we talked about this, I think, on the year-end earnings call, the weather that we’re talking about winter weather was in places that I think doesn’t — don’t normally experience winter weather and more in the central part of the country, Virginia, Kentucky, Tennessee, Arkansas and the challenge, I think, is twofold for us from a winter weather perspective in those places. Number one, schools are closed. And I think I remember that, I believe in February in a number of our Virginia facilities, schools are supposed to be open, I think, for 19 days that month and we’re only open for 11. And so that has a big impact on our child and adolescent population and admissions in our child and adolescent population.

And the other thing that the weather impacts is our outpatient programs. Obviously, from an inpatient perspective, we may lose admissions over a 2- or 3- or 4-day period if the weather is bad but we obviously continue to treat the patients that we have. But our outpatient program is pretty much closed down during those days where it’s difficult for people to travel and they can’t clear the roads, etcetera. So we really see an outsized impact on our outpatient and our child and adolescent business when we experience those winter conditions. Other than that, no. And your question about are we seeing really any sort of structural changes in our referral patterns or willingness of referral sources to send those patients? The answer to that is no which is really why I think ultimately, we remain confident that we should be able to reach that 2.5%, 3% target that we set originally.

Operator: So our next question comes from the line of Ben Hendrix of RBC Capital Markets.

Ben Hendrix: Just following up on that last question, moving to the rate side, the strong 7.2% rate growth there. Just wanted to — I imagine there’s some payer mix dynamics there with redetermination? And then — but just wanted to also get any other observations you have on payer mix changes, or any case mix developments in the behavioral side there driving that rate growth? And also when do you expect that to, I guess, normalize out to a more long-term steady-state growth rate?

Steve Filton: Yes. So our revenue per adjusted day on a same-store basis, I think as we disclosed on that — in our opening comments, was 5.8%. I think, again, our guidance for the year was in the 4% to 5% range. So we continue to — and that 4% to 5% certainly would be a moderation of the rates that we’ve been getting over the last several years. And I think most of that is not necessarily kind of payer mix or redetermination impact, etcetera, the things that you mentioned. But just generally better contractual pricing that we’ve been getting, particularly from our managed Medicaid payers. That number has been moderating some over the last several years. I think partly because as we get those prices and we start to anniversary the impact, it’s not as significant.

I also think that as capacity increases in the behavioral industry in general. It diminishes a little bit of our leverage over the payers who, I think, right now have to deal with a scarcity of capacity, particularly innovation capacity where they can send their patients. So again, I think the pattern that we’re seeing in terms of strong behavioral pricing is one that we’ve been seeing for some time. It has moderated a little bit. It is moderating more slowly than maybe we originally anticipated and that our guidance presumed. And I think we would presume that, that would continue to be the case. So as volumes recover as the year goes on, hopefully, we can — if we’re short of the 2.5% to 3% target for any period of time, hopefully, our pricing will offset that.

Operator: Our next question comes from the line of Stephen Baxter of Wells Fargo.

Stephen Baxter: Just wanted to ask more of a philosophical question on the Medicaid supplemental payment programs. Obviously, we don’t know what the ultimate outcome is going to be from a legislative regulatory point of view here but it does seem like we could be living in a world where there’s like a significant restriction at a minimum in your ability to grow this economic earnings stream going forward. I know that this has only served to kind of improve your Medicaid reimbursement to maybe more sustainable levels versus actually make money. But as we think about your P&L leverage to supplemental programs, I mean, how should we think about a world where maybe that is a more fixed stream going forward, your ability as a company to still kind of deliver the type of same-store revenue and adjusted EBITDA growth rates that you’ve targeted historically?

Steve Filton: Yes. I mean, look, I think honestly, we’re already in that world. I mean, I think, as you know, in our 10-K, we present a very detailed disclosure on Medicaid supplemental payments. And our projected Medicaid supplemental payments for 2025, we’re already generally flattish with what they were in 2024. So we certainly are not counting on growth in those programs. And it’s certainly possible that we will see some deceleration in those supplemental payments or in other Medicaid reimbursement. And I think what that really means ultimately is the way we’re going to grow the behavioral business in the intermediate and long term is with more volume growth. And that’s why it is — we acknowledge it’s important that we get to that 2.5% to 3% target patient day target because ultimately, we think going forward, our Medicaid rates in particular are likely to be impacted by legislative action. Travis, I think we can go to the next question.

Operator: Our next question comes from the line of Benjamin Rossi of JPMorgan.

Benjamin Rossi: So how would you describe, I guess, patient utilization activity during 1Q across acute. And then when parsing those volumes up by payer, how do you frame growth between maybe your traditional managed care book versus your ACA exchange-related volumes. Just curious if you’ve seen any variation at the regional level for states where enrollment has been faster like Texas or Florida versus the state like Nevada, where it might be less pronounced?

Steve Filton: Yes. I don’t — so I think specifically your question about exchange utilization, again, I think one of our peers talked about the fact that their exchange volumes were up 20% or so in the first quarter over last year’s first quarter. I think we saw a similar increase. Again, these are relatively small numbers on an absolute basis. I think about — for us, at least, exchange or patients with exchange coverage represent about 6% of our adjusted admissions in our acute care space. That’s a little bit of an increase over what we were running. And if that utilization is coming from anywhere, I think it’s probably our Medicaid utilization is probably not growing as fast and that’s probably what’s generating most of that exchange increase. But overall, I don’t think that patient mix is affecting our pricing or our profitability in any significant way.

Benjamin Rossi: Got it. And then just as a clarification. On the Medicaid taxes, you said you received the payments in April. Did your 1Q other operating expenses contain those related Nevada Medicaid taxes? Or is that a 2Q item?

Steve Filton: No. The point that I was trying to make to Sarah before was we continue to pay the provider taxes on a regular basis. So our first quarter provider taxes were in our numbers even though, again, the revenue was in there as well. It’s just that the cash was not.

Operator: So our next question comes from the line of Joshua Raskin of Nephron Research.

Joshua Raskin: Just back on the behavior. I’m curious on demand trends outside of weather and some of these other temporal effects. Are you seeing any differences in demand by acuity sort of demand for specific services. And then just a quick follow-up on West Henderson. I know it’s very early there but I’m just curious how you’re seeing competitive dynamics impacted in the market and maybe just a comment on your other facilities there as well.

Steve Filton: Yes. So I’ll answer the West Henderson question first and come back to behavioral. Yes, I mean we’re very encouraged by our West Henderson results for a hospital basically in its first full quarter being open to have a positive EBITDA really is extraordinary. There’s a little bit of cannibalization from our existing hospitals and we thought about this in our year-end call. So I would suggest that a little bit of our same-store adjusted admission metrics, a little bit our same-store profitability is sort of muted by the fact that there’s been a bit of cannibalization, although I don’t think it’s terribly significant. But just generally pleased. And that’s — honestly, while I think this is better than we even expected, the whole reason we built West Henderson and invested in this project is we think that it’s a growing part of the Las Vegas market.

It would — the demand would be there. It has been. And I think we think West Henderson will continue to grow at a brisk pace. We’re very encouraged by the early results. As far as your behavioral questions and really sort of if demand has changed, no. And again, I think we’ve said the same thing really for the last several years which is measured both by sort of macro kind of data that industry-wide data that tracks behavioral demand across a variety of diagnoses and services. I think generally, that has been strong in our own sort of micro data which is our inbound activity of calls and Internet inquiries, etcetera, continues to be quite strong. And so the challenge is, do we have the physical capacity to meet those demands, do we have the labor force to meet those demands.

I think those situations have improved in the last several years but can still be challenging in some markets. We also acknowledge there is more competition in some markets. But again, I’ll sort of go back to what I said before. I think because the demand remains strong, because the labor market has stabilized, etcetera. I do think we have the view that 2.5% to 3% patient day growth target is still a very achievable target.

Operator: So our next question comes from the line of Craig Hettenbach from Morgan Stanley.

Craig Hettenbach: On the acute business, can you talk about any trends that set out just from an acuity perspective? And then outside of volume growth, any levers there that you’re looking to potentially pull to continue to improve margins in that segment?

Steve Filton: Yes. So from an acuity perspective, I would say acuity was muted a little bit in Q1 by the busier flu season. So we had on a sort of a relative percentage basis, more medical patients than surgical or procedural patients in Q1 because of the busy flu season. I think that will normalize as the year goes on. But our acuity as measured by our CMI, actually was still relatively strong in Q1 which I think suggests that the procedural business that we did have was still pretty solid and relatively high acuity business. And obviously, I think after the first quarter, even in March, we saw flu volumes declined dramatically as you would expect. And so I think as the year goes on, I think it’s fair to expect acuity will grow a little bit.

Craig Hettenbach: Got it. And then just as a follow-up on just capital deployment, updated thoughts on just kind of CapEx plans for this year versus buybacks and how you’re approaching that?

Steve Filton: Yes. I mean, our original guidance was for, I think, $800 million to $1 billion of CapEx. We had $240 million in Q1, a little bit high in Q1 because we still had some costs flowing over from West Henderson. We still have some other whole hospital projects ongoing. So yes, I mean, I think we’re on track to be in that range as we suggested. I think our share repurchase guidance for the year was in the $600 million range. We had $180 million in the first quarter. So we’re tracking a little bit above that; we’ll see. But I think as long as there continues to be some level of uncertainty and softness in the market and our share price, I suspect we’ll continue to be an active acquirer of our shares.

Operator: Our next question comes from the line of Matthew Gillmor of KeyBanc Capital Markets.

Matthew Gillmor: I wanted to ask about the expense management topic. Any areas of particular outperformance to call out and sort of how you’re feeling about the sustainability of that? And I was particularly interested in the premium labor costs. I think they’ve been running $60 million per quarter. Just kind of curious whether that’s running through the early part of ’25?

Steve Filton: Yes. So as to premium pay, premium pay in the quarter was, I think, $63 million which I think as you suggest Matthew, is we’ve been running in the low 60s. So pretty consistent. Yes, I think the operating expense controls which really have been present now for several quarters are really a reflection of a few different things. I think as the labor markets have settled out, obviously, premium pay, use of temporary labor has declined and reached kind of a steadier level. I think wage inflation has certainly decelerated from the heights that it had reached during the pandemic. That’s certainly helpful. It limits the amount of sign-on bonuses and recruitment bonuses and things that we have to pay in order to attract talent.

I also think and we’ve talked about this on previous calls, we’ve been more actively managing productivity and appropriate staffing levels, etcetera, post pandemic because there isn’t nearly as much competition for labor. It’s still a pretty tight labor market but not nearly as tight as it was at the height of the pandemics. So it’s allowed us to go back to some of the blocking and tackling mechanisms that I think we paused during the pandemic because there was such a lack of staff. So I think again, our operating expenses in both business segments really look positive. And I think they should remain so. Obviously, we’ve talked about some of these exogenous pressures, mainly tariffs and obviously, that’s difficult for us to predict. But I think in terms of the things we can control, we think that these expense levels and expense controls are certainly sustainable.

Matthew Gillmor: And then, Steve, a quick follow-up on the Medicaid supplementals. We all appreciate the level of disclosure you provide. In terms of the expectation for 2025, are you still expecting $997 million from the last disclosure? Or is that number changed at all?

Steve Filton: Yes. So we’re still compiling that for our first quarter 10-Q but I would suggest that, that number has not changed in any material way.

Operator: So our next question comes from the line of Michael Ha of Baird.

Michael Ha: I just want to follow-up on Sarah’s question on behavioral health volume cadence for the rest of the year. It is a pretty big implied step up. So I was wondering if you could elaborate more on cadence, quarterly cadence. Are we talking an immediate large step-up in 2Q or is something more modest and then larger step-ups in 3Q, 4Q? And maybe specifically as it relates to the 3 big headwinds that impacted volumes last year, how much of that is still redeterminations, labor constraints, those handful of sites. What’s the latest update on those? I presume maybe labor is still ongoing but have we now fully stepped over the other 2 headwinds. Trying to get a better sense on just falling recovery over the balance of the year.

Steve Filton: Yes. So Michael, honestly, I think you kind of asked and answered your own question. I mean, I think of the 3 that we have talked about historically, the only one that is persistent I think is labor. The labor scarcity has certainly improved from, again, when it was really, really extreme during the height of the pandemic but it’s still a tight labor market and we still compete in various markets or find the competition for a variety of kind of staff levels, whether that’s nurses or therapists or mental health technicians to be problematic in certain markets and in certain markets, I do think it creates kind of a cap on our volumes. But I don’t think that’s getting worse. And I think we continue to make progress there.

I’ll make the point that I think a big muting factor in Q1 is simply the leap day comparison that probably has about 100 — a little over 100 basis point impact. Obviously, that’s something that we know over the year will — the impact will diminish. And I think we always assume that the 2.5% to 3% for the year took into account the one leap day for the year. So that will get — that comparison will not be as difficult as the year goes on. Yes, I’m not going to make a comment about exactly where we’re likely to wind up in Q2. Again, just to repeat what I said now a number of times which is the original guidance of 2.5% to 3% for the year is something we think we can achieve. We acknowledge that it requires a step-up from where we were in Q1.

Michael Ha: And just one more question about California and Florida proposal. I think they already submitted filed the CMS to raise the DPP payments to average commercial rates. Just any update there? I know historically, I think about 6 months for approval but there might have been a bit of a moratorium just given the new administration. But also, Steve, you mentioned a lot of DPP programs that were paused are now being resurrected. So curious on those 2. And also maybe more broadly, given this administration’s focus on budget, Medicaid, provider taxes, whether you think future proposals to raise DPP to average commercial rates might have maybe less likelihood of being passed over the next few years.

Steve Filton: Yes. So it feels, Michael, like this is really kind of a 2-track process at the moment in that there are new programs being submitted. There are new programs that have been submitted in our case, Tennessee, or in [indiscernible] Tennessee and D.C. that are being considered by CMS. And the impression that we have, again, as your question alluded to, is that there was sort of a pause as the administration changed and the policymakers and CMS changed. But it feels like the administrative process of reviewing and approving these programs has sort of been restarted. And again, forget about what we’re saying, I think what the states who have submitted these programs are saying is that they expect that they’re going to go through the normal process, be approved in the normal course, etcetera.

That’s separate and apart from any legislative action that the House and Senate may take to limit these programs in the future, etcetera. So again, I think we’re viewing this separately. We think the Tennessee and D.C. programs based on the feedback we get from those respective governments are likely to be approved at some point. I think it’s difficult to predict. California and Florida have just been submitted. I think it’s even more difficult to predict what the timing of that would be. But that, I think, is separate and part then from whatever legislative action may impact those supplemental programs going forward.

Operator: So our next question comes from the line of Pito Chickering of Deutsche Bank.

Pito Chickering: I guess the first one here is can you guys sort of talk about the settlement of the Pavilion case and remind us how much commercial insurance you have for the lawsuits and what is the timing of the Cumberland case?

Steve Filton: Yes. So as we disclosed in the press release, we have a tentative settlement in the Pavilion case. It is limited by — the disclosure is limited by confidentiality. It also requires approval of the court which we think probably is not coming until next month. And when we get that approval in our next filing, we’ll disclose how much insurance is still remaining. But I will say at this point, there is still substantial if this settlement is approved, there will still be substantial commercial insurance for the 2020 year remaining. And that’s important because the Cumberland cases that you also referenced are 2020 cases. But we’ll give those details once the settlement is approved by the court. As far as the timing of the Cumberland cases, they’ve moved — the 3 cases have been adjudicated are moving slowly.

We have not gotten rulings even on the post-trial motions, let alone any appeals, etcetera. None of the other cases have been tried. So it’s moving quite slowly from the perspective of those cases.

Pito Chickering: All right. Great. And then, a follow-up here. The acute hospital segment saw 110 basis point improvement in supply costs. How much of that leverage is due to just the flu and lower surgical volumes? How much is just actually due to better supply management? And how should we be thinking about supply leverage in 2025 as surgical volumes come back?

Steve Filton: Yes. I mean I think our original guidance for the year presumed a relatively modest inflation rate for supply expense increases in the sort of 2.5%, 3%, 3.5% range. We did obviously better than that in Q1. I think some of that, as your question suggests, is that mix of patients, more medical, more respiratory, less procedural. So that by its nature, medical cases tend to have less of a supply component than procedural cases. I would think for the year, again, something in that sort of modest inflationary expense is the way that I would think about supply expense growth, although to be fair to both our operators and our supply chain professionals. I think we’re doing a good job from a contractual pricing standpoint and product replacements to cheaper products, etcetera. So, some of that positive supply results are from active management on our part.

Operator: So our next question comes from the line of Ryan Langston of TD Cowen.

Ryan Langston: Can you tell us how physician fee expense growth ended up in the first quarter, both from a year-over-year perspective and versus your internal expectations?

Steve Filton: So we said in our original guidance that professional fees broadly and then the physician expenses that you’re talking about will simply increase by, again, an expected inflation rate, 5%, something like that. And that is certainly the way that we’re tracking. We see some amount of pressure, meaning requests from physicians for either accelerated or increased or new fees. But I think we’re dealing with that and our general expectation is that we should be able to control those professional fees and physician expense to or limit it to just some overall inflationary increase.

Ryan Langston: Got it. And then just lastly, I’m sorry if I missed it but can you parse out the impact from the higher flu and respiratory season we saw in the first quarter?

Steve Filton: Yes. I mean — so the easy part is, I think we would suggest that there was probably something less than $10 million, maybe $7 million or $8 million of incremental profits from the — what we would describe as sort of excess flu cases for the number of flu cases this year in excess of last year. What’s harder to do is kind of calculate any sort of kind of crowd out effect. Procedural cases, I think, were somewhat softer, as I think a number of our peers have suggested as well, whether that was due directly to the flu season or not, hard to say. But I think we have always had a position that the flu tends to have a relatively immaterial impact on results, both positive and negative, meaning during a busy flu season which this was or not busy flu season.

And I don’t think this quarter was any different. The one other item I’d add just to clarify is while the flu was, I think if you — there are these maps that show flu activity around the country. And while generally, flu activity was much higher just about everywhere. Nevada is one of the few states that had a very light flu season. So in our biggest acute care market, I don’t think we had much of an impact from the flu season.

Operator: Our next question comes from the line of Joanna Gajuk of Bank of America Securities.

Joanna Gajuk: So maybe just switching gears a little bit to pricing. So first, can you talk about commercial rate updates you’re seeing, I guess, this year for future, have you noticed any change in managed care contracting terms? And maybe any change from plans in terms of just how aggressive they are or how willing they are to respond to your request given they see higher costs?

Steve Filton: Yes. So first of all, again, I’ll just remind everybody that our overall guidance for our Acute Care segment this year was 5% to 6% same-store revenue growth split pretty evenly between price and volume, so 2.5% to 3% price, 2.5% to 3% volume, that 2.5% to 3% price assumption includes a commercial price assumption, probably the 4% to 5% range. Again, I think we’re tracking those numbers. I would describe the relationship with the managed care companies as always difficult and a slog, whether that’s contractual pricing negotiations or the day-to-day processing of claims and then denials and denials, appeals, etcetera. We’re very focused on that. I think we’ve improved the number of our own internal revenue cycle functions to deal with some of the more aggressive behavior on the part of payers. But again, I think our first quarter results would suggest that we’re not seeing any meaningful impact from any more aggressive behavior on the part of the payers.

Joanna Gajuk: And if I may, in your psych segment, can we talk about pricing there, too? So you alluded to the idea that you do think there could be some changes to Medicaid stock funding coming from Congress. So with that uncertainty, are states behave differently when it comes to their budgeting process when it comes to rates for psych?

Steve Filton: Yes. I don’t think so. I think the reality is providers, payers, government entities, are all in this sort of uncertain environment. And I think the way most of us are behaving is as we — whether it’s negotiating contracts or the states are dictating rates, etcetera, are doing so based on the best information they have available. If that changes, their behavior may change. But I think it’s very difficult for any player in the space to anticipate exactly what the changes are going to be and sort of react to them currently. So I think we all, for the most part, are dealing with the information at hand and when and if it changes, we’ll adopt or adapt our behavior to that.

Joanna Gajuk: If I may squeeze a very last one, sorry if I missed it. Just to confirm, in your guidance, you still do not assume Tennessee and D.C. DPP approvals, correct?

Steve Filton: Right. So our guidance did not assume anything for Tennessee or D.C. and our results do not include anything for D.C. or Tennessee.

Operator: Our next question comes from the line of A.J. Rice of UBS.

A.J. Rice: Maybe just to go back to — I know you’ve gotten asked a lot about supplemental payments. But one thing that one of your peers raised the other day that was sort of interesting is they were saying that they saw some states maybe tweaking down payment rates under the traditional Medicaid formula because they had supplemental payment programs that were offsetting it in aggregate the industry was doing okay, they felt. Are you seeing any of the states that you’re in tweak the base payment rate which probably would lend some support to the discussion the industry is making about? You got to look at the total picture. But I was wondering if you’re seeing any of that.

Steve Filton: Yes, A.J., I don’t know that we’ve seen that in any sort of material way. It certainly could be on the horizon but we have not seen that in any really impactful way.

A.J. Rice: Okay. I know you were — you guys helped out a lot by making some comments about what it might look like if you lost the enhanced subsidies on the exchange, I think your number was $40 million to $50 million for that. I don’t know — I assume there’s no update on that because there’s really not any new information, I don’t think but I wonder because there’s a lot of discussion, obviously, around the supplemental payments about the possibility of moving the provider tax limit from 6% to 5%. Have you guys looked at that? Do you have a sense of what that might mean or how to think about that?

Steve Filton: Yes, we certainly have looked at it, A.J. I don’t know that any of the companies as far as I know have really estimated that impact because, in part, it’s a very detailed calculation. The states are not always forthcoming in terms of all the data that we would need to make the calculation. So again, I think everybody is kind of reserving estimates until we see what the actual move might be. But yes, I mean we’re certainly going through those calculations and doing our best to try and understand what the impacts could be.

A.J. Rice: Do you think most of the states once you get meaningful supplemental payments, where are they at relative to what percent of provider tax, they’re getting relative to revenues of hospitals?

Steve Filton: Yes. So several of the largest states or states that are sort of most impactful to us are certainly under 6%. That would include Texas and Florida. So the impact, if legislation would go from a 6% cap to a 5% cap, the impact would be limited in those states. But again, those calculations can be pretty complicated.

Operator: So, I’m showing no further questions at this time. I would like to now turn it back to Steve Filton for closing remarks.

Steve Filton: So, I have just one quick housekeeping item. We omitted our gross revenue disclosure in the press release last night; I think we were under the impression that nobody was really using that metric. I have been disabused with that notion over the last 12 hours, a number of people have asked for it. So we filed an 8-K this morning as we normally do. Normally, it would just be a duplicate of the press release but we’ve included in that the gross revenue information. So people who are seeking that gross revenue data can find it in the 8-K that we filed today. Other than that, we’d just like to thank everybody for their time and look forward to speaking to everybody next quarter.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.