Dive Brief:

• Universal Health Services has slashed its 2022 financial forecasts following a “significant shortfall” in operating results during April and May, the system said Thursday.
• In those months, Pennsylvania-based UHS’ acute care hospitals saw a notable decline in the number of COVID-19 patients compared to the first quarter. That decrease wasn’t offset by an equivalent increase in non-coronavirus-related volumes, resulting in revenue and earnings shortfalls compared to UHS’ original forecasts. The lower volume has helped relieve some of UHS’ staffing shortages and related expenses, though recovery from labor pressures has been slower than expected, the system said.
• As a result, UHS cut its full-year revenue forecast by 1.9% and its adjusted earnings before interest, taxes, depreciation & amortization by 11% at the midpoint. The system cut its adjusted net income attributable to UHS per diluted share by 19%.

Dive Insight:

Health systems have struggled to manage operational volatility over the course of the pandemic. UHS’ guidance revision shows how operators’ fortunes can change in the span of months.

It’s not the first system to lower guidance this year citing adverse operating conditions. HCA, one of the biggest for-profit operators in the U.S., trimmed its 2022 guidance in April along with its first-quarter earnings release, citing pressure from labor costs. CHS also lowered its financial expectations as spending skyrocketed on labor.

UHS leadership said in April that, though their guidance remained unchanged following the first quarter, the system’s 2022 outlook could be revised if operational trends didn’t improve. UHS did so on Thursday, citing pressures that extended beyond acute care to its behavioral health facilities as well. 

Revenue and income generated from its behavioral health facilities in April and May was also below expectations, though more consistent with the first quarter of 2022, UHS said.

The revised forecasts for the remainder of 2022 assume staffing vacancies and the corresponding increase in pay expenditures will continue to decline in the second half of the year, non-COVID-19 patient volumes will incrementally improve, although both at a slower pace than originally thought.

UHS, which manages 28 acute care hospitals and hundreds of behavioral health, outpatient and ambulatory facilities, along with a physician network and insurance offering, plans to continue staff recruitment and retention efforts to boost operations.

UHS also plans to make changes to its patient care models through “other cost cutting measures and by aggressive contractual negotiations and renegotiations with our managed care payers,” the system said.

Surging inflation is expected to intensify contract negotiations between payers and providers as providers look to get a better deal on payment for services rendered amid rising supply and wage costs.

UHS’ stock fell 6% in morning trading Thursday following the news. Stocks of other healthcare providers, including peers HCA, Tenet Healthcare and Community Health Systems, were also on the decline.