Universal Health Services Inc
NYSE:UHS
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Universal Health Services Inc
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Good day. And thank you for standing by. Welcome to the Universal Health Services, Inc. First Quarter 2022, Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to our of speaker today, Steve Filton, CFO. Please go ahead.
Thank you, Mary. Good morning, Marc Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the first quarter ended March 31st, 2022. During the conference call, we will 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 or 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, 2021. We'd 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 $2.02 for the first quarter of 2022. 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 $2.15 for the quarter ended March 31, 2022.
During the first quarter of 2022, our operations continued to be impacted by the COVID-19 pandemic, as well as pressures on staffing and wage rates. Specifically, a surge in patients with the Omicron variant of the virus, which began in December of 2021, tended to peak in most of our geographies in January of 2022. In our acute segment, we would note in general the Omicron patients were less acutely ill than the COVID patients treated in previous surges, and that's the square of lower acuity. Meanwhile, we now have contract nursing hours used, and even more importantly, the rates we had to pay for those hours increased significantly in the first quarter, both on a sequential basis, as well as a year-to-year -- at a year-to-year comparison. Although in our behavioral segment contract nursing costs did not increase quite dramatically, our inability to fill all of our labor vacant -- to fill all of our labor vacancies had a notable limiting impact on our patient volumes and related revenues.
We do note that our results were benefited in the first quarter from approximately $12 million of revenues net of related provider taxes from special Texas Medicaid reimbursements, which related to the last four months of 2021. Recognition of those revenues were deferred until formal government approval was obtained Our first quarter also included approximately $15 million of start-up losses incurred by recently opened De Novo acute and behavioral health facilities, and $6 million of losses related to temporarily closed days as two behavioral health facilities which were impacted by natural disasters. Those bands have since been reopened. As disclosed in our last night's press release, our operating results for the first quarter of 2022 were unfavorably impacted by labor costs that were higher than anticipated and patient volumes at our behavioral health facilities that were lower than anticipated due to the continued uncertainties related to the COVID-19 pandemic, as well as cost escalations related to the nationwide shortage in nurses and other clinical staff.
Although we're not changing our previously released 2022 operating results forecast at this time, we may make reductions to our forecasts at a future date if the unfavorable operating trends experienced during the first quarter of 2022 do not improve. Our cash generated from operating activities was $445 million during the first quarter of 2022 as compared to $72 million during the same period in 2021. We know that first quarter 2021 cash-generation reflected the repayment of the Medicare accelerated payments. We spent $200 million on capital expenditures during the first quarter of 2022. Our accounts receivable days outstanding decreased to 48 days during the first quarter of 2022, as compared to 50 days in the first quarter of 2021. Due in large part to the continued repurchasing of our shares at March 31, 2022, our ratio of debt-to-total capitalization increased to 42.3%, as compared to 35.7% at March 31, 2021. Our first quarter of 2022 operating results were behind our internal forecasts. And our internal forecast were below the consensus estimates.
The primary driver of the shortfall was the fact that the labor scarcity has not moderated as quickly as we were expecting. We believe in part this is because at the height of the Omicron surge, providers were entering into longer return commitments through temporary and traveling nurses, not necessarily predicting that COVID volumes will decline as rapidly as they ultimately did. We do believe that the demand for this premium price labor will continue to gradually decline. In the meantime, we continue to invest heavily in recruitment and retention initiatives and has substantially increased the pace of our higher-rate. Where appropriate, We are also developing alternative patient care models that allow us to use a wider variety of available caregivers to render the most efficient and highest quality of care that we can. While the pace of the recovery from the current labor scarcity is still uncertain, we're comfortable that it will occur over time. And combined with our confidence in the long-term baseline demand in both of our business segments, our bullish view of the underlying strength of our core businesses remains intact. Reflective of that sentiment, we remained an active acquirer of our own shares in the first quarter, repurchasing $350 million of those shares. At the same time, we continue to reinvest organically, opening a new acute care hospital in the Reno market and behavioral Genova and our joint venture hospitals in Arizona, Michigan, and Wisconsin. At this time, we're pleased to answer your questions.
Thank you. [Operator Instructions] Please stand by while we compile the roster. Our first question comes from the line of Josh Raskin from Nephron Research. Your line is open.
Good morning. This is actually Marco on for Josh. Thanks for taking the question. Just to start with the behavioral side, it looks like volumes came in below expectations due to the continued capacity constraints. So I wanted to get your view. What is the ultimate solution to attracting more staff to meet the strong underlying demand you're speaking about? It doesn't sound like raising base wages is enough at this point or do you think this is just more of a structural impediment and behavioral care for the foreseeable future? Thanks.
Yeah, so we've talked about this at some length before. I think the solution and the grand, as I think our prepared remarks indicated, we don't think this problem gets solved overnight but we do believe it will continue to gradually improve. Number 1, I think the market dynamics, and we've been through nursing shortages before in our 10-year. Although this one is certainly probably more severe than any we get - we previously experienced. But the system will generate more nurses and other clinical personnel because wages are going up and it will become a more attractive profession. And that supply of new,-- newer nurses will be helpful. At the same time, Andrew Mok alluded to this in his remarks. We really up to our investment in recruitment and hiring initiatives the number of people involved in those processes. Making sure that our wage structures and every market are as competitive as they can be. We're reviewing competitive wage rates in most markets multiple times a year.
Whereas historically that's a process that took place maybe once every year with every other year, we're changing patient care models. Andrew Mok referred to that as well. And again, we're seeing the beginnings of improvement in those areas. So you specifically we're asking about behavioral. I think we've been on the behavioral side of things, hiring nurses and other clinicians at record rates now, for a record, historical rates for us, for well over six or eight months. The real challenge is on the back-end where the turnover rates continue to go up. And that's the challenge that I think providers around the country are facing. But I think the encouraging thing for us is at least in the last few periods, our net hires are actually positive. Again, I don't mean to imply that the problem has been solved, but we think it will continue to get better and as we continue to have net positive high payers, it should allow us to treat more patients and that patient day number, which was slightly negative in Q1 compared to last year should turn positive in the near future that would be the whole and continue to improve from there. Because again, as I think Mok indicated in his prepared comments, we believe the underlying demand is there. We believe that for a long time that really -- that core belief has not changed at all.
You have a question from Matt Borsch from BMO Capital Markets. Your line is open.
Hi. Good morning. Thank you for taking my question. You have Q - Ben Rossi here filling in for Matt. Just -- regarding the recent release of the Medicare IPPS proposal contract for 2023, I can appreciate that there is still some moving pieces, but was curious if you could provide us with a projection for your rates from that proposal. And then more broadly, how you feel about CMS factoring this inflationary pressure. And whether you think that CMS will start to factor that in more accurately as we look out to 2024 and beyond. Thanks.
Yeah. So as you suggest, there are a number of moving parts in the release. When we do the calculation to the best of our ability, we think that the net blended increase for UHS hospitals will be about 2.5%. That is pretty much the number that we included in our guidance for the year beginning in October. We should be getting at the federal fiscal year. I think, along with the rest of the hospital industry, we were disappointed that Medicare and CMS did not seem to acknowledge the inflationary pressures, and particularly, the labor inflation that hospitals across -- we currently are experiencing. I suspect that in this period between the preliminary and final rates, Medicare will come under significant pressure from lobbying groups across the country, representing hospitals of all stripes and sizes. Now, to your question, what impact will that have on CMS this year and next year. It's hard to know. But we certainly have feedback both I think, formally and informally from peers, both for profit and not-for-profit peers, both in our markets and in other markets across the country that hospitals are struggling. Again, particularly on the labor side and certainly, they'll be making Medicare and CMS aware of that as acutely as they can over the course of the next week's -- few weeks and months.
Great. Thank you.
Our next question comes from the line of Andrew Mok from UBS. Your line is open.
Great. Good morning. Thanks for the questions. Steve, can you provide more detail for how labor expenses trended in the quarter relative to the internal expectations in each of the segments. And exiting in the quarter and into April, what level of improvement have you seen in contract labor rates? What are the expectations there for the balance of the year? Thanks.
So the cadence of the year so far, Andrew, obviously, January still had very high on the crime volumes in many of our geographies and some of those geographies, the Omicron volume surely didn't recede until the end of January, in some cases, even early February. And so labor was definitely an overarching issue, even on the first, I'll call it four to six weeks of the quarter. I think what was disappointing in terms of our expectations was the labor scarcity again. I think we said this in our prepared remarks, did not receive or ease as much as we thought in the final six to eight weeks of the quarter as COVID volumes receded relatively rapidly. And again, I think is more of alluded to in his comments. We think some of that was that hospitals were making longer term commitments. I know a number of our commitments to temporary traveling nurses instead of being for a week or four weeks, where many cases for eight or even 13 weeks. And we've certainly heard of other hospitals made curve in the three of longer than that. And so to some degree, I think we found labor issues to be kind of stickier and more difficult to navigate in the back-half of the quarter than we were expecting. Although I think it's complicated,
When you have a tight labor situation in March and April going through spring break and the Eastern Passover holidays. And people, I think resuming their normal kind of vacation plans and this and that for the first time in a few years, made again sort of backfilling and getting back to sort of a normal labor supply and demand dynamic a little more challenging I think in both of our business segments, the hope is that in May as the calendar sort of settles down, as we have more success in hiring, more success in sort of trimming that turnover rate, become a little bit more aggressive in not entering into the early as many longer-term commitments on the temporary traveling side of things rejecting the highest rates that those temporary traveling companies are demanding. We'll see some relief, some measurable leap will beginning in the May time frame.
Got it. Can you help quantify the moderation in contract with rates that you've seen in the market this far?
Again, on the first quarter was a quarter of escalating, I'll say dollars, especially. On the acute side, we talked about our premium pay in Q4 as being $120 million. That increased in Q1 to $150 million and compares to Q1 of '21 when it was $70 million. So the overall dollars premium pay certainly increased in Q1. We are seeing a reduction in rates at the very end of Q1 and into April. And we presume that will continue into Q2, but it's difficult to say the exact pace of which they're decelerating. But certainly we're seeing decelerating rates.
Great. Thanks for the color.
Our next question comes from the line of Justin Lake from Wolfe Research. Your line is open.
Thanks. Good morning. I wanted to start off following up on that question around labor. So Steve, you talked about 120 going into 150. How do you expect that within the guidance to play out through the year? Are you assuming a pretty material decline there as we go through the year in terms of that temp labor?
Yes. So Justin, I think that our commentary has been pretty consistent, really beginning with our third quarter call in October of last year into our year-end call in February. And that commentary has sort of suggested that the labor recovery was happening slower than we expected. First of all, it was clearly set back by the Omicron surge in December '21, and in January '22, that definitely set things back from where our expectations were in the fall of last year. But even -- as I said, even from our commentary that we made just two months ago when we issued our guidance and did our year-end announcement, I think the recovery is clearly slower than we expected. And obviously, I think that's been true, at least for two of our acute care peers who I think have made similar comments in the last week or so.
Our original guidance always presumed than it was certainly a different cadence than has been the historically normative cadence for our company, that earnings would improve as the year went on and then the fundamental driver of that sort of cadence on that trajectory is the idea that labor pressures with ease as the year went on. I think it's worth noting in terms of the labor pressure being greater than we expected in Q1. we certainly acknowledge that our earnings missed our own internal forecast. Again, Marc suggested we were off our forecasts. We were about 5% or 6% off of our forecast in Q1. We know that we were probably 11% to 12% off our consensus, but I think we have a sense of where we may be able to recover that as the year goes on. Now, again, as you know our press release indicated, if the labor recovery does not occur as fast as we think that it will, we may have to revise that guidance later in the year. But we're at the moment still hopeful that that improving [indiscernible] will occur as the year goes on.
Okay. But is there a number you can give us, Steve, in terms of like, it's really hopeful you're saying 120 and 150, the last two quarters. Is there a number that you can anchor is too in terms of where you think this is going to go through the year?
Yeah. Well, what I will say is, look, I don't know that any of us know where it's going to go. I think what our guidance presumed is that by the end of the year, we would add a minimum return to last year's pace. And like I said in the fourth quarter of last year, the premium pay was in that $70 million range, etc. And it's really important to understand that that incremental, what we'll call it $50 million of premium pay is essentially a hit -- direct hit to the bottom line. Because we're not getting any more nurses for that. We are getting the same amount of nurses for the most part and just paying premium rates for them. So as those premium rates go down -- as the premium rates have risen, they've clearly put a real strain on our earnings and on our peers earnings. But as they come down, you get that same benefit. You'll be replacing a temporary nurse with an employed nurses who is making maybe a third of what that temporary nurse is making.
Just to put some math around this and finish it up, the -- you're talking about 150 going down to 70 by the end of the year. But you haven't seen any -- actually, it sounds like you've seen a little bit of a moderation in the payment terms, but not much of a moderation in the hours even through April. Is there anything you could point us to that saying you've got visibility here and if not, why not just take down the guidance and assume some more conservative path through the year?
So honestly, Jonathan, I have to confess being a little bit frustrated two months ago we issued guidance that I think it was more conservative generally than our peers. And at least from a number of quarters, I think we were around the criticized for that - that we - what we express too much caution about how quickly this labor situation would resolve itself, etc. Now, two months later, some people and you in the moment are saying, okay, now you're being too aggressive. All were suggesting I think and again, I don't mean to imply that we're saying that the labor situation has turned or where we have a 100% certainty that we'll when it will, I think we're just suggesting that more time is not an unreasonable request for people I had two months after that guidance was initially issued. I pointed to a number of metrics. I said, you know what net hires in the behavioral segment of turn positive in the last few periods. I suggest that we're seeing lowering rates, etc. Again, not meaning to imply that there is a complete turnaround here, but I do think there is enough of these sort of early indicators that things are improving to a degree that makes us think that 6% shortfall from our own internal forecast that we experienced in Q1 can be maybe partially or completely recovered as the year progresses.
Appreciate all the color, Steve, thanks.
Our next question comes from the line of Stephen Baxter from Wells Fargo. Your line is open.
Yes. Hi, thanks. Appreciate the commentary on the impact to behavioral volumes from labor. I was hoping you could help us think about a little bit operationally, about what happened in the acute care business in the quarter. So when we look at it, I guess against baseline levels, it does seem like the adjusted admissions took a step back versus where you've been running over the past three quarters. I guess those quarters also had some COVID impact for them. So just trying to understand, was there an impact on the volume side, and I guess, if there was an impact on the volume side, it does seem like you're using a greater quantity of contract labor against that. What does that mean for how your maybe your retention rates are performing? Thank you.
I think it's worth noting that the COVID volumes, again, this is really a key care commentary, were so high in the beginning of the year that we, even though they declined fairly rapidly, will be our acute care segment finished the quarter with about 14% of their admissions for the quarter being COVID diagnoses. And that's about as high as we've run during the two plus years of the pandemic. So I know people tend to have sort of regency bias and they think of COVID being behind us etc. but COVID played a significant part in Q1 and on the acute side, that's challenging because it -- it's challenging on the labor side as we've discussed, it's challenging on our ability to have effective throughput with non-COVID cases and procedural cases, etc.
I think by the end of the quarter, most of the operational sort of throughput in terms of patients etc. had returned in large part to normal, but again, those labor pressures persisted late into the quarter, maybe in some cases even into April, because I think of this phenomena and I make the point that it's not only our commitment, that we're locked into longer-term commitments for nurses, But to the extent that the nurses who we think will ultimately return to our facilities are locked into longer-term commitments at other facilities or other geographies, that has to play out before those nurses will ultimately return to us. And while we certainly acknowledge that some of those nurses probably don't return anytime soon and are more committed to that traveling or temporary nurse lifestyle, we do believe -- and I think both our internal and external data suggests that more and more of those nurses are not going to pursue that lifestyle indefinitely.
Our next question comes from the line of Jason Cassorla from Citi. Your line is open.
Great. Thanks. Good morning. Just wanted to go to CapEx quickly. Just in context of this continued pressured labor environment, does it change how you're thinking about the pacing or timing for future capital deployment priorities as it relates specifically to service line build-out or investment in equipment or otherwise at this juncture? Thanks.
What I would say is we certainly have to take that into account on an episodic basis. Each project we look at and try to make a determination on market factors. For capital equipment things like that, probably no change, but for the larger projects in general, we look at them specifically and take into account each factor or all the factors in particular market that might affect that project. And in some cases we'll choose to hold a reasonable period of time until we feel better about what's happening in a particular market.
Thanks.
Our next question comes from the line of Pito Chickering from Deutsche Bank. Your line is open.
Hey, good morning guys, thanks for taking my questions. A couple ones here. With what you've seen in the first quarter, it looks like labor pressures continuing into April before hopefully turning in May. And because it's at the street first-quarter estimates or 5% to 6% higher than your own internal estimates, any chance you can give us a range for how should they might 2Q sequentially or percent of the annual missions here, EBITDA, just so we get this number right?
Yes. So I'm not exactly sure why you're asking me. As we've discussed on many occasions, see, we don't give quarterly guidance and that's an intentional decision on our part. As I said, we were 6% short of our own internal forecasts in Q1. And I think part of the reason that we particularly enumerated some of those startup losses and non-recurring losses in our prepared remarks was, we were potentially suggesting a reason why I think we budgeted for those things probably more accurately than The Street was able to. I don't know that for a fact, I don't know if that's the main difference between our internal forecast in Q1 versus the consensus, but I think it's a possible explanation. I think again, our perspective is that EBITDA, basically, gradually increases as the year goes on, which again is different than what would be our normal historical cadence. But again, getting back to this idea, in order to make up that 6% shortfall in Q1, we'd have to be a couple of percentage points higher in each of the next quarters on average, to still get to the midpoint of our guidance. Again, I don't think -- we think that certainty by any stretch, it's a difficult environment. But I think we certainly don't feel at this point that we would say with precision that we can't get there.
Okay. Great. And then, can you provide some gross hires and the net hires in the fourth quarter versus a one quarter -- first quarter, how is it tracking in April? And basically any color on turnover, is it consistent? Is it getting better or turning worse? And then the third tag on there is, as you think about turnover, did you mean their wages are uncompetitive and may need to increase those rates?
So I mean, as I said in an earlier comment, this question of whether wages are competitive is certainly far from a static question and literally we're doing competitive market reviews in all of our markets. In some cases as frequently as quarterly. I mean, that's how quickly the supply and demand dynamics are changing. But again, the point that I would make is the labor or wage pressure that we're feeling. I'll speak to the acute business in particular, is not from the increases that we're giving from an underlying wage perspective, but it's from that premium pay. And as that premium pay declined, even if we are increasing, our wages are base wages by a 100 basis points or a 150 basis points. The economics are such that we benefit greatly. The example that I was giving before, I think in response to Justin's question, if our premium pay goes from a $150 million that we spent in Q1 to this $70 million we spent a year ago. That benefit drops almost being directly to the patient -- to the bottom line. Now again, not going to happen immediately. We'll take some time probably get also a little bit by underlying wage increases. But there is still an enormous amount of leverage that comes from being able to reduce that number. The challenge that all the hospitals in general have had is that number has been increasing. And the sense is, I think at the moment, that we're getting pretty close to the peak if we're not there. And now I think the focus and all of our calculations are, how quickly can it be reduced? I don't think there's a sense that that number is likely to go up anymore in any significant way.
Great. And then two quick follow-ups here. Supply inflation, we're going to hear from suppliers about pushing costs on hospitals. I guess what are you seeing from supplies and then from medical devices? Are you guys seeing inflationary pressures getting pushed to you on the supply side?
Yeah. I think like every -- both business and personal consumer, we're seeing inflation affecting all of our spend. But the labor inflation, and again, I'm not even sure I would describe it as inflation per se, but what I would describe as the reliance on this premium pay is so much the dominating dynamic in the space that even with inflation, two things. I think if we see those premium rates come down, we'll get a direct benefit from that. And I think as we see those premium rates come down, we'll also see our own hiring improve and particularly in the behavioral side, that will allow our volumes to increase. And that will provide a pretty significant offset to those inflation rates. Again, inflation is definitely a factor but I think we have a point of view that if we can solve the labor scarcity problem, that will more than overwhelm the pressures that we're feeling from increased inflation.
Great. Thanks so much.
Our next question comes from the line of Ann Hynes from Mizuho. Your line is open.
Hi, good morning. Can you let us know what is embedded in guidance for base labor wage rates and what that compares to on a historical basis as your estimate tracking and mine with your estimates. And then how should we think about that in 2022? I know it's early, but just giving wages is a biggest cost structure. We probably want to assume, the right pressured point for next year. Thanks.
When we talked about this a little bit in the Q4 call, I think that pre -pandemic our wage inflation was, let's say, on the acute side, 3%, 3.5%. On the behavioral side, it was probably 2%, 2.5%. I think post-pandemic we're thinking those rates are up 100, 150 maybe even 200 basis points. I think we think those rates ease some in 2023 for a number of the reasons that we've already talked about. But again, I think when we do that math we're replacing nurses who were making $65 or $70 an hour with temporary traveling nurses who are making $225 an hour. That's really the drag on our earnings in the current period. If we ultimately replaced those nursing hours that we were paying $225 for percent -- at $75, even though that's a reasonable increase from what we had been paying pre -pandemic, it's still an enormous improvement over where we're sitting right now.
All right. And just a follow-up question, when I think about the nursing issue, like the acute care seems very obvious. You have the premium rates, you had COVID spikes, and that should come down. But I struggle more with the behavioral side, and whether there are some structural shifts in nursing. I'm going on. I guess what is your view on that? And is there anything you can do to reduce your reliance on nurses? And if it is more structural in nature, would you consider a portfolio rationalization like in sort of markets? Are you closing units right now? And maybe -- I know you've got a lot of nursing staff, but do you have like an absolute number of nurses you had pre -pandemic and what are these versus now on the behavioral business? I'm just curious to see how much your nursing staff has been reduced and what you have to overcome to return to growth. Thanks.
So we talked about this. The most difficult position generally to bill during the pandemic has been the registered nurse position on both the acute and the behavioral side. And we're experimenting -- more than experimenting, I think we're implementing newer models of patient care that rely less heavily on the RMs and more heavily on LPNs and LBNs and paramedics and all sorts of other folks who are rendering care and not what -- I just want to make this point very clear. We're not having people practice the phrase that gets used in the profession is above their license. What we're trying to do is relieve our RNs from doing more clerical and administrative work, than they need to do. Somebody else can answer the phone, somebody else can speak with families, somebody else can change the sheets in a room, whatever it maybe, less allows the nurses to do the things that are, again, at the top of their license. Doing psychological assessments and behavioral care and delivering medication and all those sort of things. And so that's really a big focus of ours. Now again, to be fair, both sorts of patient care model changes takes some time,
It takes some time to hire the other none RN positions, it takes some time to train people, take some time for people to get oriented, etc. But we think we're making. Any incremental improvement in those areas. And we will continue to do so. As far as portfolio rationalization, we're not really I think we're closing down capacity temporarily. We don't have sufficient clinical staff to treat patients. But I think we've talked about the. Again, in previous calls. We are, I think rationalizing our capacity to a degree as we're negotiating our managed care contracts, if our managed care payers are not giving us sufficient increases to recognize this elevated level of labor costs. We're canceling some of those contracts were changing payer mix, etc. So I think we're rationalizing capacity or the portfolio in that way. And I think I said this earlier, we're also seeing no to some of the really, really agreed [indiscernible]. A temporary traveling rates where we're just saying, look, it doesn't make sense for us to pay XYZ for nurse if we're only getting paid ABC from a payer. And so I think unlike some providers, we don't have the point of view that we're going to pay whatever it takes for nurse, I think in some cases we believe that it just makes sense to rationalize using your term some of the capacity you just run a lower volume for a period of time until rates come into a more normalized range.
Alright, thanks.
Our next question comes from the line of Sarah James, from Barclays. Your line is open
Thank you. I'm trying to run through some of the [indiscernible]. You said that you are 5% to 6% of internal first half in 1Q [indiscernible] $19 million to $20 million [indiscernible] premium pay went up 30. Can you give us what size was, I know last quarter you said it was about $25 million to $30 million in premium pay for the year. And then were there any positive offset because it seems like there were to get to that 5% to 6% of the internal forecasts?
Sarah, what we talked about before is that the premium pay on the behavioral side is much less of an issue than it is on the acute side is probably a third or lower and -- when you talk about premium pay as well as things like retention bonuses and sign-on bonuses, etc. The real issue on the behavioral side is insufficient volume and revenue growth. So in Q1 our adjusted patient days were I think 1% below the prior year. Our overall revenue growth was 3.5% to 4%. Clearly those -- that level of growth in both volume and revenue is not sufficient to support the increased labor inflation and just the general inflation we're experiencing. But it's not -- the issue on the behavioral side is not to get rid of the premium pay that certainly our goal as well, but the real issue on the behavioral side just a higher sufficient clinical staff and to change the patients care models to hire sufficient clinical staff so that our patient days are growing at least at their historical norm levels of 3% to 4% a year.
And then earlier in the call, you talked about considering expanding into alternative care models. What do you mean by that? Is that outpatient and methadone clinic or can you be more specific?
Yes. So what it means I think are the folks who are delivering patient care are less or in intensive and more lower license level people where we have LPN's or LVN or tax or whatever. Again, what it's really designed to do is to allow the RN to practice at the top of his or her license and allow other people to do the more administrative in clerical activities. And as a consequence, deliver the highest efficiency and best quality of patient care that we can in a way that allows us to treat as many patients safely as we can.
And last question is just a follow-up to Ann, when you mentioned canceling some payer contracts or shifting payer mix, is there any other detail you can provide on that as what payer or [indiscernible]
Yeah. So you're breaking up a little bit there. I'll try and answer what I think you asked. Again, I think the detail that I'm off around that is if you look at our Q1 behavioral results, our revenue per adjusted day is up 5 plus percent. I think that's reflective of the fact that we're doing a pretty judicious job of negotiating increased payer rates and choosing and trying to engineer payer mix, so that we're not dealing with payers who are sort of refusing to give us the sorts of annual rate increases than we would need to kind of replacing it. I think we're being very successful at that. I think we're very pleased with that 5 plus percent of revenue per adjusted day on the behavioral side of the business. Again, now, the real challenge for us is to move from a negative 1% patient day growth to move the historical normative 3% or 4% or even above that.
Thank you.
Our next question comes from the line of AJ Rice from Credit Suisse. Your line is open.
Hi, everybody. Maybe just a couple of questions. On the behavioral side. I know we're mainly talking about the labor component here, but I just want to make sure that you're still feeling like the underlying demand for the service is still strong. I know your biggest hospital peer, which has -- behavioral health units reported that they were actually down year-to-year too in behavioral. So I wonder if it's still so strong? Where are these patients going? Do you have a sense of what's happening to them?
Look, I think the reality A.J. is that in many cases they are going untreated. In many of our markets, you definitely have a sense that we're unable to take a certain number of patients because we don't have sufficient clinical staff. It's not like we believe that our peers in the market are able to do something we're not. So I think some of those patients wind up not getting the care that they really need and sort of that to your point and we've made this point I think very consistently during the entire pandemic and that is the ways that we measure the underlying demand. I think we mentioned them in a number of different ways. But one of the ways we measure the underlying demand is what we describe as inbound activity. These are the phone calls that we get in our 800 numbers, the Internet inquiries we get to our website, etc. And those -- the volume of those inbound inquiries have been doing nothing but generally consistently rising during the pandemic. And our conversion rate, the number of those inbound inquiries that ultimately result in admissions, that percentage has declined pretty dramatically during the pandemic, really primarily because of the labor scarcity issues that we've been talking about. So to answer your initial question, which again, I think Mark addressed in a broader way in his comments earlier, is we have a lot of confidence that the underlying demand for both of our business segments have not changed in any fundamental way.
Okay. I know one thing relative to your other public peer in behavioral that you're a little different is that you have some markets like in Massachusetts and Texas, where you have multiple behavioral health facilities in one metropolitan area or cluster of them. When you look at that, are those presenting specific challenges? Do you have more labor issues? How do you manage the fact that one behavioral health facility is not competing against the other behavioral health facilities for labor. Do you coordinate that? Any thoughts?
I think the reality is obviously having multiple facilities in a market which we do in a number of markets. You mentioned Boston, Philadelphia, Atlanta are all markets in which we have a pretty significant market share and a multiple facility presence. And obviously that affords to you some luxury of being able to move employees amongst facilities. It allows you to centralize some of the recruiting and HR functions and be more efficient in that regard, etc. So there is some benefit to that. But the real issue is that some geographies are just more challenging than others in terms of the labor scarcity. And I think what we find is that when a market is challenging, all the providers in the market are challenged and that's just the way it is. Now again, I will tell you we have certain facilities that are fully staffed, that are not struggling. We have other facilities that struggle to hire RNs. We have other facilities that have a provision number of RNs, which struggle to hire mental health technicians or unlicensed professionals. So it really there and I wouldn't say that having multiple facilities is even more or less difficult. I think it just really depends on the geography.
Okay. And maybe just one final question. So obviously, your step-up pace or share repurchase is an important part of the UHS storage for this year. I guess, how should we think about that activity? You did about $350 million in Q1. On the one hand, the market is giving you an opportunity here where there's a significant sell-off and in stock today. And so you get an opportunity to buy it cheaper than you could yesterday. Alternatively, you're just talking about the fact that you've got to see some improvement or you may adjust guidance at mid-year. Should we think that you would step up to try to take advantage of the pullback here or do you sort of hesitate until you get better clarity on whether there's going to be a need to adjust guidance, which you're thinking about, share repurchase activity going forward?
So we indicated in our initial guidance that our plan for share repurchase for 2022 was roughly $1.4 billion with the $350 million in Q1, we're right on track to get to that number, to your point. Obviously, the market has changed a great deal, just in the last few days. And to be fair about it, we haven't made any firm decisions about how to think about that, whether we'll try and accelerate share repurchase, etc. We certainly -- we'll think about that, but the comment I guess that I have made today is simply that I think we have every intention of fulfilling the annual share repurchase amount or something close to it, that was in our original guidance. That certainly our view hasn't changed. And again, I think for all the reasons that Marc articulated in his prepared comments, our confidence that the labor scarcity situation will get resolved and that the underlying demand is still quite strong in both of the businesses.
But just to go a bit further, as you said that when we are going to look at this and so we're right on track for our previous guidance if our shares continue to be this undervalued. It would be pretty fair event that whether we go above that 1.4, we haven't made a decision yet, but we're certainly going to look very carefully at doing something when our shares are so undervalued given what you just said about our belief in the business. The demand is there. This labor issue will subside at some point. So we know that fundamentally will be in a good position. So we can take advantage of the undervalued share price. We'll certainly consider that and probably do that.
Okay, great. Thanks a lot.
Our next question comes from the line of Jamie Perse from Goldman Sachs. Your line is open.
A good morning, Marc and Steve, can you give us any color on profitability by month in the acute care segment, even directionally, it seems like the labor environment was similarly challenged across all the months. But the big difference in January, you got a lot of COVID. March looked a lot more normal and I'm just trying to understand and the trajectory of profitability and that type of mix shift happened.
So I think as we have found throughout the pandemic, the acute business benefits to some degree from the COVID surges. The COVID patients historically have been more acutely all that. I think that was a little bit different in this most recent surge. Obviously, we got the benefit of the 20% Medicare add-on for COVID patients. We had the benefit in the quarter of the HRSA reimbursement for you're not -- uncompensated or uninsured COVID patients, all of that has pretty much been exhausted. I think the Acute Care of business, whether is the COVID surge in December and January better than the behavioral business where they're really on the behavioral side of things is no benefit from the COVID surge, there's only pressures that sort of accompany it. I think the dynamic of the quarter is that we assume that as COVID volumes decline, the labor scarcity issue would ease more than it did and would benefit both of our segments in more than it did. So I would say that acute profitability didn't change all that much during the quarter. I think our budget increased, so our budget shortfall increases with the quarter went on. Although, profitability only change much. I will tell you that on the behavioral side. Profitability was really challenged in January when the COVID volumes were as high as they were and got better as the quarter went on.
Okay. That's helpful. And then just we've talked a lot about all the money you're spending on premium labor today. I'm just trying to think about as rates and utilization of premium labor come down, if that gives you an opportunity to redeploy some of that into base wage rates. Just thinking about the recapture ability of some of these excess costs right now, is it all recapturable or two-thirds, half, just any thoughts on that would be helpful.
Yes. I think the reality is, there's not a lot of -- I forget the term you used. So sort of transferability between the two. I made this point before, when a nurse comes to her supervisor to a hospital, chief nursing officer, whatever and says that he or she is leaving to make $10,000 a week, which is probably four or five times what his or her salary is. There's really no account of we can make to that and raising base wages by a 100 basis points to 200 basis points is not an effective counter to that sort of an offer. So those opportunities really have to diminish in number in order for those nurses to come back. We're not going to entice those nurses to come back with, again, a 100 basis -- a 100 basis point increase in wage rates, which again I think is why the underlying base wage rate inflation while it's up is both acute and behavioral is not up by hundreds and hundreds of basis points, but just by 100 or 150 basis points because they're not really being changed to meet those that premium pay that we just can't do that.
I'll make one more point on this. What we're trying to do, we're doing, Steve already mentioned earlier, we do market surveys and we're doing just in a second -- on a quarterly basis in lot of our markets trying to understand exactly what the correct base rate is for market. One of the things I want to make sure people recognize is that a lot of traveling nurses don't actually travel anywhere. So in certain markets, I've seen traveling nurses up to 50% of those "travelers " are people that live within four or five miles of where they are traveling to. So a lot of them are people that have actually not going anywhere. They're taking traveler contracts in their home market. And what is happening now and is going to continue to happen is that those opportunities for the traveling contracts are going away. And so hopefully sooner than later, a lot more of those "traveling nurses " if they want to stay in their home market, which they clearly do because haven't gone anywhere, they're going to have to go back to the local hospitals at the local wage rates and not the traveling rates that they were getting for those contracts previously. And we're already starting to see that and hopefully that's going to accelerate in the next couple of months.
Thanks, guys.
Our next question comes from the line of Kevin Fischbeck, from Bank of America. Your line is open.
Good morning. Actually, this is Joanna Gajuk, filling in for Kevin. Thanks for just a couple of follow-up questions. So you mentioned on the psych business, the pricing is pretty strong and I guess you managing your contracts there. Can you talk about on the acute care side? Or are the commercial rates now are contracting there? Are you pushing rates there also to get some offset on the inflation and what the success rate is and kind of any way you can frame it for us, that -- the piece of the business on the acute care side, in terms of the commercial payers. Thank you.
Yeah, Joanna. I mean, I think we're doing the same thing on the acute side. I think it's a little bit harder to see on the acute side because I think on the acute side, revenue per adjusted admission tends to be impacted by other variables besides just fewer pricing and especially during the pandemic, probably acuity has had a bigger impact on acute care revenue per adjusted admission than anything else, including the underlying pricing. But yes, I mean, we're making those same judgments and for the same reasons, quite frankly. If payers are unable to give us sufficient rate increases at a minimum to sort of absorb, at least a portion of this inflation, and particularly the labor inflation, then I think we're willing to cancel contracts, terminate contracts, move into kind of to shift payer mix to other more reasonable payers.
And I guess on the Sachs, hey, when you talk about the 5% increase you experienced in the quarter, is that kind of how you think about this going forward? Is this kind of assuming your guidance since the pricing?
Yeah. So what we had said is that pre-pandemic, our behavioral pricing for a number of years tend to, to go up about 2% or 3% a year. During the pandemic, we've seen it up in that 5% to 6% range, which is what we saw in Q1, I think it settles [indiscernible] as we emerge from the pandemic in between, in maybe that sort of 3% to 4% range. Because I think some of the payer behavior which got a little bit less aggressive in terms of denials and things like that during the pandemic probably reemerges post-pandemic. So yes, I think again, I think we think the April pricing settles into more like a 3% or 4% range. Again, what's really needed to turn the behavioral segment around and start meeting our expectations is got to increase those adjusted patient days from your negative one to up three or four beyond that.
Right exactly is that -- that's the big, hairy show. We talked for the last hour on. But I guess in terms of the volumes of the acute care segment, so did I hear, right? Right. Do you said that volumes return to normal, I guess towards the end of the quarter, did you mean kind of the Pre -COVID levels to any kind of commentary but in terms of the types of volumes and where you see there that could care side?
One of the most important metrics that we've had during the pandemic is surgical volume because it encompasses a lot of those elective procedures. Our surgical volume in Q1 was above or pre -pandemic surgical volumes to be fair, slightly above not by a lot. But I think it was the first time during the pandemic that our surgical volumes actually exceeded the pre-pandemic or 2018 level. So again, another encouraging sign that again, once we get some of these labor pressures at least partially behind us should help in the recovery.
Great. Thank you so much.
Our next question comes from the line of Whit Mayo from SVB Securities. Your line is open.
Hey, thanks. Just one more question on premium pay. Take the $150 million, what did it look like the very first three quarters of 2021? I'm just trying to get a better comparison here.
I don't necessarily have those numbers in front of me, Whit. I think what we said, which I know in our last quarter was that in the fourth quarter of '21, it was $70 million. I think in the first quarter of '21 it was $50 million so I think you could bridge that gap.
No, that's perfect. And just one other follow-up question. Just the DRG add-on in the [indiscernible] payments, can get that those two numbers from you?
Yes. We just have disclosed all along that the impact of those numbers, I believe in 2021 was about $11 million a quarter each. In each for hers and for the 20%.
Okay. That's it. Thanks.
And Mary, we're going to have to make that our last question because we have some other commitments here.
Thank you. You may have --
So we'd like to thank everybody for their time. Thank you.
This concludes today's conference call. Thank you, everyone, for participating. You may now disconnect.