Universal Health Services (NYSE: UHS), one of the nation’s largest hospital management companies, is actively exploring over 40 new behavioral health joint venture (JV) opportunities, according to CFO Steve Filton. These prospective projects come in addition to ten recent or ongoing initiatives and highlight UHS’ aggressive expansion strategy in behavioral healthcare.
A Growing Pipeline for Behavioral Health Expansion
During the company’s fourth-quarter and year-end 2019 earnings call, Filton emphasized the robust interest among geographically diverse not-for-profit acute care hospitals in partnering with UHS. “It reflects a very active pipeline,” he noted, underscoring the demand for expanded behavioral health services across the country.
Headquartered in King of Prussia, Pennsylvania, UHS operates both acute care and behavioral health facilities, with a roughly equal revenue split between the two segments. The company’s behavioral health division includes 328 inpatient and 21 outpatient facilities across the U.S., the United Kingdom, and Puerto Rico. In 2019, behavioral health accounted for 46% of UHS’ nearly $11.4 billion in net revenues.
The Role of Joint Ventures in Behavioral Health
UHS’ joint venture strategy is central to its behavioral health growth. Through partnerships with non-UHS acute care hospitals, the company aims to enhance the delivery of mental health services while often constructing new facilities tailored to community needs.
Currently, UHS has three newly opened behavioral health JV facilities and seven more under development, all expected to become operational within the next year or two. A notable example is the Via Linda Behavioral Hospital, a 120-bed facility under construction in Scottsdale, Arizona. This hospital represents a JV between UHS and HonorHealth, a non-profit community healthcare system serving the greater Phoenix area. UHS will hold majority ownership and manage operations for the facility, which is scheduled to open next year.
Filton explained that most UHS JV hospitals follow a similar model, typically ranging from 100 to 120 beds, with UHS maintaining a majority stake—generally around 80%—and operational control. “It would be highly unlikely that we would enter into a joint venture in which we have less than 51% share and basically the management control of the facility, but each deal is negotiated separately,” he said.
IMD Exclusion Changes Drive Interest
Part of the increased JV activity may stem from evolving rules around the Institutionalized Mental Disease (IMD) exclusion, which historically prevents Medicaid from covering patients in inpatient behavioral health facilities with more than 16 beds. While the exclusion has long existed, a growing number of states are adopting waivers that allow them to bypass the rule, creating new opportunities for adult behavioral health patients to transition from acute care to freestanding facilities.
Filton noted that the IMD changes have fueled more active JV conversations, as acute care hospitals become more open to collaborating on freestanding behavioral health facilities.
Leadership and Strategic Focus
UHS is also seeing a shift in behavioral health leadership with the appointment of Matt Peterson as the company’s Behavioral President. Peterson, who joined last year, brings a background in managed care and military leadership, which company executives say adds discipline and rigor to UHS’ behavioral health operations.
Filton explained that Peterson is exploring opportunities to collaborate with managed care payers in ways that are mutually beneficial, though these initiatives are still in early stages. “I don’t think he’s identified terribly new issues or different issues,” Filton said. “But … Matt is bringing some level of rigor and discipline to those processes that we haven’t necessarily had before, and I think, ultimately, that will certainly be helpful.”
Financial Performance and Industry Challenges
UHS reported strong revenue growth for both Q4 and the full year 2019. Quarterly net revenues were nearly $2.9 billion, a 5.1% increase from the prior year, while annual net revenues reached almost $11.4 billion, up 5.6% from 2018. Behavioral health net revenues grew 4.5% on a same-facility basis in Q4 and 3.1% for the year, with admissions increasing slightly under 1% for the quarter and 1.2% for the year.
Despite the positive trends, UHS’ behavioral health segment faced several challenges. Staffing shortages remain a significant concern, forcing facilities to cap bed availability and, at times, turn away patients. Additionally, one of UHS’ Florida behavioral facilities suffered damage from Hurricane Michael in Q4, illustrating the vulnerability of infrastructure to unforeseen events.
Market Outlook and Future Opportunities
With more than 40 JV opportunities in the pipeline, UHS is positioning itself to expand its behavioral health footprint strategically. The combination of operational expertise, majority ownership of facilities, and adaptation to regulatory changes—such as IMD exclusion waivers—supports the company’s aggressive growth strategy.
The UHS model emphasizes both patient care and operational efficiency, ensuring that each JV facility meets community needs while maintaining high standards for quality and safety. This approach allows UHS to address the growing demand for behavioral health services, particularly in underserved regions and in partnership with local acute care hospitals.
Conclusion
Universal Health Services is demonstrating a clear commitment to expanding behavioral health care access through strategic joint ventures. With a strong pipeline of over 40 potential projects, new leadership, and innovative approaches to regulatory challenges, UHS is poised to continue its role as a major player in the behavioral health sector. As the healthcare landscape evolves and demand for mental health services grows, the company’s proactive JV strategy could serve as a model for sustainable, collaborative expansion in the industry.
