Universal Health Systems Inc. (NYSE: UHS), one of the largest operators of acute and behavioral health facilities in the U.S., is maintaining a firm stance in negotiations with low-paying health plans as it addresses ongoing UHS behavioral health workforce challenges. The company’s goal is to secure higher reimbursement rates, a strategy that relies heavily on improvements in its behavioral health workforce. CFO Steve Filton outlined the nuances of this approach during the Goldman Sachs 43rd Annual Global Healthcare Conference, underscoring the delicate balance between operational capacity and financial sustainability.
Pre-Pandemic Revenue Growth vs. Pandemic-Induced Changes
Before the COVID-19 pandemic, UHS experienced relatively stable adjusted per day revenue growth of about 2% to 3% annually. However, the pandemic accelerated these increases, with rate hikes of 5% to 6% in a single year and even higher during certain periods. This rapid growth provided UHS with increased leverage in conversations with payers, allowing the company to push more assertively for better reimbursement deals.
Yet, these gains came amid substantial operational challenges, especially related to workforce stability—a critical factor in the behavioral health segment. The pandemic caused turnover rates and the demand for contract labor to surge dramatically, inflating labor costs and squeezing profitability. These are key elements of the ongoing UHS behavioral health workforce challenges.
Workforce Disruptions Limit Capacity and Revenue
Despite paying premium rates for contract staff, UHS faced persistent staffing shortages. The company was forced to shut down beds in some facilities because it simply couldn’t staff them adequately. This reduction in available beds limited the ability to admit new patients, directly impacting revenue generation and underscoring the connection between workforce availability and financial performance. These limitations are part of the broader UHS behavioral health workforce challenges affecting the company’s operational capacity.
The workforce issues also lasted longer than initially expected. In April 2022, UHS nearly withdrew its financial guidance for the year due to uncertainty about how these challenges would resolve, but opted to wait for more clarity.
Optimism on Hiring Trends and Behavioral Health Workforce Stability
Filton expressed cautious optimism regarding recent hiring trends. Since the summer of 2021, UHS has seen record rates of hiring behavioral health staff, though turnover remained high for some time, resulting in little net gain. Encouragingly, the last few months have shown positive net hires, signaling progress toward stabilizing the workforce and addressing UHS behavioral health workforce challenges.
This shift is critical because a stable workforce allows UHS to fully staff facilities, keep beds open, and increase patient intake—all of which are necessary to support the company’s strategy of negotiating higher reimbursement rates with payers.
Economic Headwinds and Potential Labor Market Benefits
The general economic uncertainty in the U.S., highlighted by recent stock market declines and the specter of recession, could indirectly help UHS’s workforce challenges. Filton pointed out that while recessionary conditions are not desirable broadly, they might ease competition for healthcare workers as other industries slow hiring or lay off employees. This could make healthcare jobs relatively more attractive and help UHS attract and retain staff, easing some of the UHS behavioral health workforce challenges.
Contract Labor Costs: The Aftermath of Federal Aid
The high cost of contract labor during the pandemic was fueled in part by government aid programs such as the CARES Act, which allocated billions to help hospitals manage the crisis. This influx of subsidies allowed many nonprofit hospitals to aggressively pay premium rates for contract staff, escalating labor costs across the healthcare industry.
Now that these subsidies have ended, nonprofit hospitals are adjusting their hiring and contracting practices. Filton believes this “rationalization” is a positive development that will help rebalance supply and demand in the labor market and gradually relieve UHS behavioral health workforce challenges. However, he acknowledges that this realignment is progressing more slowly than expected.
Strategic Negotiation Tactics Reflect Market Position
When approaching payer contract renegotiations, UHS employs a calculated strategy that weighs regional market dynamics. Key considerations include UHS’s market share in a particular area, the market presence of the payer, and the availability of alternative behavioral health providers.
According to UHS’s Q1 investor presentation, the vast majority of its behavioral health facilities rank as the first or second largest providers in their markets. This strong market positioning gives UHS significant leverage when negotiating for higher rates.
The Stakes: Contract Termination as a Negotiation Tool
Filton highlighted that the threat of contract termination remains the ultimate leverage point in payer-provider negotiations. UHS is prepared to end contracts with low-paying insurers if those payers cannot offer reasonable reimbursement increases.
“We’re going back to our most problematic contracts, our lowest-paying contracts, and saying, ‘You’ve either got to give us a more reasonable increase or we’ll terminate the contract,’” Filton explained. “In a figurative way, we’ve got patients lining up outside our door whose payers or insurers are willing to pay us more.”
Termination threats carry real weight because payers need places to send their patients. If UHS controls critical bed capacity, payers have fewer alternatives, making them more likely to acquiesce to demands. Conversely, if payers have other options, they may be willing to accept termination or push harder in negotiations.
UHS’s Size and Scope Amplify Its Market Influence
UHS operates approximately 400 facilities with a workforce of around 90,000 employees, including 335 inpatient behavioral health facilities and 14 outpatient facilities across the U.S. and the U.K. This scale positions the company as a major player in the behavioral health sector, further strengthening its ability to negotiate favorable contracts.
The combination of broad geographic presence, significant market share, and increasing patient demand supports UHS’s confidence in pursuing tougher terms with payers, provided the workforce issues continue to improve.
Looking Ahead: Balancing Workforce Stabilization and Financial Growth
The future of UHS’s reimbursement strategy is closely tied to its ability to stabilize and grow its behavioral health workforce. While recent hiring trends are promising, the company must continue to attract and retain qualified staff to keep facilities fully operational.
Economic headwinds may provide some relief on the labor front, but the healthcare industry must still grapple with the lingering effects of the pandemic and the high cost of contract labor. As nonprofit hospitals adjust to the post-subsidy landscape, UHS expects a more balanced labor market to emerge—albeit gradually.
In this environment, UHS’s firm approach to payer negotiations, leveraging its market dominance and growing patient demand, is likely to persist. The company’s willingness to walk away from unfavorable contracts underscores its confidence in its unique market position and the critical importance of workforce stabilization to sustaining growth amid ongoing UHS behavioral health workforce challenges.
