Universal Health Services Inc. (NYSE: UHS), one of the nation’s leading operators of acute care and behavioral health facilities, is intensifying its push for higher reimbursement rates. The company’s leadership is warning insurance payers that unless they keep pace with inflation, especially labor cost increases, UHS will not hesitate to terminate contracts. This clear and firm approach—centered around the UHS reimbursement rate strategy—was a central theme during their second-quarter earnings call on July 26.
CFO Steve Filton noted that some payers, including UnitedHealth Group, have started acknowledging inflation’s impact on provider costs, particularly labor. This shift was underscored by comments from UnitedHealth Group CEO Andrew Witty and UnitedHealthcare CEO Brian Thompson, who both recognized higher labor costs in their payment arrangements. Filton described this as a first for major payers, showing progress that aligns with the UHS reimbursement rate strategy goals.
Labor Shortages and Inflation Drive the Need for Higher Reimbursements
At the core of the UHS reimbursement rate strategy is the urgent need to address rising labor costs. The nationwide shortage of health care workers, worsened by the COVID-19 pandemic, has forced UHS to rely more heavily on costly contract labor. A Kaufman Hall report shows contract labor expenses are now five times higher than before the pandemic. These inflated costs have directly pressured UHS’s earnings and operations.
Filton expressed hope that payers will increase reimbursement rates throughout 2023 in recognition of these trends. Meanwhile, UHS is proactively terminating contracts that don’t reflect these inflationary pressures. “We’ve been aggressively giving notice of termination on contracts… at a pace faster than I can remember,” Filton said, emphasizing that the UHS reimbursement rate strategy involves walking away from inadequate payment agreements to safeguard financial health.
Financial Results Highlight the Challenges of Rising Costs
UHS’s financial results for the second quarter reflect the challenges faced in balancing cost pressures with service demand. The company lowered its 2022 earnings guidance by 19% due to high labor costs and lower patient volumes. Yet, second-quarter earnings per share of $2.22 exceeded internal guidance, though slightly below analyst expectations.
Revenue increased 3.9% year-over-year to $3.32 billion, but net income fell by 51% to $164 million—highlighting margin compression caused by rising expenses. These results underscore the urgency behind the UHS reimbursement rate strategy, which aims to improve financial sustainability by securing payment rates that truly cover operational costs.
Behavioral Health Remains a Growth Engine Amid Workforce Challenges
UHS’s behavioral health segment generated $1.77 billion in revenue and $250 million in pre-tax income during the quarter. While admissions dipped slightly, patient days increased, indicating ongoing demand. Filton remains confident that once labor shortages ease, the segment can return to its historic growth rates of 3% to 5% annual volume increases.
To combat labor scarcity, UHS is innovating care delivery models that reduce reliance on registered nurses without compromising care quality. This operational adjustment is a critical element of the UHS reimbursement rate strategy, ensuring the company can continue providing high-quality behavioral health services despite workforce challenges.
Implications of the UHS Reimbursement Rate Strategy for the Industry
The UHS reimbursement rate strategy highlights a growing trend among health care providers to push back against stagnant reimbursements amid rising costs. By aggressively terminating contracts that fail to keep pace with inflation, UHS is signaling that providers must be adequately compensated or risk losing access to care networks.
For payers, this creates pressure to balance cost controls with maintaining provider networks. The willingness of UHS to walk away from contracts demonstrates the critical nature of fair reimbursement in an environment marked by workforce shortages and inflation. The broader industry will likely watch how the UHS reimbursement rate strategy influences payer-provider dynamics moving forward.
Universal Health Services’ latest financial results and assertive approach to payer negotiations showcase a company striving to maintain growth and financial stability amid economic headwinds. The UHS reimbursement rate strategy is central to this effort, seeking reimbursement rates that reflect true care delivery costs. As labor challenges and inflation continue, how payers respond to this strategy will shape the financial health of the broader health care system.
