Universal Health Services Inc. (NYSE: UHS), one of the nation’s leading providers of acute and behavioral health care, has demonstrated the impact of strategic negotiation tactics on its behavioral health reimbursement rates. At a recent Credit Suisse conference, Steve Filton, UHS’ Chief Financial Officer, detailed how the company has leveraged capacity limitations and inflation to strengthen its negotiating position, particularly in its behavioral health division.
According to Filton, UHS has been deliberately strategic in its approach. “We’ve made a very specific point that — on the behavioral side — we’re probably undertaking that exercise even more aggressively because … we’ve had to turn patients away,” he said. “If we’re going to turn patients away, we may as well turn away our lowest-paying patients.” These tactics are already improving behavioral health reimbursement rates, as daily patient revenue increased by 5% in the third quarter while patient days in the behavioral health division rose by 3%. Filton emphasized that these rate increases are “clearly on the high end” of historical trends.
Behavioral Health: High Demand Meets Staffing Challenges
The behavioral health sector has faced significant challenges in recent years, driven by growing patient demand and persistent staffing shortages. During the pandemic, UHS struggled to recruit and retain permanent staff in both its acute care and behavioral health divisions, forcing reliance on contractor labor and increasing staffing costs.
Behavioral health facilities, unlike acute care hospitals, do not receive federal support for COVID-related care costs. This lack of support has intensified operational pressures, limiting profitability even as UHS continues to see upward trends in behavioral health reimbursement rates. “On the behavioral side of the business, COVID surges … have generally had only negative implications for the behavioral business — there’s really no positive offset,” Filton said.
The workforce shortage has also impacted capacity. UHS has had to turn away patients due to staffing limitations, which has, in turn, shaped their negotiation strategy. By prioritizing higher-paying patients, the company has been able to secure stronger behavioral health reimbursement rates while managing constrained capacity.
Financial Implications and Strategic Adjustments
These staffing and operational challenges have had measurable financial consequences. Elevated contractor labor costs led UHS to cut its annual earnings projection for 2022 by 19%. Filton, however, stressed that underlying demand for behavioral health services remains strong. “We don’t feel like the COVID dynamics have really changed the underlying demand for our behavioral services,” he said.
Economic pressures, including inflation and a potential downturn, may further influence staffing trends. Health care workers may increasingly pursue stable employment rather than high-cost contractor positions, potentially easing labor shortages and supporting sustained behavioral health reimbursement rates. Filton explained, “Nurses have always had the opportunity to work as temporary or traveling nurses. The way the pandemic changed that whole equation was the concern about not being able to get all the hours you wanted disappeared.”
Strategic Lessons from UHS’ Approach
UHS’ experience highlights several key lessons for health care providers navigating the current landscape:
- Negotiation power matters: UHS’ use of capacity and inflation as leverage has directly supported higher behavioral health reimbursement rates.
- Labor scarcity is persistent: Staffing shortages are reshaping operations and profitability in both acute and behavioral health divisions.
- Behavioral health faces unique challenges: Lack of federal COVID support and ongoing workforce constraints make strategic negotiation essential for maintaining strong behavioral health reimbursement rates.
- Economic forces influence workforce dynamics: Inflation and economic uncertainty could encourage a shift from temporary labor to permanent roles, which may further stabilize behavioral health reimbursement rates over time.
Ultimately, UHS’ strategic focus on high-value patients, capacity management, and negotiation has allowed it to achieve impressive gains in behavioral health reimbursement rates despite ongoing workforce and economic challenges. The company’s approach offers a roadmap for other providers looking to balance operational pressures with financial growth in the behavioral health sector.
