Universal Health Services, Inc. (UHS) Q1 2013 Earnings Report, Transcript and Summary

Steve G. Filton - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Secretary Alan B. Miller - Executive Chairman, Chief Executive Officer, Member of Executive Committee and Member of Finance Committee

Albert J. Rice - UBS Investment Bank, Research Division Ralph Giacobbe - Crédit Suisse AG, Research Division Joshua R. Raskin - Barclays Capital, Research Division Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division Christian Rigg - Susquehanna Financial Group, LLLP, Research Division Thomas Gallucci - Lazard Capital Markets LLC, Research Division Ryan K. Halsted - Wells Fargo Securities, LLC, Research Division Kevin M. Fischbeck - BofA Merrill Lynch, Research Division Darren Lehrich - Deutsche Bank AG, Research Division Frank G. Morgan - RBC Capital Markets, LLC, Research Division Kevin Campbell - Avondale Partners, LLC, Research Division Gary P. Taylor - Citigroup Inc, Research Division Justin Lake - JP Morgan Chase & Co, Research Division

Good morning. My name is Keisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services Q1 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Filton, you may begin your conference.

Good morning. I'm Steve Filton. Alan Miller, our CEO, is also joining us this morning. Welcome to this review of Universal Health Services results for the first quarter ended March 31, 2013. During the conference call, Alan and I 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 and uncertainties inherent in these forward-looking statements, I recommend a 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, 2012. We would 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 recorded net income attributable to UHS per diluted share of $1.21 for the quarter. After adjusting each quarter's reported results for the items disclosed on the supplemental schedule included with last night's earnings release, adjusted net income attributable to UHS increased 8% to $1.22 per diluted share during the first quarter of 2013 as compared to $1.13 per diluted share during the first quarter of last year. On a same-facility basis, revenues in our behavioral health division increased 2.4% during the first quarter of 2013. Adjusted admissions to our behavioral health facilities owned for more than a year increased 0.6% and adjusted patient days were relatively flat during the first quarter. Revenue per adjusted patient day rose 2.6% during the first quarter of 2013 over the comparable prior year quarter. Operating margins for our behavioral health hospitals owned for more than a year increased to 28.4% during the quarter ended March 31, 2013, as compared to 26.8% during the comparable prior year period. On a same-facility basis in our acute division, revenues increased 0.7% during the first quarter of 2013. The increase resulted primarily from a 1.5% decrease in adjusted admissions to our hospitals owned for more than a year and a 2.2% increase in revenue per adjusted admission. On a same-facility basis, operating margins for our acute care hospitals decreased to 16.0% during the first quarter of 2013 from 19.0% during the first quarter of 2012. Our acute care hospitals provided charity care and uninsured discounts based on charges at established rates amounting to $230 million and $312 million during the 3-month periods ended March 31, 2013, and 2012, respectively. The decrease in charity care and uninsured discounts recorded at our acute care hospitals during the first quarter of 2013 as compared to the first quarter of 2012 was offset by an increase in the provision for doubtful accounts, which amounted to $218 million during the first quarter of 2013 as compared to $125 million during the first quarter of 2012. As a percentage of acute care net revenues, bad debts, charity care expense and the uninsured discount in this year's first quarter were at levels higher than those experienced during the first quarter of 2012. However, due primarily to the increase in behavioral health revenues and the very low levels of bad debt and uninsured discounts in that business, our overall percentage of bad debts, charity care and uninsured discounts were lower than those experienced during the first quarter of 2012. Our cash from operating activities was approximately $188 million during the first quarter of 2013 as compared to $127 million in the first quarter of 2012. Our accounts receivable days outstanding increased slightly to 56 days during the first quarter of 2013. As previously disclosed, our accounts receivable days outstanding have been inflated somewhat by an increase in receivables from the state of Illinois. As of March 31, 2013, our accounts receivable include $72 million due from Illinois, the collection of which has been delayed by budgetary and funding pressures experienced by that state. However, thus far, in April 2013, we have received approximately $42 million of cash payments from Illinois, a substantial portion of which applies to the state's outstanding receivables as of March 31, 2013. At March 31, 2013, our ratio of debt to total capitalization was 56.4%. We spent $96 million on capital expenditures during the first quarter. Included in those capital expenditures were the construction costs related to the ongoing construction of a new acute care hospital in Temecula, California. Alan and I are pleased to answer your questions at this time.

[Operator Instructions] And our first question comes from the line of A.J. Rice with UBS.

A couple of questions, if I could. First of all, obviously, there's been a lot of discussion about the volumes and the softness of volumes due part -- at least in part to the calendar. I'd love to get your perspective on the extent to which you believe the calendar may have impacted to this quarter? And also, any early read on April where maybe the calendar would swing more favorable?

Sure, A.J. So I think, actually, historically, as a company, we tended not to point to the calendar as explanatory to changes in volumes. But this quarter, it's hard to get away from it. Obviously, we have one less day for leap year and that affects both of our business segments. And then we have Easter occurring in March of this year, and last year, it occurred in April. It's always difficult to sort of frame what the impact is of those sorts of things. But one thing that I think we look to and certainly has caught our attention is that our April volumes in both of our business segments have rebounded fairly measurably. So I think it reinforces the idea that there may have been some shift in business from March into April. Difficult to quantify in any sort of precise way, but certainly that's the feel that we have.

Okay. Maybe 2 more things on that. There's some discussion that, especially the Easter shift, had had a pronounced effect on commercial volumes even in the midst of soft volumes, generally. Did you guys see that? And also, we -- I would like to say we don't typically talk about it too much on the behavioral side, but can you comment on how the calendar might have affected the behavioral business specifically? Does it have impact on both the volume and price? Or is it more just volume?

Yes. So from a payor mix perspective, we saw trends, I think, continue in the quarter of declining commercial volume, declining Medicare volume, and more particularly, both managed Medicare and managed Medicaid volume. And yes, that's an unfavorable trend. But to be fair, it's not a trend that's particularly new to this quarter. So if the calendar exacerbated that sum, that's hard to tell. And unlike volumes, which we can see improving or rebounding in April, I cannot really -- I don't have a read on payor mix in April, so I can't really comment on that. As far as the behavioral business goes, I think that, obviously, leap year is just a mathematical sort of calculation and I think, again, it's affects both businesses equally. As far as the holiday goes, I think, historically, those kinds of holiday shifts have had more of an impact on the residential business than the acute behavioral business because kids tend to go home for the holidays, et cetera. And again, we saw -- we definitely saw some weakness in the residential business in the quarter. Absolutely not a new phenomenon, but it certainly could have been exacerbated by the calendar.

Okay. And then just lastly, on your acute care margin trend, that is sort of consistent with what you showed for a while now. Would you attribute that largely to the top line pressure, the volume pressure? Or would you -- I think last time you called out some physician costs. Is that still -- are you still seeing that as well?

Yes. I think that primarily the pressure comes from the fact that our same-store revenue grew by less than 1%. As we've talked about many times, it's difficult to drive any sort of margin improvement or expansion with revenues that are not a little more robust than that. But also, as you suggest, A.J., and as we talked about last quarter and I think folks can see on the other operating expense line, we continue to have some growth in that line that's a result of our increased activity in physician employment and physician acquisition.

Our next question comes from the line of Ralph Giacobbe with Crédit Suisse. Ralph Giacobbe - Crédit Suisse AG, Research Division: Just staying on the volume topic. Steve, you usually go through the geographic markets during Q&A so I was hoping you could that, if there's anything sort of worth highlighting, Vegas, Texas, et cetera?

Ralph, I mean, actually, from a kind of a gross volume perspective, Vegas had a relatively decent quarter compared to the rest of the portfolio. But one of the phenomena that we saw beyond just kind of a sheer volume weakness or gross volume weakness in the quarter was just a lack of intensity or acuity, surgical weakness. Surgeries were down 5%, both in- and outpatient surgeries approximately. And those phenomena, along with the payor mix dynamics that I talked about with A.J., were clearly present in the Vegas market, and for the most part, present throughout the portfolio. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay. All right. That's helpful. And then just going to the behavioral side, can you talk about the margins there? Obviously, a very strong result considering the soft top line. Is that sustainable? Should we be thinking about investments that you need to make ahead of 2014? Or maybe just how do you think about that margin profile as we think ahead?

Look, I think we've talked about that, in general, when same-store revenues grow by 2.5%, it's tough, even in the behavioral segment, to drive margin expansion, so we were particularly pleased by the results in Q1. I think the operators, obviously, are doing a great job there. I think we're still getting some benefit, as we've talked about, in the improvement in the PSI portfolio margins. We said that we would improve those margins during '12 and '13. We think we got a lot of that improvement in '12, but I think there was a little bit more to go. We certainly got some more of it in the first quarter. I don't think we can sustain EBITDA growth at 9% every quarter with only 2.5% revenue growth. But I think it's reflective of the opportunity in that business to continue to expand margins as long as we can continue to grow the top line, and I don't see any reason why we can't. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay. And then just my last one. Want to talk about sort of about next year and exchanges. Have you -- I guess, at this point, have you negotiated exchange contracts? If you have, can you give us a sense of what percentage maybe of the book you've maybe negotiated? And any color on kind of the rates that you're getting on the exchange?

Our commentary in that regard is really pretty consistent. We've negotiated really a small number of exchange contracts. For the most part, they've been negotiated at our average or maybe slightly below our average commercial rates, but in that neighborhood. But it is -- it remains a small number of contracts. And at least right now, I don't think the pace of those contract negotiations are picking up. So we anticipate, obviously, that will occur later this year. We anticipate that they will occur again at something pretty close to our average commercial rates, but that remains to be seen.

Your next question comes from Josh Raskin with Barclays.

Just to follow up maybe on Vegas and then maybe some of B.C. in there as well. The BLS data is showing some improvement in the unemployment trends, specifically in those markets. And I'm curious, are you seeing any change in those specific markets around levels of insurance or anything else that would indicate maybe some economic stability?

Well, Josh, I mean, I think we talked about this a little bit in Q4. I think we saw some improvement in the Vegas market in Q4 consistent, as you suggest, with some of the overarching kind of microeconomic data that has been coming out of that market for the last few quarters. I don't think -- Q1 was clearly weaker in that market, but as we've discussed and as some of our peers have discussed, that weakness seems to be far more pervasive than just a single market here or there. So I don't know how to read the Q1 Vegas performance or how to reconcile that to the improving market data that continues to come out of that market. Our general expectation is market's improving. You get that from the data. I think you get that if you're in the market. You just have a sense that it's picking up. And the expectation's we'll begin to feel that in our business fairly consistently in due time, although I think we've been pretty transparent about the fact that we're not at that point just yet.

Right, right. And no discernible change in benefit level, trends or things like that, that have increased co-pays and deductibles?

I know there's been a fair amount of conversation after the 2 pre-announcements in phase this quarter that maybe there's been a big pickup in high deductible plans, et cetera. Honestly, I think, as a provider and I assume more peers would say much the same thing, we're not in a great position to have a lot of data to support that. From what I've read, the managed care companies sort of indicate that high deductible plans and the like continue to grow and gain market share but not in a terribly dramatic way. So I don't know that anybody, including us, is really chalking up the first quarter weakness, particularly the late first quarter weakness, to dramatic changes in benefit plan designs.

And just last one for me, Steve, just on guidance. Could you help us, what do you have included in your guidance with respect to the fourth quarter around Medicare reimbursement? How are you thinking about IPPS? And then do you have DSH cuts included in there already?

Well, we definitely have DSH cuts. We discussed that in our fourth quarter call, that we included DSH cuts based on a calculation that our DSH would be negatively impacted by about $50 million annually, so we've got a quarter of that in the fourth quarter of our guidance this year. As far as the IPPS rates, I don't have it right in front of me but my recollection is we were sort of in the flat to up 0.5% range for the IPPS rates beginning in October.

Your next question comes from Whit Mayo with Robert Baird. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Steve, I'm not sure if you have a great answer for this, but I'll take a stab anyway. Any thoughts on whether or not you guys think that CMS could make a determination on whether it declines to apply the IMD exclusion to the newly eligible Medicaid population? I know it's a tough question.

And I'm sorry, Whit, you're asking me like what we think the likelihood of that is? Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Yes. Well, I mean, I know that CMS is reviewing whether or not they're going to apply the IMD exclusion or not, and I just was kind of curious on your updated thoughts or what you anticipate potentially happening.

Right, right. And obviously, as an industry, the behavioral industry, including us, has pressed for that. And we think the IMD exclusion is not really sort of beneficial to the overall population, et cetera, and is just not a great idea and that there would be a lot of macro benefits to be had from it being lifted. We certainly have pressed and lobbied CMS, again, as an industry, to do so. But as with so many other things in terms of what the government will ultimately do, I think it's hard for us to give any sort of realistic projection or guesstimate on how that's going to play out. I think we think it will be decided, however, relatively soon. So we will know one way or the other relatively soon. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Yes, okay. And I guess, even regardless of whether or not it applies to the newly expanded Medicaid population, there should potentially be a fairly large addressable site market with newer enhanced benefits. And do you think that there's an opportunity to accelerate some bed expansion projects to potentially capture some of this volume?

So I think there's a few different issues. I mean, there are a number of, I'll call them, sort of regulatory decisions pending that I think stand to at least potentially benefit the behavioral business. The final regulations on the Mental Health Parity Legislation are due out, and our hopes would be that they strengthen those regulations and that they particularly address that -- or note that they are relevant and that they address the residential, as well as the acute business. So that's one area, the IMD exclusion is another area. So I think that our view is that those developments, as well as just reform in general and the newly expanded or newly insured population that will arise as a result of reform, all should potentially create more behavioral demand in existing to -- in addition, quite frankly, to the existing demand that we continue to try and meet. So we're always looking at our behavioral expansion program and seeing if there are ways that we can accelerate it and make it sort of responsive to where that -- we believe that demand either exist today, specifically in focus markets or where we think it will develop. So that's a big focus of our behavioral health management team as we move forward. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Okay. And maybe just one last final one, if you could spend just a second on capital priorities. Your leverage is now, I think, below 3x now. And just maybe an update on what you're thinking over the balance of this year.

I think, again, our commentary here is going to be consistent with what it's been historically and that is we remain relatively agnostic about capital deployment. Meaning, we're anxious to deploy capital wherever we think it's going to earn the greatest return. We just talked about earning those returns in terms of organic expansion within our behavioral business that's clearly an area where we're going to continue to focus. But we also are looking at M&A opportunities in behavioral. We'll continue to look at M&A opportunities in acute. And there's a lot of commentary from our peers that, that pipeline is as active as it's ever been. We've tended to be, I think, a little more judicious than some of our peers about acting on some of those opportunities, but we're absolutely evaluating them. We continue to invest and reinvest in our acute care business. I mentioned in my comments about our Temecula, California hospital, which is opening late in the year. So we're just going to continue to do what we've always done, which is try and deploy capital in the most efficient way to earn the highest returns.

Your next question comes from Chris Rigg with Susquehanna.

I just want to clarify some comments earlier. I think you said you saw some volume weakness in the acute care side, specifically in the managed Medicaid and Medicare Advantage side. And I guess I just -- if I did hear that correctly, are you implying that you actually saw fewer people walk through the door of the hospital? Or you've just seen sort of a -- like some of your other peers have talked about an increase in observation visits that have sort of put pressure actual inpatient admissions?

No, I'm sorry, Chris, if I misspoke, I apologize or if I wasn't clear enough. What I talked about when talking about our payor mix dynamics was that we saw less commercial business and less traditional Medicare business and more managed Medicaid and managed Medicare business in the quarter.

Okay, okay. And then just with regard to Texas, in the Southern Texas market, you've had a couple of the Medicaid HMOs talk about some retroactive payment updates and you're seeing them also talk about pushing some of that along to their provider side, not necessarily hospitals per se. But I guess, are you guys expecting anything beneficial on the Texas Medicaid side, given what the managed care guys are seeing?

Hard to say. I would say that I don't think we're necessarily seeing that now. No, I don't think that we've really -- we've seen some pressure on utilization and length of stay as a result of the penetration of managed Medicaid in those South Texas markets, similar to what we've seen when managed Medicaid or Medicare comes to any market. I don't know that it's been a huge needle mover in the market. And if there is to be some relief going the other way, maybe some rate relief, I don't think we've seen it yet, but we're certainly well positioned to take advantage of it if that's going to be the case.

Okay. And then last question, just a follow-up on the M&A question a minute ago. I mean, when you think about pricing, particularly on the acute side, do you -- are you guys viewing the Affordable Care Act as a game changer in sort of takeout multiples going forward? Or I guess, I just want to get your sense in terms of where the M&A environment is evolving to given the changes we're going to have next year.

It's a complicated question and I don't think there's an easy answer to it. I think that,, as we look at potential acquisition opportunities, and in the same way we look at our own business, we certainly view the Affordable Care Act and the infusion of a newly insured population as generally in that benefit in almost all markets and for most hospitals. But we also acknowledge that there's likely to be continuing rate pressures from government and private payors in the future. And so again, I think we're as much interested in the positioning of a potential acquisition target, where they are in the market, what their market share is, how well they're sort of positioned to integrate with physicians, et cetera. And again, all the same criteria we use to think about our own hospitals as much as we are about sort of the mathematics of reform and rate changes, et cetera. So all those dynamics come into play as we think about potential acquisitions.

Our next question comes from Tom Gallucci with Lazard.

Just have a couple of follow-ups, Steve. On the exchanges, you mentioned not a lot of negotiations necessarily done at this point for yourselves. Are you seeing any other providers be more active? I know you typically have a pretty strong share in your markets. Do you think -- will those with less share are maybe offering narrow -- lower prices to get into narrower networks? Or do you any other dynamics going on more broadly in your markets that are of interest?

No, Tom. I don't think that the lack of activity on our part is in any way unique or an indication of we're sort of lagging the activity in our markets. I think it's a reflection that the payors have been, I think, slow to move. And my sense is that a number of the payors, and maybe particularly some of the larger payors, are being very deliberate about making their decisions on what they're doing. And I think, to some degree, that's why this process is developing a little slower than people expected that it might. But no, it's not a question of we're not negotiating any rates but we're standing by as we see more competitors doing so. That's not the case.

Okay, good. And then maybe just taking on the pricing side, just want to make sure you give us an update on your broader commercial negotiations and if there's any changes there, either in terms of rates or type of contracts, pushing more risk towards your way or anything like that.

No, I think from a rate perspective, rates continue to be comfortably in that 5% to 7% range that we've talked -- rate increases that we've talked about for some time. And in terms of new and differing kinds of contracting with significantly narrower networks or risk taking, et cetera, while I think that's a subject of conversation in a lot of markets, the actual on-the-ground presence of those kinds of new arrangements is really very limited.

Okay. And then maybe just shifting to behavioral real quick. Length of stay, obviously, it's been under pressure. I think you've commented in the past that you might have thought from a clinical perspective it would've bottomed already. Is there any signs of bottoming at this stage? Or it's just sort of more of the same?

I think it's the latter. It's more of the same. I mean, I think, and I probably should have been clear about making this point before, I mean, we've talked before about the fact that as the pressure, particularly on length of stay, continues in the residential segment of the business, we continue where appropriate, to convert beds to acute behavioral, to shift beds to acute behavioral. And again, I think that's part of the margin growth explanation even in a relatively muted revenue environment as we're shifting more business to the higher margin segment of the 2, from residential behavioral to acute behavioral. And frankly, I think we'll continue to do that because, again, as you suggest, we're not really seeing those dynamics change in the residential business. I mean, we saw length of stay decline again in the residential business in Q1 whereas length of stay in the acute behavioral business remained pretty stable.

All right. Okay. And then last one. I know it's a smaller deal, but you've got your hands dirty a little bit there on Ascend. Any color that you could offer?

I think for the most part, the Ascend acquisition is proceeding the way that we would have expected. There's always pluses and minuses in individual facilities. But again, we're very enthusiastic about that deal.

Your next question comes from Gary Lieberman with Wells Fargo.

Ryan on for Gary. I guess, going back to the acute care volumes, I was wondering if you are specifically seeing a reversal in the trends away from observation stay in the quarter?

I think observation visits increased year-over-year for us, although sequentially it certainly seems to indicate, at least again for us, that we're starting to see that activity level out some.

Okay. And then moving on to the behavioral. Obviously, you've given a lot of color on the margin benefit and -- but I guess, has Ascend -- or did you see any margin benefit from the Ascend deal this quarter? And should we expect it to sort of ramp similar to the PSI deal?

No, I think we've been clear that the Ascend margins, quite frankly, were already higher than ours, in large part because that was a business that was almost exclusively acute behavioral rather -- and didn't really have much of a residential component. And that we really thought that the improvement opportunity on the Ascend side was to increase capacity over time in facilities that were already running pretty high occupancy rates. So again, obviously, the Ascend numbers don't affect our same-store comparisons. But in terms of goosing our overall margins a little bit, they do that, although again it's a pretty small piece of business, so the moving of the needle is relatively minor.

Got it. And then as far as the regulatory, I guess, factors that you listed that could impact 2014 and behavioral, I was just curious how you guys are thinking about some of the alternatives that the states are considering for Medicaid expansion. Is that something you guys are paying attention to in potentially impacting your behavioral business?

Sure. I mean, I think, in general, we welcome any sort of insurance expansion. Generally, we're able to treat patients profitably that have some sort of insurance, whether it's government or private insurance. So these kind of negotiations between the states and the Feds and these nuances of exactly how insurance expansion is going to take place, we're certainly watching with interest, but at the end of the day, just generally have the sense that any insurance expansion that takes place is going to be beneficial to us.

Your next question comes from Kevin Fischbeck with Bank of America.

I just wanted to go to the guidance. I guess, since I don't remember you actually specifically talking about it, that means that you're reaffirming it, but the -- just in particular some of the components with a weak start to the same-store revenue growth on both the acute and the behavioral side. Do you still feel good about that 2.5% to 3% top line growth and -- on acute and, I guess, 4% to 5% on behavioral? Or do you think that, that number may come in lower but there's cost items that kind of leave you comfortable with the EPS range?

Sure, Kevin. So I think taking sort of the 2 business segments differently as we discussed in our guidance, our guidance is premised on acute care revenue growth in the 2.5%, 3% range for the year. We obviously fell short of that in Q1. Again, I think our general sense is that the latter half of Q1 was particularly weak. We attribute a lot of that to the calendar. Like I said, some of the rebound in April reinforces that notion for us. So I think we view that latter Q1 performance as largely an anomaly, so in our minds, there's no real change to our initial guidance and I don't fail to see. Otherwise, that will be the case. On the behavioral side, I think as we discussed in our end-of-the-year call, I think you're right. We were expecting review growth in the 4%, 4.5% range. Look, I think the Q1 performance is an indicator that on the behavioral side, we have some flexibility that even if we don't get there at the top line, we have an opportunity to get there from the EBITDA perspective and just gives us more reason to be comfortable with our initial guidance on the behavioral side.

Okay. All right. That makes sense. Can you just also talk about the charity care number in the quarter? Was there a change in the charity care policy that kind of shifted the numbers between charity care and bad debt in the quarter? And is there a reason for that?

I don't think an actual change in policy, Kevin, but I will say from a practical application perspective, we certainly got a bit more aggressive about qualifying people for charity care. Meaning, I think less people qualify for charity care and more people went through the actual collection process in the hopes that, in the end, we would collect and net a little bit more incrementally. Now at the end of the day, it creates this fairly significant cosmetic shift because to the degree that we don't collect, more of that is reflected as bad debt than is reflected as charity care. But in the end, the overall uncompensated care totals didn't change dramatically and largely came in as we -- where we expect it and so I don't think it was a significant bottom line issue in the quarter.

Okay. And then actually just going back to guidance for a second. Oftentimes, there's a delta between where consensus is and maybe where you guys are internally. Do you guys view Q1 as an in-line quarter versus your own plan?

Yes, I think that the overall results for the quarter were in line with our own expectations, although they broke out, as I'm sure they did in most people's models, with better-than-expected behavioral performance and slightly lower than expectations on the acute side.

Okay, makes sense. And then lastly, any update on the subpoena that you guys announced last quarter?

No. For the most part, as you might expect, it was a broad subpoena, so we're in the process of gathering the documents that have been requested, which is a fairly significant effort in and of itself. That will continue for some time and then I suspect it will take the government some time to sort through it. So my guess is that there may be no update on this for a while, but certainly not for this quarter.

Your next question comes from Darren Lehrich with Deutsche Bank.

Just a few things left here. I want to just go back to the volume question, Steve, wondering if you have a read it all on ER visits in the quarter. Just curious how that trended for you and whether just less traffic there also was a contributor.

Yes, ER visits we're relatively flat compared to the prior year quarter, which, again, I think was fairly consistent with our adjusted admission activity. The 2 of those usually mirror each other pretty closely. So it was sort of consistent with a more muted activity. We've seen ER visits growing by more than that in the previous quarters to this.

Sure. Okay. That's helpful. And then, I guess, a couple broader topics. One is just health care, IT implementation and just wondering how that's progressing. Sometimes, big projects like that can take on their own lives. I'm just curious how that's going for you guys.

We began the actual implementation of our EHR system into our hospitals after the design phase in the middle of 2011, right around July of 2011. And the plan that we had at the time was to have all 25 of our acute care facilities converted by July of 2013, basically a 24-month run rate. And I know we're only a few months away from that, and we believe we're going to meet it from a timing perspective. And to the credit of a bunch of our internal personnel, that process has gone really without any sort of major disruption, which is quite an accomplishment so we're very pleased with the way that's gone. And you don't see me, but I'm knocking on wood to just to ensure that we finish up in the same fashion.

That's great. So I guess all the -- the D&A guidance that's built in EPS will stand then in terms of you starting to depreciate all that?

I mean, D&A will ramp up as the year goes on, as more and more facilities come live on EHR. And then obviously, in Q4, it will ramp up again when we open our Temecula facility.

Great. And then I guess just -- I don't know if Alan is still in the room but just wanted to get some comments. Sometimes you give us some commentary on just physician employment activity and alignment activity. I know that alignment strategy has been a big focus for you guys in many of your markets. How do you see that playing out? And how are some of those trends impacting your acute business?

We are -- we're moving into that cautiously, and it's important that we position ourselves to build networks. And as the transition in the industry goes forward, we're going to be in a position to do very well with it. So we are -- we have put together a group that is buying up physician practices on a selective basis and managing them. And we are, I think, very well positioned to do networking and to be in a position to go after contracts as the exchanges come about, et cetera. But the business is in transition, as you well know.

And do you -- Alan, do you see yourselves taking on any risk? Just wondering if you're organizing yourself any differently to basically take some of the risk-based contracts or if that's just further down the road for you guys.

It's down the road. There's an actuarial aspect to that. We're not in that business. But again, depending on how the networks shape up and who our potential partners might be, we'll consider anything along those lines.

Your next question comes from Frank Morgan with RBC Capital Markets.

Most of my questions have been answered, but I wanted to go back to this -- the charity care issue and the charity care policy. Was there any particular markets where they kind of precipitated the need for that? Or did you notice any kind of different pattern in those markets to result in this more aggressive attempt at collections?

No, Frank, I think it was kind of an overall observation that maybe we -- that the pendulum had swung a little too far in terms of putting folks in the charity care designation when in fact there may have been an opportunity to collect at least some of their portion of the bill. But no, I don't think it was driven by a particular market. And like I said, I mean, I realize it has sort of a significant cosmetic impact on the income statement. I think, at the end of the day, while it was the right thing to do operationally, it's not going to have a huge -- make a huge difference to our results.

Okay. Just one other random one here. You mentioned on your early contracting with exchanges, without saying any names, could you characterize the kind of parties you're contracting with now? Is it Blue Cross'? Or was there -- how would you characterize those contracts that you have negotiated? And I'll hop off.

Yes, the only thing I would say, Frank, is I think they tend to be some of the smaller contracts we have, so -- in none of the cases that the negotiated among our really large and significant contracts. Other than that, I'm not sure there's anything -- any sort of common theme to be drawn.

Our next question comes from Kevin Campbell with Avondale Partners.

Really just have one here. I was just hoping maybe you guys could describe a little bit the systems you have in place to sort of flex costs to handle volumes. Clearly, volumes continue to be sort of a challenge. Some have done a better job than others, apparently, this quarter, of flexing those costs down. So I was just hoping maybe you could talk a little bit about what you guys do specifically to adjust to off changes in volumes in your markets?

I mean, honestly, Kevin, I think we probably -- when I talk about we, I mean, our -- the for-profit industry tends to approach this in much the same way. We have some fairly sophisticated electronic systems for tracking and trying to match staffing levels to volumes literally on a shift by shift basis. The challenge for the industry, I think, in general for hospitals in general is that there's a significant amount of your staffing that is fixed and semi-fixed and is very difficult to adjust to in short increments and to quick changes in volumes. And that's the real challenge. But I think, much like our peers, we certainly try and adjust the volumes in as real a time as possible.

What about your utilization of sort of contract nurses? Do you have a particularly -- any difference as you think versus peers, you use less of them?

I'm sure we all have the same goal, which is to use as little outside agency nurses as possible just because I think, from a quality perspective and a cost perspective, it is preferable to not do so. But there certainly is a proper use for temporary nurses, when they truly are temporary. And it varies by market. There are markets where it is definitely more of a challenge to hire nurses than others. And again, we're very focused on that and trying to work through it as best as possible.

The next question comes from Gary Taylor with Citigroup.

Just one question. Steve, is there any update on your Medicaid DSH in Texas coming through that reorganization of the UPL program into the uncompensated care pool and the regional health partner pool? Is there any piece of your 2013 guidance that's predicated on UPL funding that's not yet finalized? Or is that all in place?

No, I think that all of our UPL revenue that we have in our guidance is based on established plans. Now I think as we disclosed in our 10-K, some of them are dependent on intergovernmental transfers that have to take place and contributions that have to be made by third parties. We expect that they will be made, but I think we disclosed that conditionality in our 10-K. But I think all the plans have been approved.

[Operator Instructions] Your next question comes from Justin Lake with JPMorgan. Justin Lake - JP Morgan Chase & Co, Research Division: A few questions here. First, Steve, you mentioned a measurable bounce back in volumes. I'm just curious if you can help us delineate -- is that measurable in your mind even beyond what we know as the calendar benefit you're going to get in April from the Easter passover shift?

I mean, the way I think about it, Justin, is it just strikes me, and obviously we still have a few days to go in April, is that when we combine the March April volumes, that they will look sort of more normalized than either month on its own will have looked. And I think that was the challenge in Q1, is that March looked a lot weaker than any of us would have expected and that seems to have been an industry-wide issue, not just a UHS issue. I don't know how the other companies feel but I think we feel like when we look at April and March combined, again just from a volume perspective and just from a gross volume perspective, not talking about ER visits or surgical activity but just adjusted admissions, it's going to look more normal when the months are combined. Justin Lake - JP Morgan Chase & Co, Research Division: And March was down materially and so to get up -- to up slightly, which we kind of think of as normal, April is up fairly materially, is that right?

Yes. Justin Lake - JP Morgan Chase & Co, Research Division: Okay. And beyond that, you mentioned the benefits of psych parity. So beyond more people getting new coverage in terms of the uninsured, obviously, we're going to see some better benefits within the existing individual and small group market. Can you -- is there anything you could do to try to help us quantify the potential impacts there just in terms of are there big copays and deductibles or are -- people are -- patients having to leave earlier than they typically would like to because they only have 10 days of coverage instead of 30-type of thing? Anything you can help us with there?

I think it's difficult to do. I mean, there have been a number of pieces put out, some by analysts, some by the industry itself. I think that talk about tens of millions of people who either will have new coverage altogether or expanded coverage as a result of some of the dynamics that we're talking about. I think it's extremely difficult for us to take that sort of macro data and convert it to -- in any way to a precise opportunity for us. But I think the observation that we would have, and I think others have had as well, is that it's a fairly significant opportunity and one that, obviously, we're tracking very closely and will respond to as it arises. And we think about capacity expansion in all those other dynamics. Justin Lake - JP Morgan Chase & Co, Research Division: Okay. Then lastly, I just wanted to go back a couple of years in, I think, 2011. You had some really material hospital projects go online in terms of expansions. It's clear the business overall has been tough from there, but just wanted to get an update in terms of how those expansions have looked versus expectations and maybe even what kind of EBITDA you're generating from them versus, if I remember correctly, it was $400 million to $500 million of CapEx you spent on those 3 projects.

So the 3 projects you're referring to are replacement hospitals that we built in Texoma, which is north of Dallas and Palmdale, which is north of L.A., and then the large patient tower addition that we did at our Summerlin facility in Las Vegas. I think as we've discussed over the period, the challenge has been, I think particularly in the California and Las Vegas markets, that we opened that capacity in the teeth of pretty significant recessionary challenges. And I think, in our minds, what that did was it extended the ramp-up period that we would have otherwise anticipated. And I think that's still the case. I mean, for sure, we don't feel like we're getting the full benefit of the Summerlin and Palmdale projects yet. I think we continue to feel that we ultimately will but not -- we're not quite there yet. On the Texoma side, I think -- which was a market that was less hurt by the recession, I think we really have benefited already and are earning pretty reasonable returns on that project already. Justin Lake - JP Morgan Chase & Co, Research Division: Okay, great. Does that change your thoughts on capital deployment on the hospital side going forward in terms of increasing the hurdle rate for new projects or anything? Or you really just feel that this is a macro issue and it'll sort itself out?

Yes, I mean, obviously, if we had had perfect foresight, I'm not sure that we would have timed these projects to open in 2010 in 2 areas that were really hurt by the recession. But when the projects had begun 2 or 3 years earlier, obviously, we didn't have that perfect amount of foresight. So no, I mean, again, when we undertake projects like that, we do so because they make sense in the marketplace because the demand is there, because we think that the long-term positioning is correct. We're not really making short-term bets on the local economy or anything like that. So again, with perfect hindsight, we may have timed them differently but that's about it.

And there are no further questions at this time from the phone lines. Are there any closing remarks?

No, we'd just like to thank everybody for their time and look forward to speaking with everybody next quarter. Thanks.

And this does conclude today's conference call. You may now disconnect.