Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And Mr. Steve Filton, you may begin your conference.

Thank you, Jennifer. Good morning. Alan Miller, our CEO, is also joining us this morning. We welcome you to this review of Universal Health Services results for the first quarter ended March 31, 2016. During the conference call, Alan and I will be using words such as believes, expects, anticipates, estimates and similar words that represent forecast projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend the 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, 2015. We'd 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 reported net income attributable to UHS per diluted share of $1.93 for the quarter. After adjusting for the depreciation and amortization expense associated with the implementation of electronic health records applications at our acute care hospitals, our adjusted net income attributable to UHS per diluted share was $1.98 for the quarter ended March 31, 2016. On a same facility basis in our acute division, revenues increased 12% during the first quarter of 2016. The increase resulted primarily from a 7.8% increase in adjusted admissions and a 3% increase in revenue per adjusted admission. On a same facility basis, operating margins for our acute care hospitals increased to 21.1% during first quarter of 2016 from 20.5% during the first quarter of 2015. On a same facility basis, revenues in our behavioral health division increased 3.5% during the first quarter of 2016. Adjusted admissions to our behavioral health facilities owned for more than a year increased 1.4% and adjusted patient days increased 1.0% over the prior-year first quarter. Revenue per…

Our first question comes from the line of Matthew Borsch with Goldman Sachs.

Hi. This is Tejus here joining on for Matt. Thanks for taking the question. Regarding behavioral, you'd mentioned a shortage of psychiatrists last quarter that led you to turn away patients. Can you provide any update on that? As well as any increase in expense to attract and retain these doctors?

Sure. So, if you look at the behavioral revenue growth for the quarter of about 3.5%, it's pretty consistent of what we were running in the back half of 2015. And I think many of the same dynamics are in place. We had a pretty tough comparison in the first quarter of 2016. So we were not really disappointed with those numbers. They met our expectations, and our behavioral results in general were very much in line with our budget for the quarter. But we continue to face both psychiatrist, nursing and other clinician shortages in some of our markets. And in some cases, that is muting or depressing what would otherwise, we think, be higher demand and higher volumes. We have a number of initiatives in place to try and rectify those dynamics in those situations. And we believe, as we said at the end of the year that our behavioral revenue growth should increase as the year goes on, as those comparisons become easier and as some of those initiatives begin to get more traction.

Great. Thanks very much.

Your next question comes from the line of Chris Rigg with Susquehanna Financial.

Hi. This is Frank Lee on for Chris. Thanks for taking my question. Same-store revenue in the acute care business was very strong in the quarter. Do you have a sense for how much of the growth was attributable to economic improvements in your market or increasing market share? And then are you able to size the impact of the leap year for the quarter?

Yeah. Look, I think it's always difficult to precisely size the impact of leap year. I think on an admissions basis, the extra day just mathematically gives you about 3% more admissions. But in terms of overall revenue, it's a little bit harder to do. Obviously, however you slice it, the revenue growth in the acute care division for the quarter was extremely strong and well in excess of the 6% revenue growth that we anticipated in our guidance and in our budget for the year. Again, I think it's difficult to parse that growth out into individual pieces. We still continue to get some benefit from the ACA and expanded Medicaid enrollment and new commercial exchange enrollment, although certainly that benefit is diminishing now that we're into its third year. We continue to benefit as our markets improve economically, and that certainly continues as well. But I think one of the most encouraging aspects of the quarter from our perspective is the single biggest admission growth for us was in our Medicare payer class. And in theory, Medicare patients are probably largely unimpacted by both the ACA dynamics and by an improving economy. And so I think what that's reflective of is just general strength of the franchises that we're operating in our local markets and the initiatives that our operators have put in place for some time now to create more and more physician integration in our markets, to focus on really important service lines to us like orthopedics and cardiology, and to really just focus on business development. I think that we have had for four or five quarters among the industry-leading admissions from an acute care perspective. And while I know the other companies have yet to report, my guess is we'll certainly be in that position again this quarter.

Okay. Thanks. And then the bad debt bed ratio was pretty flat year-over-year after a few quarters of volatility. Do you think that the bad debt has stabilized at this point? And do you have a view on where that will go for the rest of the year?

Always difficult, as Yogi Bear would say, to predict the future. But for us I think, again, very strong payer mix in the first quarter, Medicare admission growth growing faster than our overall admissions, Medicaid growing at about the same pace as our overall admissions, commercial admissions growing slightly lower, but uninsured admissions flat to actually slightly down and obviously that is an extremely favorable payer mix. Again, hard to say exactly how sustainable that is, but I think we generally feel like the acute care business is running very strongly at the moment, and certainly makes our sense of what was possible in our guidance and in our budget seem extremely achievable at this point.

Okay. Thanks on lot.

Your next question comes from the line of Kevin Fischbeck with Bank of America Merrill Lynch.

Hey. Good morning. This is Joanna Gajuk filling in for Kevin today. Thanks for taking the questions. So, just coming back to the previous commentary around strengthening the volumes in acute care business, so that was really helpful. But also, can you talk about the markets because, I guess, seems like Vegas, I guess, was indicated that things are going well there. So anything that changed maybe in other markets or should we just think about all the trends in 2016 in terms of strong Nevada and California and Texas not that strong, and any color in terms of market performance on acute care pricing?

Sure, Joanna. I mean I think that the practical reality is when you post revenue numbers as strong as we did in Q1, the strength by definition has to be pretty pervasive. It's almost impossible for a single market to drive those kinds of overall strong numbers. Generally, however, I would just sort of comment that many of the trends that we've remarked on in recent quarters have remained in place. You alluded to the fact that our Vegas market has been performing quite well, and that continued into Q1. Our Southern California market has also performed very well. Our Temecula Hospital, which is now in its third year of operation, is performing particularly well, and that's driving some very strong numbers out of Riverside County, California. Washington, DC, has been a strong market for us and was in Q1. We see some weakness in the South Texas markets, which we've remarked on previously, although even their volume numbers were certainly improved in Q1 as well.

Great. And then, turning the topic a little bit on the behavioral side, I guess in terms of the recent circulation or rather the final regs from CMS regarding managed Medicaid and allowing plans to pay for behavioral health in freestanding facilities. So, when we think about it, how are you going to think about these changes taking effect in reality for you specifically? How long, I guess, it would take for the full patterns really to change? Should we think that this would take a year or longer in terms of how it would actually be reflective in your operations?

Well, again I think, Joanna, our commentary on the lifting of the IMD exclusion has been I think reasonably consistent over time and that is we, I think, like others in the freestanding behavioral industry, view the lifting of the IMD exclusion certainly as a positive development, albeit one that will show its impact or reflect its impact gradually over time. It will require some effort to get access to this patient population. And I think we've always said, it's difficult to quantify what the potential benefit will be at the outset. But we I think share what is generally a consensus view that the benefit and the potential benefit is significant. I'll also make the point, and I know we've talked about this a number of times previously, that we view the lifting of the IMD exclusion and our ability to take these patients that have previously been seen in acute care hospitals with behavioral units in a broader context of trying to integrate with the behavioral units in acute care hospitals in our markets for all their patients. We have opened over the course of the last few years a number of leased units that we are – leased behavioral units that we are leasing from some big not-for-profit acute care hospital systems around the country. We have a number of other similar conversations underway to accomplish the same thing. And while the lifting of the IMD exclusion might help accelerate and expedite those conversations because now we can treat adult Medicaid patients as well, most of those conversations are even broader than that and include Medicare patients, they include commercial patients. And frankly, we view that overall as one of the most significant business development opportunities for our behavioral hospitals over the course of the next few years. So it's an important development, but I think one that fits into really kind of an overall strategy that we're extremely enthusiastic about.

Right now, we agree that those changes will take time till it'll be very positive. But then I guess on the flip side, the commentary around the continued shortage of clinicians on the behavioral side, I guess, with those changes and potential I guess for additional volumes coming your way, would I guess the shortage make things I guess more difficult when this is really happening where you have the IMD exclusion. But then this would actually create more pressure on labor. Is that the way you think about it? Or do you kind of think that there are some [indiscernible] in terms of the shortage to kind of moderate or rather be able to offset that?

Yeah. I'm going to answer the question quickly, because I want to give others on the call a chance to ask their questions as well. But I think the issue to keep in mind is that this adult Medicaid population that's affected by the IMD for the most part is currently being treated. They're being treated in acute care hospitals with behavioral units, and there is staff, there are nurses, there are psychiatrists in place today treating those patients. So we can reach agreement with acute care hospitals in our markets to get access to those patients, whether we lease the beds or manage the units, or joint venture the units, or they close their units. The presumption, I think on our part and what has played out at least in our initial conversations, is we will have access not only to the patients, but also to the clinicians who are treating those patients. So it's not as if we will have an incremental need to hire staff to treat those patients. So, can we move on to the next...

Great. Thanks a lot.

Thanks.

Next question comes from the line of Paula Torch with Avondale Partners.

Thank you. Good morning. I'd like to start my first question on the strong acute care metrics. I wonder, Steve, can you talk about the pace of volumes throughout the quarter and maybe if we saw a pickup through to March and has that momentum continued into 2Q?

Yeah. I think, Paula, our experience, what seems to me was the shared sort of industry experience based on commentary I've heard from others and some of the surveys that I saw during the quarter, the quarter got off to a relatively slow start I think probably as a result of a very late flu season. Volumes picked up in maybe later January and then February. And then at least for us, March was a very strong month. Again, we do get the benefit of the leap year day and some of the calendar timing with Easter and Good Friday, et cetera. But also, I think it's early in the second quarter but most of the trends seem to be holding up reasonably well. Again, I'm not about to predict that we can sustain that sort of really remarkable acute care growth we saw in Q1, but we feel just good generally about how things are going in our markets and how strong the underlying business is.

Okay. Great. Thank you. And then on behavioral, certainly a nice uptick year-over-year in the net revenue per patient or adjusted admission, but maybe not as much as we were expecting given the easier compare. So can you maybe give us some color on what drove that? It seems like the results met your expectations, but just wondering what gives you the confidence to be able to reach sort of your 5% same-store revenue growth in 2016, which would certainly imply a ramp up from here. Thank you.

Sure. So you're absolutely right, Paula. It implies a ramp, and for those who remember, I think we specifically talked about that in our year-end call, saying that we believe that the 5% behavioral growth was achievable, but would likely be somewhat lower in the first half of the year when comparisons were more difficult than while we were implementing and trying to gain tractions on some of our recruitment strategies and strategies to fill those nurse and psychiatrist vacancies. And then the second half of the year would become easier to achieve the 5% and probably exceed it, as the comparisons became easier and those initiatives got traction. So, again, from our own perspective, the Q1 behavioral performance was almost precisely in line. And obviously that provides us with a challenge to improve as the year goes on, but that's the way – that was our expectation of the way the year would play out.

Okay. Thanks. Can I squeeze one more in? If not, I'll move on.

Quickly, quickly.

Okay. Sure. So, just your occupancy in behavioral, I think it was about 76%. So this still shows some room there with the beds you currently have and you're adding another 500 beds throughout the rest of the year. So, wondering how we should think about filling those beds? Is there a potential to fill them with Medicaid Advantage (sic) [Medicare Advantage] lives or is the mix really going to be more towards doing some of these JV partnerships with not-for-profits? I'm just wondering how you can leverage your current bed occupancy versus having to add new beds for this new volume that's going to be coming into the system.

Yeah. So, I mean, if you go back and look, you will see that our occupancy percentage in the behavioral business in that sort of high-70%, 76%, 77% range, has really been very consistent, I would say, for the last seven years or eight years. And what that means is that during that period, we've been adding beds fairly aggressively. And, obviously, the implication is we are filling those beds as quickly as we're adding them and maintaining our occupancy percentage. The reason we're adding beds with a 76% occupancy level is because in markets and in situations, we're clearly turning away patients because of volume constraints. And the economics of it are such that after you turn away more than just a handful of patients, it almost always makes sense to add beds. And so we continue to do that. Now, I will say that in my remarks where I talked about, for instance, the de novo development projects, those projects were undertaken really without regard to the IMD exclusion. Obviously, these have been under development for some time. And so those projects are all in our minds justified by the demand in those markets regardless of whether or not there is sort of incremental demand associated with the IMD. So, as I said, I mean, in some ways, I think those are sort of discrete kind of activities. I think we think that the overall demand for behavioral has been strong, continues to be strong. We're going to add beds to meet that. And at the same time, we're going to continue these conversations with acute care hospitals in our market to get access to their behavioral patients and all their behavioral patients, not just their adult Medicaid patients, but their commercial and their Medicare and any other patients as well.

Thank you so much.

Your next question comes from the line of Ralph Giacobbe with Citigroup.

Thanks. Good morning. Steve, is it your sense that market growth within your geographic regions are just experiencing sort of similar levels of growth or can you share any sort of market dynamics you can point to on why you may be growing disproportionately faster than others, whether it be struggles of other maybe not-for-profits, maybe hospital closures? Anything along those lines that you can kind of point to above and beyond obviously your own initiatives?

Sure, Ralph. Look, I think, it's a combination of both. I mean, we've talked about this certainly before that. Obviously, we are in some markets that were hit fairly hard during the recession three years or four years ago. Las Vegas, Southern California, South Florida had disproportionately higher unemployment rates in those markets than the national average, et cetera. And so, as those markets have recovered, I think we have benefited economically disproportionately perhaps than some of our peers. But I think, at the same time, and I think the strong start to 2016 really belies this idea that as the ACA benefit has really sort of largely anniversaried itself, as the economic improvement has largely anniversaried itself, I think what you're seeing in the beginning of 2016 is the strengthening of our franchises in those now very healthy markets, et cetera. We've been working a lot over the last few years to shore up our physician relationships and our physician integration arrangements, acquiring practices and integrating in other ways, focusing on certain service lines. And I think that's all really starting to pay dividends. And, again, I'll highlight what I did earlier in an earlier response, which is when that growth is in Medicare, I think it's a reflection of the fact that we're probably gaining market share, since that's not a patient population that is inherently growing or seeing more demand, et cetera. So we have not historically sort of really tried to parse out market-by-market market share data. But I think we generally feel that in most of these markets that are performing well, not only are the markets doing well, but that we're gaining market share in those markets as well.

Okay. All right. That's fair. And then, I mean I guess that brings up sort of the – what you see on sort of the acquisition opportunity side? I mean, to the extent that you are seeing struggles, yet you haven't done an acute care acquisition in a while. I mean do you think those opportunities are going to present? Or do you think that maybe people aren't growing as much as you may or others maybe not be growing as much as you are now, but they're still showing healthy growth and so you think there's still a reluctance to have sort of willing sellers out there?

Look, I think we've said and you have heard me say for the last several quarters that the pace of activity, particularly on the acute care M&A side, has picked up. Now that means conversations and processes, et cetera. And our experience is, on the acute side that takes some time. These are largely not-for-profits that are being sold and their decision-making process tends to be somewhat elongated. But we've said for some time we're confident that there will be opportunities. There'll be compelling opportunities. And as I sit here today, I'll say with even greater confidence that I think we will definitely have opportunities in 2016 to deploy capital in the acute care space that we will find compelling, and I believe others will as well.

Okay. That's helpful. Last quick one, just to clarify. Did you mention – did you say that you thought the leap day impact was a 3% benefit to volume or was there other factors that maybe drove 3% growth?

Yeah. So, I mean, basically all I'm saying is, if you have 90 days in the quarter and there's an extra day, it's a little over 3% just natural admission growth that you're likely to see. But it's also a little bit hard to then sort of parse that into a revenue piece because obviously not all of our revenue reimbursement is on a per-day basis. So the comment that I was making before was mostly about admission growth and the metrics, the cosmetics of those metrics.

Okay. And maybe we could follow up offline. I just – I mean I think we typically take a bit as just 1 day over 90 days sort of just 1%, maybe 2%. So it just seemed a little bit high. But we can maybe follow up offline. Thank you.

Your next question comes from the line of Whit Mayo with Robert Baird.

Hey. Thanks. Good morning. Steve, can you talk a little bit about surgery and any particular strength in any service lines in the quarter, including ER? And then maybe just touch on behavioral and health, your acute psych versus RTC volumes that are trending?

Yeah. So, on the acute side, generally I would say that besides that sort of payer mix commentary that I've offered before, we've seen extreme strength in our surgical volumes. I think that in-patient surgeries were up something like 4% in the quarter. Out-patient surgeries were up like 7%, which was again some of the strongest surgical growth we've seen. Our Medicare case mix index was among the highest we've ever seen. I think that's reflective obviously of the surgical volume and continued a trend that we saw in Q4. So, obviously, I think beyond the volume strength which we've already commented on, we're seeing a lot of sort of high quality revenue and high acuity revenue strength as well. On the behavioral side, I will say, I mean the one sort of issue between the acute and the residential business is the residential business is not subject I think nearly as much to this whole psychiatrist shortage issue. So the residential admissions have probably held in a little bit stronger than the acute admissions. And frankly, I think, at least from a cosmetic perspective that tends to hurt us, because at least of the public companies we tend to have a behavioral revenue sort of profile that is weighted more to the acute rather than to the residential business.

And sort of ER trends in the quarter?

Yeah. I think ER trends, I'm sorry, Whit, are pretty consistent with the overall volume trends. In the markets where we're seeing significant admission growth, we're seeing generally some fairly high ER growth. I will say that in a couple of markets where we are seeing more of a proliferation of urgent care and FED-type development, freestanding ED development, we've seen our ED visits go down a little bit, but honestly our admissions in most of those markets are un-impacted as we continue to get those admissions through our hospitals.

And maybe just on medical admission, short stay, observational, any change in the trend line there?

I think those trends have remained fairly constant.

Got it. And my last question is just back on the IMD. And my understanding is that the rule is effective this July allowing health plans to contract with providers. Is that your understanding as well? And from a practical standpoint, when do you think you could actually take admissions of this patient population?

I think your interpretation is correct, Whit, in the sense that I believe what the rule provides for is that states have the option of lifting the IMD exclusion and effectively allowing freestanding facilities to begin to take these patients as early as July. Again, it's at the state's option and we're not sure exactly what each state will do. But we are anticipating that at least in some geographies we'll be able to begin to have access to those patients as early as July.

Great. Thanks a lot.

Your next question comes from the line of A. J. Rice with UBS.

Hi, everybody. Thanks for the question. First of all, I guess I'll ask on the cost trends on the acute side. So I know sometimes when you have strong volume, you get the leverage of your existing SWB base as well as supplies, et cetera, flowing through the margin side. And then sometimes the growth in volume is strong for an extended period and you start having to add staff or scramble even to get staff. Where are you at on that spectrum? I mean, how would you put that other quarter in context for that maybe a little bit?

Yeah. I mean, in the back half of 2015, A. J., we talked about the idea that there was certainly some pressure on salary and wages within the acute division, not so much in terms of head count or numbers of employees, but in what we describe as premium pay, which would include things like the use of temporary nurses and over time for our own staff, et cetera. I think while we've made some improvement in that regard, we continue with the revenue growth that we saw in Q1 and with the admission growth and demand, we've continued to see pressure on those wage rates and on that premium pay. And as a consequence, I think that when we file the Q and you'll be able to drill down and you can see it in our consolidated results that most of the leverage we're getting on this strong revenue growth is on the supply and other operating expense line and less of it is on the salary wage line, because we're still seeing a fair amount of pricing pressure, if you will, on that line.

Okay. All right. And then you guys nicely upgraded the buyback authorization, doubled it. I know, if I remember right, and maybe my memory's not serving me well, but typically UHS waits till you're closer to running through your prior authorization to adding another one of the order of magnitude. Are you indicating anything there about maybe being more active on the buyback front? You've been pretty steady the last year. Give us some thoughts on that.

Well, just to be clear, I mean, the board increased the authorization back in February and in large part did so because we were on the verge of exhausting our previous authorization. So I think what you described as our historical practice is exactly what we did back in February.

Okay. All right. I'm sorry about that. Maybe one last question on the IMD you haven't been asked yet. Do you have contracts in place with the managed care guys or is that something that will take some time to put in place, or how quick can you put those in place?

I think, in some cases, we already have contracts in place. We have been taking adolescent Medicaid patients for many years. And so, in a number of geographies and a number of instances, we already have existing managed care contracts for the adolescent Medicaid population. And we can either extend those contracts to the adult population or just modify them, et cetera. It varies a little bit I think in every geography, but I actually do not believe that the contracting piece of this whole IMD exercise is really the more difficult piece. I think, again, it's those conversations and hopefully those collaborative agreements with the acute care hospitals that are really at the crux of this.

Okay. Great. Thanks a lot.

Your next question comes from Ana Gupte with Leerink Partners.

Yeah. Thanks. Good morning. My question was about just to go a little deeper into the sources and the drivers of this Medicare-based volume that you're seeing on the acute side, trying to understand if you can see from your payer mix or any anecdotal evidence that this is just new members that are aging into Medicare that perhaps were under-insured or uninsured during their pre-Medicare days. Or is it existing patients and you're marketing more aggressively to them as a hospital chain? And is there any difference between fee-for-service Medicare and Medicare Advantage?

So maybe a few different comments I'll make. I mean, we continue to see over time a shift out of traditional Medicare into Medicare Advantage, and that continues, and I expect will continue for some time. What I was trying to allude to before, and maybe I was too nuanced, is I think the idea that our Medicare population and admission is growing as quickly as it is almost by definition has to mean that we're taking market share. Because while I think the overall Medicare population could be expanding somewhat, it is certainly not expanding at the pace that our admissions are expanding. So I think almost by definition, the fact that our Medicare population is growing as much as it is suggesting that in many of our markets we are taking market share from our competitors. And I think it's because of all the real focus, et cetera, that our operators are bringing to service lines and to physician relationships, and I think all of that is paying dividends.

Okay. So it's about market share. Then the two changes that – and these things take forever sometimes, we had the Two-Midnight rule lapse, and then recently I think CMS is backing off of that rule altogether. Simultaneously, there are these value-based withholding of 25,000 primary care physician pilots that they've put in place. So one's sort of a positive and a tailwind and it feels like one's a bit of a headwind, but maybe more long term I think. How is this going to play out through 2016 and then into 2017 in terms of the timing that you anticipate, either positive or negative on a net basis?

Yeah. Look, I think, Ana, as your questions suggest, I think it's difficult to predict for some of these things how they're going to affect macro trends. And I think to the degree that they affect macro trends, it will be over a longer period of time. So I think, from our perspective, it is not likely to have significant short-term or even intermediate-term impacts. Over the longer-term, we'll see.

Okay. Not even on the Two Midnight rule? I mean, it's just get out altogether...

Yeah. I mean I think that the effect of the Two Midnight rule probably lapped or anniversaried several quarters ago. So I don't think that's having a big impact. My response to Whit's question earlier about changes in sort of observation days or short stays, et cetera, was that we're really not seeing big changes in those dynamics. I think, again, that impact was probably several quarters ago.

Okay. Then separate question on the bad debt, which continues to trend favorably and now you're back to what you had about a year ago I think in the second quarter. Would this adjacent category live up in the third quarter as you continue to see more data with your revenue cycle management practices and all? Any more color on the driver?

Look, Ana, we've conceded on several occasions that the increase in uncompensated volumes back in the third quarter of 2015, which we experienced and quite frankly many of our peers seemed to experience as well, was something that we really couldn't explain with I think great confidence. People suggested at the time that maybe it was some level of dis-enrollment in commercial exchanges, as premiums were going up or as people had gotten the care that they were seeking. We can never sort of prove that in any kind of pervasive way. But I think what our experience in Q4 and Q1 would suggest to us is that it was a bit of an anomaly and a bit of a blip in that the uncompensated trends which had been more stable in the last couple of quarters, seem to be more reflective of the environment that we're really in.

Got it. Thanks, Steve, for the color.

Your next question is from the line of Gary Lieberman with Wells Fargo.

Good morning. Thanks for taking the question. Maybe some comments on your priorities for use of capital at this point. It seems like the average repurchase price for your shares is a little bit south of where the stock is now, which I guess is a good thing. And then how do you feel about the opportunities on behavioral in the UK at this point?

Gary, I think we always say and we say it because I think we mean it that we are relatively agnostic about where we deploy our capital, meaning that we will likely deploy our capital wherever we think we can earn the best returns. And I think that we were an active share repurchase in the first quarter and continued to some degree into the second quarter because we thought our shares, particularly given the strength of our business, were an attractive investment. I think we'll continue to consider that as we move forward. But I think we've also said that we see a number of compelling M&A opportunities in both the behavioral and acute space, and we have the financial flexibility to pursue those and we will. I think we have a longstanding and well-earned reputation, however, as a judicious acquirer and a judicious evaluator of these opportunities and a judicious steward of capital. And I think we'll continue to uphold that reputation in the future. So we're going to look at all these opportunities. We never really prioritize because, in our minds, the priorities are as we see these specific opportunities and as we evaluate these specific opportunities.

And what about in the U.S. on acute care side? I think you might have said at some point that you think you were seeing more not-for-profit or potential not-for-profit deals around there?

I think we are. And I think I said before, we continue to be actively involved in a number of conversations in that regard. We just find that those processes and those conversations tend to be a bit elongated and they take some time. But we believe, as I said before, that with some high degree of confidence that we will deploy capital into the acute care business in 2016 at levels that we probably have not in a while.

Okay. Great. Thanks very much.

Your next question comes from the line of Sarah James with Wedbush Securities.

Thank you. Can you talk about the growth that you're seeing so far this year on your UK behavioral health business? And then, in the past, you've talked about occupancy rates in the 90% range. So maybe you could update us on any near-term plans to add beds in that market?

Sure. So I think everything you said remains true. We are running occupancy rates in the UK both in – it's still a relatively new business for us, but in the Cygnet business that we bought at this point a-year-and-a-half ago and then the Alpha business that we bought maybe six months ago, we're seeing those very high occupancy rates. And as a result, we're really taking all the actions in the UK that we've been taking in the U.S. for many years and that is, we're adding beds to existing facilities where the demand justifies that. We are building some de novo facilities in UK where the demand justifies that. We've done some tuck-in acquisitions in the U.K. We did a larger acquisition with the Alpha deal six months ago, as I said. And we continue to look at all those kinds of future opportunities in the UK as well with all the same sort of caveats and dynamics that I described here in the U.S. So we'll deploy capital in the UK behavioral space if it makes compelling sense to us and we're looking aggressively to do that.

Got it. And could you size for us how many beds that you know that you're adding so far just with the growth within existing facilities and the de novo start-up plans for this year? What is the overall bed growth in the UK going to look like?

I mean, I actually do not have the UK numbers in front of me. I mean, we have talked broadly about 600 to 800 new beds in our behavioral division overall, and those would include new UK beds.

Okay. Thank you.

And your next question comes from the line of Gary Taylor with JPMorgan.

Hey. Good morning. Sorry I jumped on a little late. So, if I ask something that's been asked, just tell me to read the transcript and I will. First of all, Steve, did you comment specifically on emergency room volumes? I know you'd talked a little earlier about geographically some of the volumes strengthened by payer, but on ER?

We did.

Okay.

So I will suggest to go back and read the transcript.

Okay. Let me do that. And then my last one on the – just going through the concept of the new IMD regulation, do you have a sense of where your presumably newly negotiated Medicaid adult per diem might shake out versus general acute care hospitals or maybe where your current child and adolescent Medicaid per diems kind of shake out versus hospitals? And I guess what I'm trying to get at is, do we think, given presumably a lower cost structure in freestanding, that from a rate perspective we might get to the point where Medicaid HMOs have a compelling financial incentive to attempt to steer volume in your direction as opposed to just picking up initially probably the ER diverted patients that they can't find a bed for?

Yeah. Look, it's really I think a thoughtful question, Gary. And again, I think we're sort of approaching this in kind of a two-phase sort of process. I mean, the one, as I stressed, is we would like to reach collaborative agreements with many of the acute care hospitals in our markets that are providing in-patient behavioral services. We think, generally, and this is certainly not true of every single acute care hospital, but we think generally acute care hospitals are not very good providers. They're not efficient providers of behavioral services. They have so many other things that they're doing that it's just not a top priority of theirs, and we generally feel we can do it better, we can do with higher quality, we can do with better efficiency. And we're trying to make that argument to our acute care colleagues, if you will, in our markets around the country. And I think, in our minds, that's sort of the first step in getting access to these adult Medicaid patients. The second is more I think along the lines of what you are suggesting, which is as a freestanding industry, and certainly UHS I think has a reputation of being able to provide these services more efficiently and at both high quality and lower cost, then we're certainly prepared to make those arguments to our managed care payers. But, quite frankly, I think ours are aware of that dynamic as we are with the rest of their patient population. So, that to us I think is more of a secondary argument. We'd like to get the acute hospitals sort of to partner with us first and then we'll kind of make our pitch to the MCOs.

Okay. That's helpful. Thank you.

And we have no further questions in queue at this time.

Okay. We'd like to thank everybody and look forward to talking with everybody next quarter.

Thank you for your participation. This does conclude today's conference call and you may now disconnect.