Admissions Still Soft for UHS in 1Q

Universal Health Services UHS reported first-quarter results Monday that generally met our expectations, and we're leaving our fair value estimate unchanged. Net revenue increased to $1.31 billion, a 3% advance compared with the same period a year ago. Adjusted admissions at same-facility acute-care hospitals were flat compared with the first quarter of 2008, while adjusted patient days declined 1.1%. It seems the economy is still weighing on patients' willingness to seek out treatment for non-emergency care, as we would expect low-single-digit growth in a normal environment. Despite a further slowdown in volume and a small increase in revenue per admission, the company improved its operating margin before depreciation, amortization, and rent at same-facility acute hospitals to 17.5% compared with 16.2% in the first quarter of last year. Acute hospital charity care and uninsured discounts in the quarter were relatively flat year over year at $158 million. We were surprised that bad debt as a percentage of revenue actually declined to 9.1% from 9.4% year over year. We are currently expecting bad debt to be 10% of revenue in 2009, and we may modify our forecast if the company continues to control doubtful accounts throughout the year. At behavioral facilities, adjusted admissions increased a modest 0.5% while revenue per adjusted admission came in at 2.3% higher than the first quarter of 2008. The company was also able to improve its operating margin in this segment compared with the prior-year quarter.