Hospital operator Universal Health Services has revised its earnings forecast for 2026 downward, citing a decline in surgeries and challenges at some of its facilities during the third quarter.
While overall hospital admissions increased, UHS executives noted a shift toward outpatient care, impacting its inpatient-focused portfolio. This trend has been observed across the industry, with HCA Healthcare also reporting declining surgeries.
Outpatient Shift and Industry Trends
Patients are increasingly opting for surgeries in outpatient settings, such as ambulatory care centers and physician offices, due to lower costs and convenience. Hospital operators, including UHS, have been acquiring outpatient facilities to adapt to this change.
UHS’s portfolio, comprising 30 inpatient acute care hospitals and over 340 inpatient behavioral health facilities, is heavily weighted toward inpatient care. CFO Steve Filton explained that most medical admissions occur through emergency rooms, with surgeries typically being elective procedures.
Financial Impact of Declining Surgeries
Surgeries are a significant revenue source for hospital operators. In the third quarter, UHS experienced a 0.7% decline in same-facility surgeries compared to the previous year. Meanwhile, medical admissions, particularly acute care volumes, increased by 4.3%, leading to a decrease in net revenue per admission.
The shift toward outpatient surgeries, coupled with patients postponing elective procedures due to cost concerns and insurance losses, has affected both inpatient and outpatient surgery volumes equally, according to Filton.
Financial Results and Hospital Challenges
UHS reported $308 million in net income for the third quarter, a 17% decrease from the previous year. Revenues grew by over 5% to $4.7 billion.
The company’s earnings were further pressured by slower progress at new hospitals. In Washington D.C., the Cedar Hill Regional Medical Center, a partnership with the city, is facing delays in reaching profitability. Initially expected to break even in the first half of 2024, the timeline has been pushed to the first half of 2027. The facility is currently losing approximately $30 million per quarter as its physicians build their networks in a historically underserved area.
The Alan B. Miller Medical Center in Palm Beach Gardens, Florida, which opened in May, is also impacting earnings. Although volumes are expected to increase during the flu and winter season, the hospital contributed a $15 million loss in the third quarter.
These challenges, along with a behavioral health facility in Texas losing its Medicare certification, are projected to result in $80 million to $100 million in losses for UHS this year, according to Filton.
The slow maturation of these facilities is a critical factor in the acute care segment’s margin improvement timeline, Filton noted. As a result, UHS now anticipates ending the year at the lower end of its guidance range, which previously estimated $18.5 billion to $18.76 billion in revenue and $2.6 billion to $2.7 billion in pretax income, excluding certain costs.
Insurance Trends and Industry Losses
On the insurance front, UHS executives highlighted that patients previously covered by Affordable Care Act plans are becoming uninsured at a nearly 1-to-1 rate, leading to a projected loss of slightly under $25 million in the quarter. Exchange volumes dropped by 17% compared to the previous year.
This trend has resulted in billion-dollar losses for other hospital chains. While UHS has less exposure than some larger operators, it still expects to lose approximately $85 million from this shift this year.
