Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
As of March 31, 2026, we owned and/or operated 375 inpatient facilities and 168 outpatient and other facilities located in 40 states, Washington, D.C., the United Kingdom and Puerto Rico.
Our facilities include the following:
Acute care facilities located in the U.S.:
•29 inpatient acute care hospitals;
•35 free-standing emergency departments, and;
•13 outpatient centers & 1 surgical hospital.
Behavioral health care facilities (346 inpatient facilities and 119 outpatient facilities):
Located in the U.S.:
•182 inpatient behavioral health care facilities, and;
•110 outpatient behavioral health care facilities.
Located in the U.K.:
•161 inpatient behavioral health care facilities, and;
•2 outpatient behavioral health care facilities.
Located in Puerto Rico:
•3 inpatient behavioral health care facilities.
•7 outpatient behavioral health care facilities.
Net revenues from our acute care hospitals, outpatient facilities and commercial health insurer accounted for 58% of our consolidated net revenues during each of the three-month periods ended March 31, 2026 and 2025. Net revenues from our behavioral health care facilities and commercial health insurer accounted for 42% of our consolidated net revenues during each of the three-month periods ended March 31, 2026 and 2025.
Our behavioral health care facilities located in the U.K. generated net revenues of approximately $261 million and $227 million during the three-month periods ended March 31, 2026 and 2025, respectively. Total assets at our U.K. behavioral health care facilities were approximately $1.522 billion as of March 31, 2026 and $1.531 billion as of December 31, 2025.
Services provided by our hospitals include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.
Forward-Looking Statements and Risk Factors
You should carefully review the information contained in this Quarterly Report and should particularly consider any risk factors that we set forth in our Annual Report on Form 10-K for the year ended December 31, 2025, this Quarterly Report and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In this Quarterly Report, we state our beliefs of future events and of our future financial performance. This Quarterly Report contains “forward-looking statements” that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will or will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of our goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements. In evaluating those statements, you should specifically consider various factors, including the risks related to healthcare industry trends and those set forth in Part 1, Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Forward Looking Statements and Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2025 and in Part II, Item 1A. Risk Factors and Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Forward Looking Statements and Risk
Factors, as included herein. Those factors may cause our actual results to differ materially from any of our forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or our good faith belief with respect to future events, and is subject to risks and uncertainties that are difficult to predict and many of which are outside of our control. Many factors, including those set forth herein in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2025, and other important factors disclosed in this Quarterly Report, and from time to time in our other filings with the SEC, could cause actual performance or results to differ materially from those expressed in the statements. Such factors include, among other things, the following:
•as discussed below in Sources of Revenue, we receive revenues from various state and county-based programs, including Medicaid in all the states in which we operate. We receive annual Medicaid revenues of approximately $100 million, or greater, from each of Nevada, California, Texas, Washington, D.C., Illinois, Pennsylvania, Kentucky, Ohio, Virginia, Massachusetts, Michigan, Mississippi, Florida and Tennessee. Most of these programs are approved on a year-to-year basis and there is no assurance that these revenues will continue at their current rates or at all. We are therefore particularly sensitive to potential reductions in Medicaid and other state-based revenue programs as well as regulatory, economic, environmental and competitive changes in those states;
•legislation adopted on July 4, 2025 (the One Big Beautiful Bill Act), attaches work and community service requirements to eligibility for Medicaid benefits that will have the effect of limiting Medicaid enrollment and expenditure. That legislation also places limits on provider fees used to increase federal Medicaid funding to states. The legislation prohibits states not previously having expanded Medicaid eligibility to 138% of federal poverty level from increasing the rate of current provider fees which fund certain state supplemental payments or increasing the base of the fee to a class or items of services that the fee did not previously cover. That current provider fee threshold will remain at 6%. For states having expanded Medicaid eligibility under the legislation, the provider fee threshold will be reduced by 0.5% annually between federal fiscal years 2028 and 2032 with the resulting threshold ultimately becoming 3.5%. Under current law, and based on our current expectations, we estimate that, commencing with the 2028 state fiscal years, our aggregate annual net benefit will be reduced, on an annually increasing and relatively pro rata basis, by approximately $432 million to $480 million by 2032. The legislation also eliminates certain insurance exchange premium tax credits beyond 2025 and exchange enrollment is expected to be adversely impacted. On January 8, 2026, the U.S. House of Representatives passed H.R.1834 to extend for three years the enhanced premium tax credits ("EPTCs") that expired on December 31, 2025. As of early May 2026, no legislation extending the EPTCs has been enacted, and there can be no assurance regarding the timing or outcome of future legislative action. We cannot predict whether these subsidies will ultimately be adopted in federal fiscal year 2026. All of these factors, which could have a material unfavorable impact on our results of operations, may be expected to reduce our revenue and likely increase the level of uncompensated care provided by our facilities;
•there are additional legislative changes that are likely to result in major changes in the health care delivery system on a national or state level, including changes in the structure and administration of, and funding for, federal and state agencies and programs. For example, Congress has reduced to $0 the penalty for failing to maintain health coverage that was part of the original Patient Protection and Affordable Care Act, as amended by the Health and Education Reconciliation Act (collectively, the “ACA") as part of the Tax Cuts and Jobs Act. The Biden administration had issued executive orders implementing a special enrollment period permitting individuals to enroll in health plans outside of the annual open enrollment period and reexamining policies that may undermine the ACA or the Medicaid program. The Inflation Reduction Act of 2022 (“IRA”) was passed on August 16, 2022, which among other things, allows for the Centers for Medicare and Medicaid Services ("CMS") to negotiate prices for certain single-source drugs reimbursed under Medicare Part B and Part D. The American Rescue Plan Act’s expansion of subsidies to purchase coverage through an ACA exchange, which the IRA continued through 2025, has increased exchange enrollment. These enhanced subsidies expired on December 31, 2025;
•there have been numerous political and legal efforts to expand, repeal, replace or modify the ACA since its enactment, some of which have been successful, in part, in modifying the ACA, as well as court challenges to the constitutionality of the legislation. The U.S. Supreme Court held in California v. Texas that the plaintiffs lacked standing to challenge the legislation’s requirement to obtain minimum essential health insurance coverage, or the individual mandate. The Court dismissed the case without specifically ruling on the constitutionality of the ACA. The legislation faced its most recent challenge when the Supreme Court, in the June 2025 Kennedy v. Braidwood Management decision, opined in favor of ACA HIV preventive care coverage. The impacts of this decision cannot be predicted. Any future efforts to challenge, replace or replace the ACA or expand or substantially amend its provision is unknown. See below in Sources of Revenues and Health Care Reform for additional disclosure;
•additional possible unfavorable changes in the levels and terms of reimbursement for our charges by third party payers or government based payers, including Medicare or Medicaid in the United States, and government based payers in the United Kingdom;
•the healthcare industry is labor intensive and salaries, wages and benefits are subject to inflationary pressures, as are supplies expense and other operating expenses. In the past, staffing shortages have, at times, required us to hire expensive temporary personnel and/or enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel. At certain facilities, particularly within our behavioral health care segment, there have been occasions when we were unable to fill all vacant positions and, consequently, we were required to limit patient volumes. Additionally, California is in the process of implementing staffing standards specific to acute psychiatric hospitals and requirements to determine appropriate staffing based on patient acuity and care needs, which are expected to take effect on June 1, 2026. This can further increase our costs and limit our revenue if we are required to limit the number of patients at our California facilities;
•we have experienced inflationary pressures, primarily in personnel costs, although those pressures have moderated more recently. The extent of any future impacts from inflation on our business and our results of operations will be dependent upon how long the elevated inflation levels persist and the extent to which the rate of inflation further increases, if at all, neither of which we are able to predict. If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, our expenses could increase faster than anticipated and we may utilize our capital resources sooner than expected. Further, given the complexities of the reimbursement landscape in which we operate, our ability to pass on increased costs associated with providing healthcare to Medicare and Medicaid patients is limited due to various federal, state and local laws, which in certain circumstances, limit our ability to increase prices;
•in our acute care segment, we have experienced a significant increase in hospital based physician related expenses, especially in the areas of emergency room care, anesthesiology and radiology. We have implemented various initiatives to mitigate the increased expense, to the degree possible, which has moderated the rate of increase. However, significant increases in these physician related expenses could have a material unfavorable impact on our future results of operations;
•the increase in interest rates during the past few years has increased our interest expense significantly, increasing our expenses and reducing our free cash flow and our ability to access the capital markets on favorable terms. As such, the effects of increased borrowing rates have adversely impacted our results of operations, financial condition and cash flows. We cannot predict future changes to interest rates, however, significant increases in our borrowing rates could have a material unfavorable impact on our future results of operations. Our $700 million, 1.65% senior notes ("2026 Notes") mature on September 1, 2026. Market interest rates have increased significantly since the 2026 Notes were issued in 2021. We expect that we will refinance the 2026 Notes at significantly higher interest rates which will significantly increase our interest expense thereby decreasing our net income attributable to UHS;
•significant tariffs or other restrictions, if imposed on our imported pharmaceutical ingredients, medical devices, medical equipment and their ingredients and components, could escalate costs of medications, medical devices and medical equipment and disrupt our supply chains. While we continue to evaluate the potential impact of the new tariffs on our business, given the uncertainty regarding the scope and duration of any new tariffs, as well as the potential for additional tariffs or trade barriers by the U.S. and the impacted foreign countries, we can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. Therefore, changes in laws or policies governing the terms of foreign trade, and in particular, increased trade restrictions, tariffs or taxes on imports from where our products or materials are made (either directly or through our suppliers) could have an impact on our competitive position, business operations and financial results;
•as of early May 2026, Congress has enacted appropriations legislation funding most federal agencies for fiscal year 2026, following a lapse in appropriations affecting certain Department of Homeland Security operations that began on February 14, 2026 and was resolved on April 30, 2026. In the past several years political disputes concerning authorization of a federal budget have led to shutdown of substantial portions of the federal government and other federal budget authorization delays have occurred. Federal budget delays and federal government shutdowns are unpredictable and may occur in the future. We cannot predict whether or not there will be future appropriations legislation avoiding a federal government shutdown, however, our operating cash flows and results of operations could be materially unfavorably impacted by the federal government shutdown;
•as part of the Consolidated Appropriations Act of 2021 (the "CAA"), Congress passed legislation aimed at preventing or limiting patient balance billing in certain circumstances. The CAA addresses surprise medical bills stemming from emergency services, out-of-network ancillary providers at in-network facilities, and air ambulance carriers. The CAA prohibits surprise billing when out-of-network emergency services or out-of-network services at an in-network facility are provided, unless informed consent is received. In these circumstances providers are prohibited from billing the patient for any amounts that exceed in-network cost-sharing requirements. HHS, the Department of Labor and the Department of the
Treasury have issued rules to implement the legislation. The rules have limited the ability of our hospital-based physicians to receive payments for services at usually higher out-of-network rates in certain circumstances, and, as a result, have caused us to increase subsidies to these physicians or to replace their services at a higher cost;
•in June 2024, the U.S. Supreme Court issued its decision in Loper Bright Enters. v. Raimondo and Relentless, Inc. v. Department of Commerce, which modified the regulatory interpretation standard established 40 years ago by Chevron v. National Resources Defense Council. Chevron doctrine generally required courts to defer to federal agencies in their interpretation of federal statutes when a statute was silent or ambiguous with respect to a specific issue. In Loper Bright, the Supreme Court held that courts are no longer required to grant such deference, though they may consider an agency’s statutory interpretation. As it is highly regulated, the health care industry could be significantly impacted by the Loper Bright decision, particularly in the areas of Medicare reimbursement, decision making by the Food & Drug Administration and health care fraud and abuse compliance, where parties may no longer be able to rely on federal agencies’ policies, rules and guidance;
•our ability to enter into managed care provider agreements on acceptable terms and the ability of our competitors to do the same;
•the impact of a shift of care from inpatient to lower cost outpatient settings and controls designed to reduce inpatient services;
•our ability to achieve operating and financial targets, develop and execute plans to offset to the extent possible impacts from the recent regulatory changes, including the enactment of the One Big Beautiful Bill Act and the expiration of EPTCs, and tariffs, attain expected levels of patient volumes and revenues, and control the costs of providing services;
•the outcome of known and unknown litigation, government investigations, inquiries, false claims act allegations, and liabilities and other claims asserted against us and other matters, and the effects of adverse publicity relating to such matters, as disclosed in Note 6 to the Condensed Consolidated Financial Statements - Commitments and Contingencies, including, but not limited to, the jury verdict returned against Cumberland Hospital for Children and Adolescents located in New Kent, Virginia, an indirect subsidiary of ours, and the verdict in the Pinnacle litigation in Washoe County, Nevada, against certain subsidiaries of ours;
•effective March, 2025, our excess commercial insurance coverage for professional and general liability claims contains less favorable terms than previous years including coverage exclusions for incidents involving sexual molestation or abuse, higher premiums and lower aggregate limitations;
•competition from other healthcare providers (including physician owned facilities) in certain markets;
•technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for healthcare;
•our ability to attract and retain qualified personnel, nurses, physicians and other healthcare professionals and the impact on our labor and related expenses resulting from a shortage of nurses, physicians and other healthcare professionals;
•there is a heightened risk of future cybersecurity threats, including ransomware attacks targeting healthcare providers. If successful, future cyberattacks could have a material adverse effect on our business. Any costs that we incur as a result of a data security incident or breach, including costs to update our security protocols to mitigate such an incident or breach could be significant. Any breach or failure in our operational security systems, or any third-party security systems that we rely on, can result in loss of data or an unauthorized disclosure of or access to sensitive or confidential member or protected personal or health information and could result in violations of applicable privacy and other laws, significant penalties or fines, litigation, loss of customers, significant damage to our reputation and business, and other liability or losses. We may also incur additional costs related to cybersecurity risk management and remediation. There can be no assurance that we or our service providers, if applicable, will not suffer losses relating to cyber-attacks or other information security breaches in the future or that our insurance coverage will be adequate to cover all the costs resulting from such events;
•our ability to implement technology and other programs to drive efficiencies, and improve patient outcomes and experiences, and the risks associated with the use of technologies by us or our services providers;
•on March 9, 2026, we announced that we entered into a definitive agreement to acquire Talkspace, Inc. ("Talkspace") for $5.25 per share, or approximately $835 million in the aggregate. The transaction is expected to close during the third quarter of 2026 and is subject to approval by Talkspace’s stockholders, satisfaction of regulatory approvals and other customary closing conditions. The acquisition is subject to numerous risks and uncertainties including uncertainty as to whether the parties will be able to complete the merger on the terms set forth in the merger agreement; uncertainty
regarding the timing of the receipt of required regulatory approvals for the merger and the possibility that the parties may be required to accept conditions that could reduce or eliminate the anticipated benefits of the merger as a condition to obtaining the outcome of any legal proceedings that may be instituted against the parties or others following announcement of the transactions contemplated by the merger agreement; challenges, disruptions and costs of closing, integrating the business and achieving anticipated synergies, or that such synergies will take longer to realize than expected; failure to retain key employees of Talkspace during the period prior to closing or thereafter; failure to retain a significant portion of Talkspace’s providers or relationships with payors, risks that the merger and other transactions contemplated by the merger agreement disrupt current plans and operations that may harm the parties’ businesses or divert management’s attention from the parties’ ongoing business operations; and the amount of any costs, fees, expenses, impairments and charges related to the merger including costs and use of capital related to financing the merger;
•the availability of suitable acquisition and divestiture opportunities and our ability to successfully integrate and improve our acquisitions since failure to achieve expected acquisition benefits from certain of our prior or future acquisitions could result in impairment charges for goodwill and purchased intangibles;
•the impact of severe weather conditions, including the effects of hurricanes, flash floods, wildfires and climate change;
•our ability to continue to obtain capital on acceptable terms, including borrowed funds, to fund the future growth of our business;
•our inpatient acute care and behavioral health care facilities may experience decreasing admission and length of stay trends;
•our financial statements reflect large amounts due from various commercial and private payers and there can be no assurance that failure of the payers to remit amounts due to us will not have a material adverse effect on our future results of operations;
•the Budget Control Act of 2011 (the “2011 Act”) imposed annual spending limits for most federal agencies and programs aimed at reducing budget deficits by $917 billion between 2012 and 2021, according to a report released by the Congressional Budget Office. Among its other provisions, the law established a bipartisan Congressional committee, known as the Joint Select Committee on Deficit Reduction (the “Joint Committee”), which was tasked with making recommendations aimed at reducing future federal budget deficits by an additional $1.5 trillion over 10 years. The Joint Committee was unable to reach an agreement by the November 23, 2011 deadline and, as a result, across-the-board cuts to discretionary, national defense and Medicare spending were implemented on March 1, 2013 resulting in Medicare payment reductions of up to 2% per fiscal year with a uniform percentage reduction across all Medicare programs. Current legislation has extended these reductions through 2032. We cannot predict whether Congress will restructure the implemented Medicare payment reductions or what other federal budget deficit reduction initiatives may be proposed by Congress going forward;
•uninsured and self-pay patients treated at our facilities unfavorably impact our ability to satisfactorily and timely collect our self-pay patient accounts;
•changes in our business strategies or development plans;
•we have exposure to fluctuations in foreign currency exchange rates, primarily the pound sterling. We have international subsidiaries that operate in the United Kingdom. We routinely hedge our exposures to foreign currencies with certain financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations, but these hedges may be inadequate to protect us from currency exchange rate fluctuations. To the extent that these hedges are inadequate, our reported financial results or the way we conduct our business could be adversely affected. Furthermore, if a financial counterparty to our hedges experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material financial losses, and;
•other factors referenced herein or in our other filings with the Securities and Exchange Commission.
Given these uncertainties, risks and assumptions, as outlined above, you are cautioned not to place undue reliance on such forward-looking statements. Our actual results and financial condition could differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We assume no obligation to publicly update any forward-looking statements to reflect actual results, changes in assumptions or changes in other
factors affecting forward-looking information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies or estimates from those disclosed in our 2025 Annual Report on Form 10-K.
Recent Accounting Standards: For a summary of accounting standards, please see Note 14 to the Condensed Consolidated Financial Statements, as included herein.
Results of Operations
Clinical Staffing, Inflation, Future Medicaid Reductions and Tariffs:
The healthcare industry is labor intensive and salaries, wages and benefits are subject to inflationary pressures, as are supplies expense and other operating expenses. In the past, staffing shortages have, at times, required us to hire expensive temporary personnel and/or enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel. At certain facilities, particularly within our behavioral health care segment, there have been occasions when we were unable to fill all vacant positions and, consequently, we were required to limit patient volumes. We have also experienced general inflationary cost increases related to certain of our other operating expenses. Many of these factors, which had a material unfavorable impact on our results of operations in prior years, have moderated more recently. However, we cannot predict future inflationary increases, which if significant, could have a material unfavorable impact on our future results of operations.
We have experienced inflationary pressures, primarily in personnel costs, although those pressures have moderated more recently. The extent of any future impacts from inflation on our business and our results of operations will be dependent upon how long the elevated inflation levels persist and the extent to which the rate of inflation further increases, if at all, neither of which we are able to predict. If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, our expenses could increase faster than anticipated and we may utilize our capital resources sooner than expected. Further, given the complexities of the reimbursement landscape in which we operate, our ability to pass on increased costs associated with providing healthcare to Medicare and Medicaid patients is limited due to various federal, state and local laws, which in certain circumstances, limit our ability to increase prices.
Legislation adopted on July 4, 2025 attaches work and community service requirements to eligibility for Medicaid benefits that will have the effect of limiting Medicaid enrollment and expenditures and the legislation also places limits on provider taxes used to increase federal Medicaid funding to states. In addition, insurance exchange subsidies expired on December 31, 2025 which could unfavorably impact insurance exchange enrollment. As these provisions become effective over the next several years, they may be expected to reduce our revenues and likely increase the level of uncompensated care provided by our facilities. Please see Sources of Revenue below for additional disclosure related to Medicaid supplemental payment programs in various states in which we operate.
Significant tariffs or other restrictions, if imposed on our imported pharmaceutical ingredients, medical devices, medical equipment and their ingredients and components, could escalate costs of medications, medical devices and medical equipment and disrupt our supply chains. While we continue to evaluate the potential impact of the new tariffs on our business, given the uncertainty regarding the scope and duration of any new tariffs, as well as the potential for additional tariffs or trade barriers by the U.S. and the impacted foreign countries, we can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. Therefore, changes in laws or policies governing the terms of foreign trade, and in particular, increased trade restrictions, tariffs or taxes on imports from where our products or materials are made (either directly or through our suppliers) could have an impact on our competitive position, business operations and financial results.
Although our ability to pass on increased costs associated with providing healthcare to Medicare and Medicaid patients is limited, as discussed above, we have been requesting and negotiating increased rates from commercial insurers to defray our increased cost of providing patient care. In addition, we have implemented various productivity enhancement programs and cost reduction initiatives including, but not limited to, the following: team-based patient care initiatives designed to optimize the level of patient care services provided by our licensed nurses/clinicians; efforts to reduce utilization of, and rates paid for, premium pay labor; consolidation of medical supply vendors to increase purchasing discounts; review and reduction of clinical variation in connection with the utilization of medical supplies, and; various other efforts to increase productivity and/or reduce costs including investments in new information technology applications.
Financial results for the three-month periods ended March 31, 2026 and 2025:
The following table summarizes our results of operations and is used in the discussion below for the three-month periods ended March 31, 2026 and 2025 (dollar amounts in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, 2026 |
|
|
Three months ended
March 31, 2025 |
|
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Amount |
|
|
% of Net
Revenues |
|
Net revenues |
|
$ |
4,495,182 |
|
|
|
100.0 |
% |
|
$ |
4,099,720 |
|
|
|
100.0 |
% |
Operating charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
2,088,229 |
|
|
|
46.5 |
% |
|
|
1,951,104 |
|
|
|
47.6 |
% |
Other operating expenses |
|
|
1,283,928 |
|
|
|
28.6 |
% |
|
|
1,105,752 |
|
|
|
27.0 |
% |
Supplies expense |
|
|
426,543 |
|
|
|
9.5 |
% |
|
|
402,881 |
|
|
|
9.8 |
% |
Depreciation and amortization |
|
|
155,426 |
|
|
|
3.5 |
% |
|
|
148,345 |
|
|
|
3.6 |
% |
Lease and rental expense |
|
|
38,196 |
|
|
|
0.8 |
% |
|
|
36,813 |
|
|
|
0.9 |
% |
Subtotal-operating expenses |
|
|
3,992,322 |
|
|
|
88.8 |
% |
|
|
3,644,895 |
|
|
|
88.9 |
% |
Income from operations |
|
|
502,860 |
|
|
|
11.2 |
% |
|
|
454,825 |
|
|
|
11.1 |
% |
Interest expense, net |
|
|
37,133 |
|
|
|
0.8 |
% |
|
|
40,056 |
|
|
|
1.0 |
% |
Other (income) expense, net |
|
|
(3,389 |
) |
|
|
(0.1 |
)% |
|
|
(5,659 |
) |
|
|
(0.1 |
)% |
Income before income taxes |
|
|
469,116 |
|
|
|
10.4 |
% |
|
|
420,428 |
|
|
|
10.3 |
% |
Provision for income taxes |
|
|
110,438 |
|
|
|
2.5 |
% |
|
|
98,800 |
|
|
|
2.4 |
% |
Net income |
|
|
358,678 |
|
|
|
8.0 |
% |
|
|
321,628 |
|
|
|
7.8 |
% |
Less: Income (loss) attributable to noncontrolling interests |
|
|
9,996 |
|
|
|
0.2 |
% |
|
|
4,948 |
|
|
|
0.1 |
% |
Net income attributable to UHS |
|
$ |
348,682 |
|
|
|
7.8 |
% |
|
$ |
316,680 |
|
|
|
7.7 |
% |
Net revenues increased by 9.6%, or $395 million, to $4.495 billion during the three-month period ended March 31, 2026, as compared to $4.100 billion during the first quarter of 2025. The net increase was primarily attributable to: (i) a $313 million, or 7.9%, increase in net revenues generated from our acute care hospital services and behavioral health services operated during both periods (which we refer to as “Same Facility”), and; (ii) an other combined net increase of $82 million, consisting of a $48 million increase in provider tax assessments (which had no impact on income before income taxes since the amounts offset between net revenues and other operating expenses) and other combined net increase of $34 million consisting primarily of the net revenues generated during the first quarter of 2026 at a newly constructed acute care hospital located in Washington, D.C. (Cedar Hill Regional Medical Center which opened during the second quarter of 2025).
Income before income taxes (before income attributable to noncontrolling interests) increased by $49 million, or 12%, to $469 million during the three-month period ended March 31, 2026 as compared to $420 million during the first quarter of 2025. The net increase was due to:
•an increase of $25 million at our acute care facilities, as discussed below in Acute Care Hospital Services;
•an increase of $26 million at our behavioral health care facilities, as discussed below in Behavioral Health Care Services, and;
•a $2 million other combined net decrease.
Net income attributable to UHS increased by $32 million, or 10%, to $349 million during the three-month period ended March 31, 2026, as compared to $317 million during the first quarter of 2025. This increase was primarily attributable to:
•a $49 million increase in income before income taxes, as discussed above;
•a $5 million decrease due to an increase in income attributable to noncontrolling interests, and;
•a decrease of $12 million resulting from an increase in the provision for income taxes resulting primarily from the increase in the provision for income taxes resulting from the $44 million increase in income before income taxes ($49 million increase in income before income taxes net of a $5 million increase in income attributable to noncontrolling interests).
Acute Care Hospital Services
The following table sets forth certain operating statistics for our acute care hospital services for the three-month periods ended March 31, 2026 and 2025.
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|
|
|
Same Facility Basis |
|
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All |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Average licensed beds |
|
7,023 |
|
|
|
6,994 |
|
|
|
7,165 |
|
|
|
6,994 |
|
Average available beds |
|
6,851 |
|
|
|
6,822 |
|
|
|
6,993 |
|
|
|
6,822 |
|
Patient days |
|
425,835 |
|
|
|
429,030 |
|
|
|
431,073 |
|
|
|
429,030 |
|
Average daily census |
|
4,731.5 |
|
|
|
4,767.0 |
|
|
|
4,789.7 |
|
|
|
4,767.0 |
|
Occupancy-licensed beds |
|
67.4 |
% |
|
|
68.2 |
% |
|
|
66.8 |
% |
|
|
68.2 |
% |
Occupancy-available beds |
|
69.1 |
% |
|
|
69.9 |
% |
|
|
68.5 |
% |
|
|
69.9 |
% |
Admissions |
|
86,780 |
|
|
|
88,090 |
|
|
|
87,889 |
|
|
|
88,090 |
|
Length of stay |
|
4.9 |
|
|
|
4.9 |
|
|
|
4.9 |
|
|
|
4.9 |
|
Acute Care Hospital Services-Same Facility Basis
We believe that providing our results on a “Same Facility” basis (which is a non-GAAP measure), which includes the operating results for facilities and businesses operated in both the current year and prior year periods, is helpful to our investors as a measure of our operating performance. Our Same Facility results also neutralize (if applicable) the effect of items that are non-operational in nature including items such as, but not limited to, gains/losses on sales of assets and businesses, impacts of settlements, legal judgments and lawsuits, impairments of long-lived and intangible assets and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods.
Our Same Facility basis results reflected on the table below also exclude from net revenues and other operating expenses, provider tax assessments incurred in each period as discussed below Sources of Revenue-Summary of Various State Medicaid Supplemental Payment Programs. However, these provider tax assessments are included in net revenues and other operating expenses as reflected in the table below under All Acute Care Hospital Services. The provider tax assessments had no impact on the income before income taxes as reflected on the tables below since the amounts offset between net revenues and other operating expenses. Prior year amounts related to certain facilities previously included in our Behavioral Health Care Services’ results have been reclassified into our Acute Care Hospital Services' results as of January 1, 2025 to conform with current year presentation. To obtain a complete understanding of our financial performance, the Same Facility results should be examined in connection with our net income as determined in accordance with U.S. GAAP and as presented in the condensed consolidated financial statements and notes thereto as contained in this Quarterly Report on Form 10-Q.
The following table summarizes the results of operations for our acute care facilities on a Same Facility basis and is used in the discussion below for the three-month periods ended March 31, 2026 and 2025 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
|
March 31, 2026 |
|
|
March 31, 2025 |
|
|
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Net revenues |
|
$ |
2,470,045 |
|
|
|
100.0 |
% |
|
$ |
2,281,831 |
|
|
|
100.0 |
% |
|
Operating charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
952,835 |
|
|
|
38.6 |
% |
|
|
913,829 |
|
|
|
40.0 |
% |
|
Other operating expenses |
|
|
728,152 |
|
|
|
29.5 |
% |
|
|
638,599 |
|
|
|
28.0 |
% |
|
Supplies expense |
|
|
365,497 |
|
|
|
14.8 |
% |
|
|
348,824 |
|
|
|
15.3 |
% |
|
Depreciation and amortization |
|
|
95,681 |
|
|
|
3.9 |
% |
|
|
94,901 |
|
|
|
4.2 |
% |
|
Lease and rental expense |
|
|
26,738 |
|
|
|
1.1 |
% |
|
|
25,344 |
|
|
|
1.1 |
% |
|
Subtotal-operating expenses |
|
|
2,168,903 |
|
|
|
87.8 |
% |
|
|
2,021,497 |
|
|
|
88.6 |
% |
|
Income from operations |
|
|
301,142 |
|
|
|
12.2 |
% |
|
|
260,334 |
|
|
|
11.4 |
% |
|
Interest expense, net |
|
|
986 |
|
|
|
0.0 |
% |
|
|
2,262 |
|
|
|
0.1 |
% |
|
Other (income) expense, net |
|
|
(2,555 |
) |
|
|
(0.1 |
)% |
|
|
(8,572 |
) |
|
|
(0.4 |
)% |
|
Income before income taxes |
|
$ |
302,711 |
|
|
|
12.3 |
% |
|
$ |
266,644 |
|
|
|
11.7 |
% |
|
Three-month periods ended March 31, 2026 and 2025:
During the three-month period ended March 31, 2026, as compared to the comparable prior year quarter, net revenues from our acute care hospital services, on a Same Facility basis, increased by $188 million or 8.2%.
Income before income taxes (and before income attributable to noncontrolling interests) increased by $36 million, or 14%, amounting to $303 million, or 12.3% of net revenues during the first quarter of 2026, as compared to $267 million, or 11.7% of net revenues during the first quarter of 2025.
During the three-month period ended March 31, 2026, net revenue per adjusted admission increased by 6.3% while net revenue per adjusted patient day increased 5.5%, as compared to the comparable quarter of 2025. During the three-month period ended March 31, 2026, as compared to the comparable prior year quarter, inpatient admissions to our acute care hospitals decreased by 1.5% while adjusted admissions (adjusted for outpatient activity) were unchanged. Patient days at these facilities decreased by 0.7% and adjusted patient days increased by 0.8% during the three-month period ended March 31, 2026, as compared to the comparable prior year quarter. The average length of inpatient stay at these facilities was 4.9 days during each of the three-month periods ended March 31, 2026 and 2025, respectively. The occupancy rate, based on the average available beds at these facilities, was 69% and 70% during the three-month periods ended March 31, 2026 and 2025, respectively.
On a Same Facility basis, during the three-month period ended March 31, 2026, as compared to the comparable quarter of 2025, salaries, wages and benefits expense increased by $39 million, or 4.3%. As a percentage of net revenues, salaries, wages and benefits expense decreased to 38.6% during the first quarter of 2026 as compared to 40.0% during the first quarter of 2025.
Other operating expenses increased by $90 million, or 14.0%, during the first quarter of 2026, as compared to the comparable quarter of 2025. Operating expenses incurred by our commercial health insurer, consisting primarily of medical costs, increased by $45 million, or 27.6% (due to an increase in membership), during the first quarter of 2026, as compared to the comparable quarter of 2025. Excluding the operating costs of our commercial insurer from each period, other operating expenses increased by $45 million, or 9.3%. Contributing to the increased operating expenses during the first quarter of 2026, as compared to the comparable quarter of 2025, was a $20 million, or 12.3%, aggregate increase in physician expenses incurred at certain hospitals. As a percentage of net revenues, other operating expenses increased to 29.5% during the first quarter of 2026, as compared to 28.0% during the comparable quarter of 2025.
Supplies expense increased by $17 million, or 4.8%, during the first quarter of 2026, as compared to the first quarter of 2025. As a percentage of net revenues, supplies expense decreased to 14.8% during the three-month period ended March 31, 2026, as compared to 15.3% during the first quarter of 2025.
All Acute Care Hospital Services
The following table summarizes the results of operations for all our acute care operations during the three-month periods ended March 31, 2026 and 2025. These amounts include: (i) our acute care results on a Same Facility basis, as indicated above; (ii) the impact of provider tax assessments which increased net revenues and other operating expenses but had no impact on income before income taxes, and; (iii) certain other amounts including the results of recently acquired and/or opened facilities and businesses. Dollar amounts below are reflected in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, 2026 |
|
|
Three months ended
March 31, 2025 |
|
|
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Net revenues |
|
$ |
2,610,136 |
|
|
|
100.0 |
% |
|
$ |
2,357,814 |
|
|
|
100.0 |
% |
|
Operating charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
972,846 |
|
|
|
37.3 |
% |
|
|
915,524 |
|
|
|
38.8 |
% |
|
Other operating expenses |
|
|
859,847 |
|
|
|
32.9 |
% |
|
|
716,662 |
|
|
|
30.4 |
% |
|
Supplies expense |
|
|
367,938 |
|
|
|
14.1 |
% |
|
|
348,692 |
|
|
|
14.8 |
% |
|
Depreciation and amortization |
|
|
96,318 |
|
|
|
3.7 |
% |
|
|
94,903 |
|
|
|
4.0 |
% |
|
Lease and rental expense |
|
|
26,572 |
|
|
|
1.0 |
% |
|
|
25,344 |
|
|
|
1.1 |
% |
|
Subtotal-operating expenses |
|
|
2,323,521 |
|
|
|
89.0 |
% |
|
|
2,101,125 |
|
|
|
89.1 |
% |
|
Income from operations |
|
|
286,615 |
|
|
|
11.0 |
% |
|
|
256,689 |
|
|
|
10.9 |
% |
|
Interest expense, net |
|
|
986 |
|
|
|
0.0 |
% |
|
|
2,262 |
|
|
|
0.1 |
% |
|
Other (income) expense, net |
|
|
(2,132 |
) |
|
|
(0.1 |
)% |
|
|
(8,267 |
) |
|
|
(0.4 |
)% |
|
Income before income taxes |
|
$ |
287,761 |
|
|
|
11.0 |
% |
|
$ |
262,694 |
|
|
|
11.1 |
% |
|
Three-month periods ended March 31, 2026 and 2025:
During the three-month period ended March 31, 2026, as compared to the comparable prior year quarter, net revenues from our acute care hospital services increased by $252 million, or 10.7%, due to: (i) the $188 million, or 8.2% increase in Same Facility revenues, as discussed above, and; (ii) an other combined net increase of $64 million consisting of increased provider tax assessments and the net revenues generated during the first quarter of 2026 at a newly constructed acute care hospital located in Washington, D.C. (Cedar Hill Regional Medical Center which opened during the second quarter of 2025).
Income before income taxes increased by $25 million, or 10%, to $288 million, or 11.0% of net revenues during the first quarter of 2026, as compared to $263 million, or 11.1% of net revenues during the comparable quarter of 2025. The increase resulted primarily
from: (i) the $36 million, or 14%, increase in income before income taxes from our acute care hospital services, on a Same Facility basis, as discussed above, partially offset by; (ii) an $11 million increase in the aggregate pre-tax losses incurred during the first quarter of 2026, as compared to the first quarter of 2025, at the recently completed and opened Cedar Hill Regional Medical Center located in Washington, D.C., as well as the new acute care hospital being constructed in Palm Beach Gardens, FL (Alan B. Miller Medical Center) that is scheduled to be completed and opened during the second quarter of 2026.
During the three-month period ended March 31, 2026, as compared to the comparable quarter of 2025, salaries, wages and benefits expense increased by $57 million, or 6.3%. The increase was due primarily to the above-mentioned $39 million, or 4.3%, increase related to our acute care hospital services, on a Same Facility basis, as well as the salaries, wages and benefits expense incurred at the two above-mentioned newly constructed acute care hospitals.
Other operating expenses increased by $143 million, or 20.0%, during the first quarter of 2026, as compared to the comparable quarter of 2025. The increase was due primarily to: (i) the $90 million above-mentioned increase related to our acute care hospital services, on a Same Facility basis; (ii) a $35 million increase in provider tax assessments, and; (iii) a combined increase of $18 million consisting primarily of the operating expenses incurred at Cedar Hill Regional Medical Center.
Supplies expense increased by $19 million, or 5.5%, during the first quarter of 2026, as compared to the comparable quarter of 2025. The increase was due to the above-mentioned $17 million increase related to our acute care hospital services, on a Same Facility basis, as well as the supplies expense incurred during the first quarter of 2026 at Cedar Hill Regional Medical Center.
Charity Care and Uninsured Discounts:
The following tables show the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the three-month periods ended March 31, 2026 and 2025:
Uncompensated care:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in millions |
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2026 |
|
|
% |
|
|
2025 |
|
|
% |
|
Charity care |
|
$ |
116 |
|
|
|
10 |
% |
|
$ |
269 |
|
|
|
28 |
% |
Uninsured discounts |
|
|
997 |
|
|
|
90 |
% |
|
|
677 |
|
|
|
72 |
% |
Total uncompensated care |
|
$ |
1,113 |
|
|
|
100 |
% |
|
$ |
946 |
|
|
|
100 |
% |
Estimated cost of providing uncompensated care:
The estimated costs of providing uncompensated care as reflected below were based on a calculation which multiplied the percentage of operating expenses for our acute care hospitals to gross charges for those hospitals by the above-mentioned total uncompensated care amounts. The percentage of cost to gross charges is calculated based on the total operating expenses for our acute care facilities divided by gross patient service revenue for those facilities.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
Amounts in millions |
|
2026 |
|
|
2025 |
|
Estimated cost of providing charity care |
|
$ |
10 |
|
|
$ |
23 |
|
Estimated cost of providing uninsured discounts |
|
|
82 |
|
|
|
58 |
|
Estimated cost of providing uncompensated care |
|
$ |
92 |
|
|
$ |
81 |
|
Behavioral Health Care Services
The following table sets forth certain operating statistics for our behavioral health care services for the three-month periods ended March 31, 2026 and 2025.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Facility Basis |
|
|
All |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
March 31, |
|
March 31, |
|
|
March 31, |
|
March 31, |
|
|
2026 |
|
2025 |
|
|
2026 |
|
2025 |
|
Average licensed beds |
|
24,016 |
|
|
23,856 |
|
|
|
24,570 |
|
|
24,083 |
|
Average available beds |
|
23,916 |
|
|
23,756 |
|
|
|
24,470 |
|
|
23,983 |
|
Patient days |
|
1,593,351 |
|
|
1,570,599 |
|
|
|
1,619,586 |
|
|
1,588,545 |
|
Average daily census |
|
17,703.9 |
|
|
17,451.1 |
|
|
|
17,995.4 |
|
|
17,650.5 |
|
Occupancy-licensed beds |
|
73.7 |
% |
|
73.2 |
% |
|
|
73.2 |
% |
|
73.3 |
% |
Occupancy-available beds |
|
74.0 |
% |
|
73.5 |
% |
|
|
73.5 |
% |
|
73.6 |
% |
Admissions |
|
116,268 |
|
|
115,049 |
|
|
|
117,491 |
|
|
116,350 |
|
Length of stay |
|
13.7 |
|
|
13.7 |
|
|
|
13.8 |
|
|
13.7 |
|
Behavioral Health Care Services-Same Facility Basis
We believe that providing our results on a Same Facility basis, which includes the operating results for facilities and businesses operated in both the current year and prior year periods, is helpful to our investors as a measure of our operating performance. Our Same Facility results also neutralize (if applicable) the effect of items that are non-operational in nature including items such as, but not limited to, gains/losses on sales of assets and businesses, impacts of settlements, legal judgments and lawsuits, impairments of long-lived and intangible assets and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods.
Our Same Facility basis results reflected on the table below also excludes from net revenues and other operating expenses, provider tax assessments incurred in each period as discussed below Sources of Revenue-Summary of Various State Medicaid Supplemental Payment Programs. However, these provider tax assessments are included in net revenues and other operating expenses as reflected in the table below under All Behavioral Health Care Services. The provider tax assessments had no impact on the income before income taxes as reflected on the tables below since the amounts offset between net revenues and other operating expenses. Prior year amounts related to certain facilities previously included in our Behavioral Health Care Services’ results have been reclassified into our Acute Care Hospital Services' results as of January 1, 2025 to conform with current year presentation. To obtain a complete understanding of our financial performance, the Same Facility results should be examined in connection with our net income as determined in accordance with U.S. GAAP and as presented in the condensed consolidated financial statements and notes thereto as contained in this Quarterly Report on Form 10-Q.
The following table summarizes the results of operations for our behavioral health care facilities, on a Same Facility basis, and is used in the discussions below for the three-month periods ended March 31, 2026 and 2025 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
|
March 31, 2026 |
|
|
March 31, 2025 |
|
|
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Net revenues |
|
$ |
1,818,676 |
|
|
|
100.0 |
% |
|
$ |
1,694,160 |
|
|
|
100.0 |
% |
|
Operating charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
993,038 |
|
|
|
54.6 |
% |
|
|
919,790 |
|
|
|
54.3 |
% |
|
Other operating expenses |
|
|
334,423 |
|
|
|
18.4 |
% |
|
|
319,600 |
|
|
|
18.9 |
% |
|
Supplies expense |
|
|
58,456 |
|
|
|
3.2 |
% |
|
|
54,995 |
|
|
|
3.2 |
% |
|
Depreciation and amortization |
|
|
55,156 |
|
|
|
3.0 |
% |
|
|
50,879 |
|
|
|
3.0 |
% |
|
Lease and rental expense |
|
|
11,305 |
|
|
|
0.6 |
% |
|
|
10,878 |
|
|
|
0.6 |
% |
|
Subtotal-operating expenses |
|
|
1,452,378 |
|
|
|
79.9 |
% |
|
|
1,356,142 |
|
|
|
80.0 |
% |
|
Income from operations |
|
|
366,298 |
|
|
|
20.1 |
% |
|
|
338,018 |
|
|
|
20.0 |
% |
|
Interest expense, net |
|
|
1,192 |
|
|
|
0.1 |
% |
|
|
1,075 |
|
|
|
0.1 |
% |
|
Other (income) expense, net |
|
|
(883 |
) |
|
|
(0.0 |
)% |
|
|
(825 |
) |
|
|
(0.0 |
)% |
|
Income before income taxes |
|
$ |
365,989 |
|
|
|
20.1 |
% |
|
$ |
337,768 |
|
|
|
19.9 |
% |
|
Three-month periods ended March 31, 2026 and 2025:
During the three-month period ended March 31, 2026, as compared to the comparable prior year quarter, net revenues from our behavioral health services, on a Same Facility basis, increased by $125 million or 7.3%.
Income before income taxes increased by $28 million, or 8%, amounting to $366 million or 20.1% of net revenues during the first quarter of 2026, as compared to $338 million or 19.9% of net revenues during the first quarter of 2025.
During the three-month period ended March 31, 2026, net revenue per adjusted admission increased by 6.2% while net revenue per adjusted patient day increased by 5.8%, as compared to the comparable quarter of 2025. During the three-month period ended March 31, 2026, as compared to the comparable prior year quarter, inpatient admissions and adjusted admissions to our behavioral health care hospitals increased by 1.1% and 1.2%, respectively. Patient days at these facilities increased by 1.4% and adjusted patient days increased by 1.6% during the three-month period ended March 31, 2026, as compared to the comparable prior year quarter. The average length of inpatient stay at these facilities was 13.7 days during each of the three-month periods ended March 31, 2026 and 2025. The occupancy rate, based on the average available beds at these facilities, was 74% during each of the three-month periods ended March 31, 2026 and 2025.
On a Same Facility basis during the three-month period ended March 31, 2026, as compared to the comparable quarter of 2025, salaries, wages and benefits expense increased by $73 million or 8.0%. The increase during the first quarter of 2026, as compared to the comparable quarter of 2025, was due to a 5.2% increase in salaries, wages and benefits expense per average full time equivalent employee, as well as a 2.7% increase in the average number of full-time equivalent employees. As a percentage of net revenues during each quarter, salaries, wages and benefits expense increased to 54.6% during the first quarter of 2026 as compared to 54.3% during the first quarter of 2025.
Other operating expenses increased by $15 million, or 4.6%, during the first quarter of 2026, as compared to the comparable quarter of 2025. As a percentage of net revenues during each quarter, other operating expenses decreased to 18.4% during the first quarter of 2026, as compared to 18.9% during the first quarter of 2025.
Supplies expense increased by $3 million, or 6.3%, during the first quarter of 2026, as compared to the comparable quarter of 2025. As a percentage of net revenues during each quarter, supplies expense remained unchanged at 3.2% during each of the three-month periods ended March 31, 2026 and 2025.
All Behavioral Health Care Services
The following table summarizes the results of operations for all our behavioral health care services during the three-month periods ended March 31, 2026 and 2025. These amounts include: (i) our behavioral health care results on a Same Facility basis, as indicated above; (ii) the impact of provider tax assessments which increased net revenues and other operating expenses but had no impact on income before income taxes, and; (iii) certain other amounts including the results of facilities acquired or opened during the past year. Dollar amounts below are reflected in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, 2026 |
|
|
Three months ended
March 31, 2025 |
|
|
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Amount |
|
|
% of Net
Revenues |
|
|
Net revenues |
|
$ |
1,882,152 |
|
|
|
100.0 |
% |
|
$ |
1,739,064 |
|
|
|
100.0 |
% |
|
Operating charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
1,001,094 |
|
|
|
53.2 |
% |
|
|
923,366 |
|
|
|
53.1 |
% |
|
Other operating expenses |
|
|
391,898 |
|
|
|
20.8 |
% |
|
|
362,262 |
|
|
|
20.8 |
% |
|
Supplies expense |
|
|
58,787 |
|
|
|
3.1 |
% |
|
|
55,148 |
|
|
|
3.2 |
% |
|
Depreciation and amortization |
|
|
56,634 |
|
|
|
3.0 |
% |
|
|
51,152 |
|
|
|
2.9 |
% |
|
Lease and rental expense |
|
|
11,515 |
|
|
|
0.6 |
% |
|
|
11,364 |
|
|
|
0.7 |
% |
|
Subtotal-operating expenses |
|
|
1,519,928 |
|
|
|
80.8 |
% |
|
|
1,403,292 |
|
|
|
80.7 |
% |
|
Income from operations |
|
|
362,224 |
|
|
|
19.2 |
% |
|
|
335,772 |
|
|
|
19.3 |
% |
|
Interest expense, net |
|
|
1,272 |
|
|
|
0.1 |
% |
|
|
1,075 |
|
|
|
0.1 |
% |
|
Other (income) expense, net |
|
|
(883 |
) |
|
|
(0.0 |
)% |
|
|
(825 |
) |
|
|
(0.0 |
)% |
|
Income before income taxes |
|
$ |
361,835 |
|
|
|
19.2 |
% |
|
|
335,522 |
|
|
|
19.3 |
% |
|
Three-month periods ended March 31, 2026 and 2025:
During the three-month period ended March 31, 2026, as compared to the comparable prior year quarter, net revenues generated from our behavioral health services increased by $143 million, or 8.2%. The increase was primarily attributable to the above-mentioned $125 million, or 7.3%, increase in net revenues at our behavioral health facilities, on a Same Facility basis.
Income before income taxes increased by $26 million, or 7.8%, to $362 million or 19.2% of net revenues during the first quarter of 2026, as compared to $336 million or 19.3% of net revenues during the first quarter of 2025. The increase in income before income taxes at our behavioral health facilities during the first quarter of 2026, as compared to the comparable quarter of 2025, was primarily attributable to the $28 million, or 8.4% increase in income before income taxes generated at our behavioral health facilities, on a Same Facility basis.
During the three-month period ended March 31, 2026, as compared to the comparable quarter of 2025, salaries, wages and benefits expense increased by $78 million or 8.4%. The increase was due primarily to the above-mentioned $73 million increase related to our behavioral health facilities, on a Same Facility basis.
Other operating expenses increased by $30 million, or 8.2%, during the first quarter of 2026, as compared to the comparable quarter of 2025. The increase was due primarily to the above-mentioned $15 million increase related to our behavioral health facilities, on a Same Facility basis, as well as a $13 million increase in provider tax assessments.
Supplies expense increased by $4 million, or 6.6%, during the first quarter of 2026, as compared to the comparable quarter of 2025, due primarily to the above-mentioned increase related to our behavioral health facilities, on a Same Facility basis.
Sources of Revenue
Overview: We receive payments for services rendered from private insurers, including managed care plans, the federal government under the Medicare program, state governments under their respective Medicaid programs and directly from patients.
Hospital revenues depend upon inpatient occupancy levels, the medical and ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or negotiated payment rates for such services. Charges and reimbursement rates for inpatient routine services vary depending on the type of services provided (e.g., medical/surgical, intensive care or behavioral health) and the geographic location of the hospital. Inpatient occupancy levels fluctuate
for various reasons, many of which are beyond our control. The percentage of patient service revenue attributable to outpatient services has generally increased in recent years, primarily as a result of advances in medical technology that allow more services to be provided on an outpatient basis, as well as increased pressure from Medicare, Medicaid and private insurers to reduce hospital stays and provide services, where possible, on a less expensive outpatient basis. We believe that our experience with respect to our increased outpatient levels mirrors the general trend occurring in the health care industry and we are unable to predict the rate of growth and resulting impact on our future revenues.
Patients are generally not responsible for any difference between customary hospital charges and amounts reimbursed for such services under Medicare, Medicaid, some private insurance plans, and managed care plans, but are responsible for services not covered by such plans, exclusions, deductibles or co-insurance features of their coverage. The amount of such exclusions, deductibles and co-insurance has generally been increasing each year. Indications from recent federal and state legislation are that this trend will continue. Collection of amounts due from individuals is typically more difficult than from governmental or business payers which unfavorably impacts the collectability of our patient accounts.
Sources of Revenues and Health Care Reform: Given increasing budget deficits, the federal government and many states are currently considering additional ways to limit increases in levels of Medicare and Medicaid funding, which could also adversely affect future payments received by our hospitals. In addition, the uncertainty and fiscal pressures placed upon the federal government as a result of, among other things, economic recovery stimulus packages, responses to natural disasters, and the federal and state budget deficits in general may affect the availability of government funds to provide additional relief in the future. Changes resulting from the outcome of the 2024 elections may include increased reliance on Medicare Advantage programs, work requirements for Medicaid waiver program eligibility, increased focus on hospital outpatient site neutral payment policies, and similar initiatives that may reduce the availability of funding for federal healthcare programs or make eligibility for benefits more difficult. ACA adopted on July 4, 2025, commonly known as the One Big Beautiful Bill Act (“OBBBA”), will have the effect of substantially decreasing federal funding for state Medicaid Programs. Any significant reduction in federal Medicaid funding to states would likely result in states reducing Medicaid payments to us which would have a material adverse effect on us. We are unable to predict the effect of future policy changes on our operations.
In 2010, the Patient Protection and Affordable Care Act, as amended by the Health and Education Reconciliation Act (collectively, the “ACA”) was enacted and its two primary goals were to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses. The ACA revised reimbursement under the Medicare and Medicaid programs to emphasize the efficient delivery of high-quality care and contains a number of incentives and penalties under these programs to achieve these goals. The ACA provides for reductions to Medicaid DSH payments which are now scheduled to begin in federal fiscal year 2028.
A 2012 U.S. Supreme Court ruling limited the federal government’s ability to expand health insurance coverage by holding unconstitutional sections of the ACA that sought to withdraw federal funding for state noncompliance with certain Medicaid coverage requirements. Pursuant to that decision, the federal government may not penalize states that choose not to participate in the Medicaid expansion by reducing their existing Medicaid funding. Therefore, states can choose to expand or not to expand their Medicaid program without risking the loss of federal Medicaid funding. As a result, many states, including Texas, have not expanded their Medicaid programs without the threat of loss of federal funding. CMS has previously granted section 1115 demonstration waivers providing for work and community engagement requirements for certain Medicaid eligible individuals. CMS has also released guidance to states interested in receiving their Medicaid funding through a block grant mechanism. The Biden administration withdrew certain previously issued section 1115 demonstrations aligned with these policies, but Georgia has imposed work and community engagement requirements under a Medicaid demonstration program that launched July 1, 2023. President Trump, who favored work and community engagement requirements in his first administration, sought and obtained legislation under the OBBBA that applies such requirements to a significant percentage of Medicaid program beneficiaries. We anticipate this change will lead to reductions in Medicaid coverage and likely increases in uncompensated care.
On December 14, 2018, a Texas Federal District Court deemed the ACA to be unconstitutional in its entirety. The Court concluded that the Individual Mandate is no longer permissible under Congress’s taxing power as a result of the Tax Cut and Jobs Act of 2017 reducing the individual mandate’s tax to $0 (i.e., it no longer produces revenue, which is an essential feature of a tax), rendering the ACA unconstitutional. The Court also held that because the individual mandate is “essential” to the ACA and is inseverable from the rest of the law, the entire ACA is unconstitutional. That ruling was ultimately appealed to the United States Supreme Court, which decided in California v. Texas that the plaintiffs in the matter lacked standing to bring their constitutionality claims. The Court did not reach the plaintiffs’ merits arguments, which specifically challenged the constitutionality of the ACA’s individual mandate and the entirety of the ACA itself. As a result, the ACA will continue to be law, and the Department of Health and Human Services ("HHS") and its respective agencies will continue to enforce regulations implementing the law. However, on September 7, 2022, the ACA faced its most recent challenge when a Texas Federal District Court judge, in the case of Braidwood Management v. Becerra, ruled that a requirement that certain health plans cover services without cost sharing violates the Appointments Clause of the U.S. Constitution and that the coverage of certain HIV prevention medication violates the Religious Freedom Restoration Act. The decision was ultimately appealed to the U.S. Supreme Court, which in its June 2025 Kennedy v. Braidwood Management decision, opined in favor of HIV preventive care coverage. The impact of this decision on us cannot be predicted.
The ACA also contained provisions aimed at reducing fraud and abuse in healthcare. The ACA amends several existing laws, including the federal Anti-Kickback Statute and the False Claims Act, making it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers. While Congress had previously revised the intent requirement of the Anti-Kickback Statute to provide that a person is not required to “have actual knowledge or specific intent to commit a violation of” the Anti-Kickback Statute in order to be found in violation of such law, the ACA also provides that any claims for items or services that violate the Anti-Kickback Statute are also considered false claims for purposes of the federal civil False Claims Act. The ACA provides that a healthcare provider that retains an overpayment in excess of 60 days is subject to the federal civil False Claims Act. In December, 2024, CMS changed the standard for identification of an overpayment and now requires the report and return of an overpayment if a provider or supplier has actual knowledge of the existence of an overpayment or acts in reckless disregard or deliberate ignorance of an overpayment. The ACA also expanded the Recovery Audit Contractor program to Medicaid. These amendments also make it easier for severe fines and penalties to be imposed on healthcare providers that violate applicable laws and regulations.
We have partnered with local physicians in the ownership of certain of our facilities. These investments have been permitted under an exception to the physician self-referral law. The ACA permits existing physician investments in a hospital to continue under a “grandfather” clause if the arrangement satisfies certain requirements and restrictions, but physicians are prohibited from increasing the aggregate percentage of their ownership in the hospital. The ACA also imposes certain compliance and disclosure requirements upon existing physician-owned hospitals and restricts the ability of physician-owned hospitals to expand the capacity of their facilities. A repeal of the ACA, in whole or in relevant part, may result in physicians being able to expand ownership interest in hospitals.
In addition to legislative changes, the ACA can be significantly impacted by executive branch actions. The Biden administration had issued executive orders implementing a special enrollment period permitting individuals to enroll in health plans outside of the annual open enrollment period and reexamining policies that may undermine the ACA or the Medicaid program. The American Rescue Plan Act of 2021's expansion of subsidies to purchase coverage through an exchange contributed to increased exchange enrollment in 2021. The Inflation Reduction Act (IRA)’s extension of subsidies through 2025 increased exchange enrollment in years subsequent to 2021. These enhanced subsidies expired on December 31, 2025. It remains unclear what portions of the ACA may remain, or whether any replacement or alternative programs may be created by any future legislation. Any such future repeal or replacement may have significant impact on the reimbursement for healthcare services generally, and may create reimbursement for services competing with the services offered by our hospitals. Accordingly, there can be no assurance that the adoption of any future federal or state healthcare reform legislation will not have a negative financial impact on our hospitals, including their ability to compete with alternative healthcare services funded by such potential legislation, or for our hospitals to receive payment for services. Extension of these subsidies is currently the subject of Congressional debate as part of the federal budget negotiation, and we cannot predict whether these subsidies will ultimately be adopted in federal fiscal year 2026.
For additional disclosure related to our revenues including a disaggregation of our consolidated net revenues by major source for each of the periods presented herein, please see Note 12 to the Consolidated Financial Statements-Revenue Recognition.
Medicare: Medicare is a federal program that provides certain hospital and medical insurance benefits to persons aged 65 and over, some disabled persons and persons with end-stage renal disease. All of our acute care hospitals and many of our behavioral health centers are certified as providers of Medicare services by the appropriate governmental authorities. Amounts received under the Medicare program are generally significantly less than a hospital’s customary charges for services provided. Since a substantial portion of our revenues will come from patients under the Medicare program, our ability to operate our business successfully in the future will depend in large measure on our ability to adapt to changes in this program.
Under the Medicare program, for inpatient services, our general acute care hospitals receive reimbursement under the inpatient prospective payment system (“IPPS”). Under the IPPS, hospitals are paid a predetermined fixed payment amount for each hospital discharge. The fixed payment amount is based upon each patient’s Medicare severity diagnosis related group (“MS-DRG”). Every MS-DRG is assigned a payment rate based upon the estimated intensity of hospital resources necessary to treat the average patient with that particular diagnosis. The MS-DRG payment rates are based upon historical national average costs and do not consider the actual costs incurred by a hospital in providing care. This MS-DRG assignment also affects the predetermined capital rate paid with each MS-DRG. The MS-DRG and capital payment rates are adjusted annually by the predetermined geographic adjustment factor for the geographic region in which a particular hospital is located and are weighted based upon a statistically normal distribution of severity. While we generally will not receive payment from Medicare for inpatient services, other than the MS-DRG payment, a hospital may qualify for an “outlier” payment if a particular patient’s treatment costs are extraordinarily high and exceed a specified threshold. MS-DRG rates are adjusted by an update factor each federal fiscal year, which begins on October 1. The index used to adjust the MS-DRG rates, known as the “hospital market basket index,” gives consideration to the inflation experienced by hospitals in purchasing goods and services. Generally, however, the percentage increases in the MS-DRG payments have been lower than the projected increase in the cost of goods and services purchased by hospitals.
In April, 2026, CMS published its IPPS 2027 proposed payment rule which provides for a 3.2% market basket increase to the base Medicare MS-DRG blended rate. When statutorily mandated budget neutrality factors, annual geographic wage index updates, documenting and coding adjustments, and adjustments mandated by the ACA are considered (including a 0.8% productivity
adjustment offset), without consideration for the required Medicare DSH payments changes and increase to the Medicare Outlier threshold, the overall increase in IPPS payments is approximately 1.1%. Including DSH payments, an increase to the Medicare Outlier threshold and certain other adjustments, we estimate our overall increase from the proposed IPPS 2027 rule (covering the period of October 1, 2026 through September 30, 2027) will approximate 0.3%.
In July, 2025, CMS published its IPPS 2026 final payment rule which provides for a 3.3% market basket increase to the base Medicare MS-DRG blended rate. When statutorily mandated budget neutrality factors, annual geographic wage index updates, documenting and coding adjustments, and adjustments mandated by the ACA are considered (including a -0.7% productivity adjustment offset), without consideration for the required Medicare DSH payments changes and increase to the Medicare Outlier threshold, the overall increase in IPPS payments is approximately 1.0%. Instead of applying a state-level rural floor budget neutrality adjustment to the wage index, the final rule has applied a uniform, national budget neutrality adjustment to the FY 2026 wage index for the rural floor. Nevada will be subject to a 5.0% reduction in the wage index adjustment as a result of a decrease in the wage index rural floor in that state. Including DSH payments, a decrease to the Medicare Outlier threshold and certain other adjustments, we estimate our overall increase from the final IPPS 2026 rule (covering the period of October 1, 2025 through September 30, 2026) will approximate 2.7%.
In August, 2024, CMS published its IPPS 2025 final payment rule which provides for a 2.9% market basket increase to the base Medicare MS-DRG blended rate. When statutorily mandated budget neutrality factors, annual geographic wage index updates, documenting and coding adjustments, and adjustments mandated by the ACA are considered, without consideration for the required Medicare DSH payments changes and increase to the Medicare Outlier threshold, the overall increase in IPPS payments is approximately 1.8%. Including DSH payments, an increase to the Medicare Outlier threshold and certain other adjustments, we estimate our overall increase from the final IPPS 2025 rule (covering the period of October 1, 2024 through September 30, 2025) will approximate 1.2%.
In June, 2019, the Supreme Court of the United States issued a decision favorable to hospitals impacting prior year Medicare DSH payments (Azar v. Allina Health Services, No. 17-1484 (U.S. Jun. 3, 2019)). In Allina, the hospitals challenged the Medicare DSH adjustments for federal fiscal year 2012, specifically challenging CMS’s decision to include inpatient hospital days attributable to Medicare Part C enrollee patients in the numerator and denominator of the Medicare/SSI fraction used to calculate a hospital’s DSH payments. This ruling addresses CMS’s attempts to impose the policy espoused in its vacated 2004 rulemaking to a fiscal year in the 2004–2013 time period without using notice-and-comment rulemaking. This decision should require CMS to recalculate hospitals’ DSH Medicare/SSI fractions, with Medicare Part C days excluded, for at least federal fiscal year 2012, but likely federal fiscal years 2005 through 2013. In August, 2020, CMS issued a rule that proposed to retroactively negate the effects of the aforementioned Supreme Court decision, which rule has yet to be finalized. Although we can provide no assurance that we will ultimately receive additional funds, we estimate that the favorable impact of this court ruling on certain prior year hospital Medicare DSH payments could range between $18 million to $28 million in the aggregate.
The 2011 Act included the imposition of annual spending limits for most federal agencies and programs aimed at reducing budget deficits by $917 billion between 2012 and 2021, according to a report released by the Congressional Budget Office. Among its other provisions, the law established a bipartisan Congressional committee, known as the Joint Committee, which was responsible for developing recommendations aimed at reducing future federal budget deficits by an additional $1.5 trillion over 10 years. The Joint Committee was unable to reach an agreement by the November 23, 2011 deadline and, as a result, across-the-board cuts to discretionary, national defense and Medicare spending were implemented on March 1, 2013 resulting in Medicare payment reductions of up to 2% per fiscal year. Subsequent legislation has extended this sequestration through 2032. The CARES Act, as amended, temporarily suspended or limited the application of this sequestration from May 1, 2020 through June 30, 2022, with a return to the full 2% Medicare payment reduction thereafter.
Inpatient services furnished by psychiatric hospitals under the Medicare program are paid under a Psychiatric Prospective Payment System (“Psych PPS”). Medicare payments to psychiatric hospitals are based on a prospective per diem rate with adjustments to account for certain facility and patient characteristics. The Psych PPS also contains provisions for outlier payments and an adjustment to a psychiatric hospital’s base payment if it maintains a full-service emergency department.
In April, 2026, CMS published its Psych PPS proposed rule for the federal fiscal year 2027. Under this proposed rule, payments to our behavioral health care hospitals and units from the market basket update are estimated to increase by 2.3% compared to federal fiscal year 2026. This amount includes the effect of the 3.1% net market basket update which reflects the offset of a 0.8% productivity adjustment. When all of the final patient level adjustments described below as well as proposed wage index values are considered, we estimate that Psych PPS payments will increase by 2.0% in FFY 2027.
In August, 2025, CMS published its Psych PPS final rule for the federal fiscal year 2026. Under this final rule, payments to our behavioral health care hospitals and units from the market basket update are estimated to increase by 2.5% compared to federal fiscal year 2025. This amount includes the effect of the 3.2% net market basket update which reflects the offset of a 0.7% productivity adjustment. When all of the final patient level adjustments described below as well as proposed wage index values are considered, we estimate that Psych PPS payments will increase by 1.7% in FFY 2026.
In July, 2024, CMS published its Psych PPS final rule for the federal fiscal year 2025. Under this final rule, payments to our behavioral health care hospitals and units from the market basket update are estimated to increase by 2.8% compared to federal fiscal year 2024. This amount includes the effect of the 3.3% net market basket update which reflects the offset of a 0.5% productivity adjustment. When all of the final patient level adjustments described below as well as proposed wage index values are considered, we estimate that Psych PPS payments will increase by 2.1% in FFY 2025.
In addition to the market basket update noted above, CMS made the following changes:
•Revisions to the methodology for determining the payment rates under the Inpatient Psychiatric Facility ("IPF") PPS for psychiatric hospitals and psychiatric units based on a review of the data and information collected in prior years in accordance with section 1886(s)(5)(A) of the Social Security Act, as added by the Consolidated Appropriations Act of 2023 ("CAA of 2023"). CMS finalized revisions to the IPF patient-level adjustment factors. The patient-level adjustments include Medicare Severity Diagnosis Related Groups (MS–DRGs) assignment of the patient’s principal diagnosis, selected comorbidities, patient age, and the variable per diem adjustments;
•Implement these revisions in a budget-neutral manner (that is, estimated payments to IPFs for FFY 2025 would be the same with or without the final revisions), and;
•Clarified the criteria regarding all-inclusive cost reporting. This clarification requires our behavioral health care hospitals, which are currently utilizing an all-inclusive charging practice, to modify both their billing practices and information technology applications by June 1, 2025 to ensure compliance with future regulations. We are in compliance with this CMS billing requirement.
This final rule also includes two requests for information on future revisions to the IPF PPS facility-level adjustment factors and development of the new standardized IPF Patient Assessment Instrument, required by the CAA of 2023, which IPFs participating in the IPF Quality Reporting Program will be required to report for Rate Year 2028.
In November, 2025, CMS issued its OPPS final rule for 2026. The hospital market basket increase is 3.3% and the productivity adjustment reduction is 0.7% for a net market basket increase of 2.6%. When other statutorily required adjustments (including a 0.5% reduction for the 340B remedy discussed below) and hospital patient service mix are considered, we estimate that our overall Medicare OPPS update for 2026 will aggregate to a net increase of 2.0%
Some key changes in the 2026 OPPS final rule include:
340B Remedy Recoupment:
CMS anticipates shortening the 340B Remedy recoupment transition from the previously established 16-year schedule beginning 2027; however the revised duration has not yet been determined. A 2023 CMS final rule had implemented a negative OPPS recoupment adjustment of 0.5 percent for approximately 16 years to offset $7.8 billion paid to hospitals for non-drug OPPS payments between 2018 and 2022 – following the US Supreme Court decision overturning the Trump Administration’s 340B reduction policy. CMS will maintain the annual offset of 0.5 percent in CY 2026 with a plan to increase the reduction amount above the 0.5% in CY 2027 and with an unspecified reduction to remain in effect until the estimated payment reduction reaches $7.8 billion.
Eliminating the Inpatient Only (IPO) List:
CMS will phase out the IPO list over a 3-year period, beginning with removing 285 mostly musculoskeletal procedures for CY 2026. Procedures removed from the IPO list would be exempted from certain medical review activities related to the two-midnight policy for CY 2026 and subsequent years until CMS determines the service or procedure is more commonly performed in the Medicare population in the outpatient setting. For CY 2026, the Company expects the impact to be immaterial. For CY’s 2027 and later, the estimated potential financial impact to the Company cannot be determined until future CMS rulemaking process related to changes in the IPO list occurs.
On November 2, 2023, in light of the Supreme Court’s decision in American Hospital Association v. Becerra (142 S. Ct. 1896 (2022)) and the district court’s remand to the agency, CMS issued a final rule outlining the remedy for the 340B-acquired drug payment policy for calendar years 2018-2022. CMS published the final rule to remedy the payment rates the Court held were invalid aspects of their past policy and will affect nearly all hospitals paid under the OPPS. As part of the final remedy, CMS will make an adjustment to the update factor to maintain budget neutrality as required by statute. CMS finalized the 340B policy for calendar year 2018 in 2017 in a budget neutral manner that included increasing payments for non-drug items and services; this payment increase was in effect from calendar years 2018 through 2022. CMS estimates that hospitals were paid $7.8 billion more for non-drug items and services during this time period than they would have been paid in the absence of the 340B payment policy. Because CMS is now making additional payments to affected 340B covered entity hospitals to pay them what they would have been paid had the 340B policy never been implemented, CMS will make a corresponding offset to maintain budget neutrality as if the 340B payment policy had never been in effect. To carry out this required $7.8 billion budget neutrality adjustment, CMS will reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5% starting in calendar year 2026 and continuing for an estimated 16
years. However, as discussed above and as noted in the 2026 OPPS final rule, CMS is likely to shorten the recovery period of the $7.8 billion to less than 17 years starting in calendar year 2027 to a currently unspecified reduction to non-drug item and service payments.
In November, 2024, CMS issued its OPPS final rule for 2025. The hospital market basket increase is 3.4% and the productivity adjustment reduction is 0.5% for a net market basket increase of 2.9%. When other statutorily required adjustments and hospital patient service mix are considered, including a 14.2% increase to the partial hospitalization rate, we estimate that our overall Medicare OPPS update for 2025 will aggregate to a net increase of 3.6%.
In November, 2023, CMS issued its OPPS final rule for 2024. The hospital market basket increase is 3.3% and the productivity adjustment reduction is 0.2% for a net market basket increase of 3.1%. When other statutorily required adjustments and hospital patient service mix are considered, we estimate that our overall Medicare OPPS update for 2024 will aggregate to a net increase of 9.7%. This percentage reflects the impact resulting from rural floor changes to the Medicare wage index adjustment factor where certain states, such as California and Nevada, will materially benefit from this change.
In November, 2019, CMS finalized its Hospital Price Transparency rule that implements certain requirements under the June 24, 2019 Presidential Executive Order related to Improving Price and Quality Transparency in American Healthcare to Put Patients First. Under this final rule, effective January 1, 2021, CMS will require: hospitals to make public: (1) their standard changes (both gross charges and payer-specific negotiated charges) for all items and services online in a machine-readable format, and; (2) standard charge data for a limited set of “shoppable services” the hospital provides in a form and manner that is more consumer friendly. On November 2, 2021, CMS released a final rule increasing the monetary penalty that CMS can impose on hospitals that fail to comply with the price transparency requirements. We believe that our hospitals are in full compliance with the applicable federal regulations. In November, 2023, CMS finalized multiple provisions, effective as of January 1, 2024, focused on increasing hospital price transparency and compliance enforcement including but not limited to: (1) standard charges data would be posted online using a CMS template, instead of using the hospital’s own form/format; (2) all standard charge information would be encoded with a specified set of data elements (e.g., hospital name, license number, payer/plan name, description of service and billing codes, among others); (3) other technical changes related to increasing consumers’ automated accessibility to hospital standard charges, and; (4) certifications regarding accuracy of standard charge data and related compliance warning notices from CMS and requiring accessibility to health system leadership regarding transparency noncompliance.
In September, 2024, the Departments of Labor, Health and Human Services and the Treasury published final rules that:
•Mandate that insurers analyze the outcomes of their coverage to ensure there's equivalent access to mental health care, including provider networks, prior authorization rates and payment for out-of-network providers, and take action to get in compliance;
•Establish when health plans can’t use prior authorization or other tactics to make it more difficult to access mental health and substance use treatment, and;
•Require additional insurers to comply with the 2008 Mental Health Parity and Addiction Equity Act.
While these rules will likely improve patient access to inpatient and outpatient mental health services, we are unable to estimate the related potential impact on our results of operations.
Medicare Advantage Payment Annual Update:
In April, 2026, CMS released the calendar year 2027 ("CY 2027") rate announcement for the MA that finalizes the payment policies for this program. Payments from the government to MA plans are expected to increase on average by 2.48% from 2026 to 2027 excluding the CMS estimate of Medicare Advantage risk score trend. This change represents an increase of 2.39% since the CY 2027 announcement, which is largely attributable to a favorable change in risk model adjustment factor percentage.
In April, 2025, the CMS released the calendar year 2026 ("CY 2026") rate announcement for the MA that finalizes the payment policies for this program. Payments from the government to MA plans are expected to increase on average by 5.06% from 2025 to 2026 excluding the CMS estimate of Medicare Advantage risk score trend. This change represents an increase of 2.83% since the CY 2026 announcement, which is largely attributable to an increase in the effective growth rate.
Medicaid: Medicaid is a joint federal-state funded health care benefit program that is administered by the states to provide benefits to qualifying individuals. Most state Medicaid payments are made under a PPS-like system, or under programs that negotiate payment levels with individual hospitals. Amounts received under the Medicaid program are generally significantly less than a hospital’s customary charges for services provided. In addition to revenues received pursuant to the Medicare program, we receive a large portion of our revenues either directly from Medicaid programs or from managed care companies managing Medicaid. All of our acute care hospitals and most of our behavioral health centers are certified as providers of Medicaid services by the appropriate governmental authorities.
We receive revenues from various state and county-based programs, including Medicaid in all the states in which we operate. We receive annual Medicaid revenues of approximately $100 million, or greater, from each of Nevada, California, Texas, Washington,
D.C., Illinois, Pennsylvania, Kentucky, Ohio, Virginia, Massachusetts, Michigan, Mississippi, Florida and Tennessee. We also receive Medicaid disproportionate share hospital payments in certain states including, most significantly, Texas. Many of these programs have a Medicaid supplemental payment component that are subject to approval on a year-to-year basis and there is no assurance that these supplemental payment revenues will continue at their current rates or at all. We are therefore particularly sensitive to potential reductions in Medicaid and other state-based revenue programs as well as regulatory, economic, environmental and competitive changes in those states. We can provide no assurance that reductions to revenues earned pursuant to these programs, particularly in the above-mentioned states, will not have a material adverse effect on our future results of operations.
The ACA substantially increases the federally and state-funded Medicaid insurance program, and authorizes states to establish federally subsidized non-Medicaid health plans for low-income residents not eligible for Medicaid starting in 2014. However, the Supreme Court has struck down portions of the ACA requiring states to expand their Medicaid programs in exchange for increased federal funding. Accordingly, many states in which we operate have not expanded Medicaid coverage to individuals at 133% of the federal poverty level. Facilities in states not opting to expand Medicaid coverage under the ACA may be additionally penalized by corresponding reductions to Medicaid disproportionate share hospital payments beginning in fiscal year 2024, as discussed below. We can provide no assurance that further reductions to Medicaid revenues, particularly in the above-mentioned states, will not have a material adverse effect on our future results of operations.
Summary of Various State Medicaid Supplemental Payment Programs:
As noted elsewhere herein, the OBBBA has specific legislative language that will reduce Medicaid supplemental payments as well as limit Provider Taxes used by states to finance the non-federal share of Medicaid supplemental payments. The following table summarizes the revenues, healthcare provider taxes (“Provider Taxes”) and net benefit related to each of the below-mentioned Medicaid supplemental programs for the three-month periods ended March 31, 2026 and 2025. The Provider Taxes are recorded in other operating expenses on the consolidated statements of income, as included herein. The "Projected Full Year 2026" amounts reflected on the table below are, in many cases, subject to federal and potentially state approval and may be affected by any reductions or other changes in federal funding for these programs.
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|
(amounts in millions) |
|
|
|
|
|
Three Months Ended |
|
|
Projected |
|
|
March 31, |
|
March 31, |
|
|
Full Year 2026 |
|
|
2026 |
|
2025 |
|
Texas Supplemental Payment Programs: |
|
|
|
|
|
|
|
Revenues |
$ |
328 |
|
|
$ |
70 |
|
$ |
47 |
|
Provider Taxes |
|
(138 |
) |
|
|
(28 |
) |
|
(19 |
) |
Net benefit |
$ |
190 |
|
|
$ |
42 |
|
$ |
28 |
|
|
|
|
|
|
|
|
|
Nevada SDP: |
|
|
|
|
|
|
|
Revenues |
$ |
458 |
|
|
$ |
146 |
|
$ |
87 |
|
Provider Taxes |
|
(162 |
) |
|
|
(50 |
) |
|
(31 |
) |
Net benefit |
$ |
296 |
|
|
$ |
96 |
|
$ |
56 |
|
|
|
|
|
|
|
|
|
Various Other State Programs: |
|
|
|
|
|
|
|
Revenues |
$ |
1,203 |
|
|
$ |
305 |
|
$ |
207 |
|
Provider Taxes |
|
(368 |
) |
|
|
(86 |
) |
|
(67 |
) |
Net benefit |
$ |
835 |
|
|
$ |
219 |
|
$ |
140 |
|
|
|
|
|
|
|
|
|
Subtotal-Provider Tax Programs: |
|
|
|
|
|
|
|
Revenues |
$ |
1,989 |
|
|
$ |
521 |
|
$ |
341 |
|
Provider Taxes |
|
(668 |
) |
|
|
(164 |
) |
|
(117 |
) |
Aggregate net benefit from Provider Tax Programs |
$ |
1,321 |
|
|
$ |
357 |
|
$ |
224 |
|
|
|
|
|
|
|
|
|
Texas, Nevada and South Carolina DSH/SPA Programs: |
|
|
|
|
|
|
|
Revenues |
$ |
41 |
|
|
$ |
12 |
|
$ |
12 |
|
Provider Taxes |
|
0 |
|
|
|
0 |
|
|
0 |
|
Net benefit |
$ |
41 |
|
|
$ |
12 |
|
$ |
12 |
|
|
|
|
|
|
|
|
|
Total Supplemental Medicaid Programs: |
|
|
|
|
|
|
|
Revenues |
$ |
2,030 |
|
|
$ |
533 |
|
$ |
353 |
|
Provider Taxes |
|
(668 |
) |
|
|
(164 |
) |
|
(117 |
) |
Aggregate net benefit from all Supplemental Programs |
$ |
1,362 |
|
|
$ |
369 |
|
$ |
236 |
|
Texas Supplemental Payment Programs:
Certain of our acute care hospitals located in various counties of Texas participate in Medicaid supplemental payment Section 1115 Waiver indigent care programs. The 1115 Waiver has been approved by CMS through September 30, 2030. These hospitals also have affiliation agreements with third-party hospitals to provide free hospital and physician care to qualifying indigent residents of these counties. Our hospitals receive both supplemental payments from the Medicaid program and indigent care payments from third-party, affiliated hospitals. The supplemental payments are contingent on the county or hospital district making an Inter-Governmental Transfer (“IGT”) to the state Medicaid program while the indigent care payment is contingent on a transfer of funds from the applicable affiliated hospitals. However, the county or hospital district is prohibited from entering into an agreement to condition any IGT on the amount of any private hospital’s indigent care obligation.
CHIRP (including QIF)
On July 31, 2023, CMS approved the Comprehensive Hospital Increase Reimbursement Program ("CHIRP"), with a pool of $6.5 billion, for the rate period of September 1, 2023 to August 31, 2024. On September 13, 2024, CMS approved the CHIRP program with a pool of $6.5 billion for the rate period September 1, 2024 to August 31, 2025 (with an amended CMS approval on October 1, 2024). A CHIRP preprint for the rate period September 1, 2025 to August 31, 2026 was approved by CMS in August, 2025 with a pool size of $9.2 billion. This program is estimated to increase reimbursement to our hospitals by approximately $20 million to $23 million in program year 2026.
CHIRP payments beginning with the state fiscal year 2025 rate period included modifications to promote the advancement of the quality goals and strategies the program is designed to advance.
The final modifications include:
•Creation of a new pay-for-performance incentive payment through a third component in CHIRP, the Alternate Participating Hospital Reimbursement for Improving Quality Award ("APHRIQA"). For state fiscal years beginning with SFY 2025, behavioral health hospitals and rural hospitals will not be included in the pay-for-performance program, and;
•The funds for payment of the APHRIQA component will be transitioned from the existing uniform rate increase components of the Uniform Hospital Rate Increase Percentage and the Average Commercial Incentive Award and will be paid using a scorecard that directs managed care organizations to pay providers for performance achievements on quality outcome measures. Payments will be distributed under APHRIQA on a semi-annual basis that aligns with the measurement period determined for quality metrics reporting.
CHIRP payment levels could be reduced materially if our hospitals are not able meet the required APHRIQA pay-for-performance metrics.
In connection with the Quality Incentive Fund (“QIF”), certain of our acute care hospitals located in Texas may earn incentive payments pursuant to contractual arrangements with Medicaid managed care plans. No QIF revenues were recorded during the three-month periods ended March 31, 2026 and 2025. These amounts were earned pursuant to contract terms with various Medicaid managed care plans which requires the annual payout of QIF funds when a managed care service delivery area’s actual claims-based CHIRP payments are less than targeted CHIRP payments for a specific rate year.
We estimate that these hospitals will be entitled to approximately $18 million of aggregate QIF revenues during the year ended December 31, 2026.
UC
Included in these provider tax programs are reimbursements received in connection with the Texas Uncompensated Care program ("UC"). The size and distribution of the UC pool are determined based on charity care costs reported to THHSC in accordance with Medicare cost report Worksheet S-10 principles.
HARP
The Hospital Augmented Reimbursement Program (“HARP”) provides additional funding to hospitals to help offset the cost hospitals incur while providing Medicaid services. HARP is technically a Medicaid Upper Payment Limit as payment under this program is based on a reasonable estimate of the amount that would be paid for the services under Medicare payment principles but is referred to as HARP by THHSC.
In connection with this program, included in our results of operations was approximately $5 million and $6 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We expect our net reimbursements pursuant to HARP to approximate $19 million during the year ended December 31, 2026.
ATLIS
In March 2026, the HHSC initiated plans to restart the Aligning Technology by Linking Interoperable Systems ("ATLIS") program for program year 2 covering FFY 2026. Although our acute care hospitals in Texas participated in the ATLIS program during year 1, the impact was not material to our results of operations. For year 2, the ATLIS pool will be comparable in size to the year 1 pool amounting to approximately $930 million. Participation terms for the ATLIS program in year 2 are not yet finalized so we are uncertain as to the impact on our results of operations. However, under certain participation scenarios, the ATLIS program in year 2 (FFY 2026) could have a favorable material impact on our results of operations.
Nevada State Directed Payment Program ("SDP"):
Beginning with the period of January 1, 2024 through December 31, 2024 CMS approved a new hospital SDP in Nevada. Payments made pursuant to this component of the Nevada SDP program, which requires annual approval by CMS, are subject to reconciliation by the Division of Health Care Financing and Policy ("DHCFP") based on actual Medicaid managed care utilization during 2024 and each year thereafter. The Nevada SDP (as revised in February, 2026) for the period of January 1, 2025 through December 31, 2025 was approved by CMS. In March 2026, CMS also approved the preprint for the period January 1, 2026 to December 31, 2026. There can be no assurance that the Medicaid managed care component of the Nevada SDP will continue for any period after December 31, 2026, or that it will not be modified.
In connection with this program, included in our results of operations was approximately $96 million and $56 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively. Approximately $30 million of the amount recorded during the first quarter of 2026 relates to the period of January 1, 2025 to December 31, 2025.
We estimate that our aggregate net reimbursements pursuant to both components of the Nevada SDP program (net of related provider taxes) will approximate $296 million during the year ended December 31, 2026.
Various Other State Programs:
We receive substantial reimbursement from multiple states in connection with various supplemental Medicaid payment programs. The states include, but are not limited to, the state programs listed below from which we receive significant reimbursements.
Kentucky Hospital Rate Increase Program (“HRIP”)
In early 2021, CMS approved the Kentucky Medicaid Managed Care Hospital Rate Increase Program. In February, 2026, CMS approved the program for the period of January 1, 2026 through December 31, 2026 whereby the HRIP pool size will increase from $2.4 billion to $2.8 billion.
In connection with this program, included in our results of operations was $24 million and $22 million during the three-month periods ended March 31, 2026 and 2025, respectively. We estimate that our net reimbursements pursuant to HRIP will approximate $106 million during the year ended December 31, 2026.
California Supplemental Payments
In California, the state continues to operate Medicaid supplemental payment programs consisting of three components: Fee For Service Payment, Managed Care-Pass-Through Payment and Managed Care-Directed Payment. The non-federal share for these programs are financed by a statewide provider tax. The Directed Payment method will be based on actual concurrent hospital Medicaid managed care in-network patient volume whereas the other programs are based on prior year Medicaid utilization. The CMS program approval status is outlined in the table below.
California Hospital Fee Program CMS Approval Status:
|
|
|
Hospital Fee Program Component |
CMS Methodology Approval |
CMS Rate Setting Approval Status |
|
Status |
|
Fee For Service Payment |
Approved through December 31, 2024 |
Approved through December 31, 2024; Paid through December 31, 2024 |
Managed Care-Pass-Through Payment |
Approved through December 31, 2024 |
Approved through December 31, 2023 and paid in advance through December 31, 2024 |
Managed Care-Directed Payment |
Approved through December 31, 2024 |
Approved through December 31, 2023 and paid in advance through June 30, 2024 |
In connection with this program, included in our results of operations was $17 million and $16 million during the three-month periods ended March 31, 2026 and 2025, respectively. During the first quarter of 2026, the Department of Health Care Services submitted an amended final draft of the Hospital Quality Assurance Fee program 9 fee to CMS for approval for the period January 1, 2025 to December 31, 2025. This submission includes the Managed Care-Directed Payment preprint. We are unable to predict the outcome, amount or timing of any related increase that may result from this submission.
We estimate that our net reimbursements pursuant to this program will approximate $68 million during the year ended December 31, 2026.
Mississippi Hospital Access Program
Beginning July 1, 2023, Mississippi implemented a two part Medicaid payment program that is funded by annual hospital assessments to the state's Medicaid program. These hospital assessments are calculated using a formula provided under state law. The first part of the program, known as the Mississippi Hospital Access Program (“MHAP”), provides direct payments for hospitals that serve patients in the state's Medicaid managed care delivery system. Hospitals are reimbursed near the average commercial rate, which is the upper limit ("UPL") for Medicaid managed care reimbursements. The second part of the program supplements traditional Medicaid payment rates for hospitals providing inpatient and outpatient services up to Medicaid's regulated UPL. In June 2024, CMS approved the MHAP program component for the period July 1, 2024 to June 30, 2025. The UPL component was approved in April, 2024. In September 2025, CMS approved the MHAP program component for the period July 1, 2025 to June 30, 2026. The UPL component was approved in April 2024.
In connection with this program, included in our results of operations was approximately $12 million and $11 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to these supplemental payment programs will approximate $59 million during the year ended December 31, 2026.
Florida Medicaid Managed Care Directed Payment Program (“DPP”)
The Florida DPP provides for an additional payment for Medicaid managed care contracted services which is typically recorded during the fourth quarter of each year.
In April, 2026, CMS approved the Florida DPP for the period of October 1, 2024 to September 30, 2025. The approved DPP preprint includes: (i) a request to increase the size of the program and related DPP add-on payment levels based on a percentage of average commercial rates, and; (ii) change in the provider tax structure which in the aggregate was favorable to our hospitals.
Pursuant to this recently approved program, we estimate that the annual aggregate net benefit applicable to our facilities will increase by approximately $100 million (applicable to the period of October 1, 2024 through September 30, 2025), which we expect to record during the second quarter of 2026. This $100 million incremental increase to the Florida DPP program is not yet reflected in the above Medicaid Supplemental Provider Tax table.
Excluding the $100 million increase as discussed above, we estimate that our reimbursements pursuant to this DPP will approximate $53 million during the year ended December 31, 2026 (applicable to the period of October 1, 2025 to September 30, 2026). However, the DPP program preprint for the period October 1, 2025 to September 30, 2026 is still pending the state Medicaid agency's submission for CMS approval. The state agency submitted provider tax waivers from the federal provider tax broad based requirement. We are uncertain as to whether or not CMS will approve the DPP program preprint for the period October 1, 2025 to September 30, 2026, or the ultimate amount and timing of such approval.
Illinois Medicaid Supplemental Payment Programs
The Illinois Medicaid Supplemental Payment Programs are comprised of three components: (1) Medicaid managed care directed payment program; (2) Medicaid managed care pass-through program, and; (3) Medicaid fee for service supplemental payment program. These programs require various related legislative and regulatory approvals each year.
In connection with this program, included in our results of operations was approximately $8 million and $10 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to these supplemental payment programs will approximate $32 million during the year ended December 31, 2026. Approval of these programs for the period of January 1, 2026 to December 31, 2026 is under CMS' review.
Indiana Medicaid Managed Care DPP
The Indiana DPP provides for an additional payment for Medicaid managed care contracted services. In connection with this program, included in our results of operations was approximately $10 million and $8 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this program will approximate $35 million during the year ended December 31, 2026.
Oklahoma (Transition to Managed Care and Implementation of a Medicaid Managed Care DPP)
The current Oklahoma Medicaid supplemental payment program in effect, prior to the planned implementation of the new DPP in 2024, is the Supplemental Hospital Offset Payment Program (“SHOPP”). The SHOPP component will remain in place for certain categories of Medicaid patients that will continue to be enrolled in the traditional Medicaid Fee for Service program.
In May, 2022, Oklahoma enacted legislation that directs the Oklahoma Health Care Authority ("OHCA") to: (i) transition its Medicaid program from a fee for service payment model to a managed care payment model by no later than October 1, 2023, and: (ii) concurrently implement a Medicaid managed care DPP using a managed care gap of 90% of average commercial rates. In December, 2022, the OHCA delayed the implementation date of the Medicaid managed care change and related DPP until April 1, 2024. In September, 2023, CMS approved the DPP program for the 15-month period effective as of April 1, 2024 through June 30, 2025. CMS approval of the DPP program for the period July 1, 2025 to June 30, 2026 is pending.
In connection with this program, included in our results of operations was approximately $7 million recorded during both three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to these two supplemental payment programs (i.e. SHOPP and DPP) will approximate $27 million during the year ended December 31, 2026.
South Carolina Health Access, Workforce and Quality (“HAWQ”) Program
In September 2023, CMS approved the South Carolina HAWQ Program retroactive to July 1, 2023 and subsequently approved by CMS in July, 2024 for the period of July 1, 2024 to June 30, 2025. In December 2025, CMS approved the period July 1, 2025 to June 30, 2026. This program is a Medicaid managed care directed payment program that provides for a rate enhancement to Medicaid managed care encounters. In connection with this program, included in our results of operations was approximately $7 million and $9 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this program will approximate $28 million during the year ended December 31, 2026.
Michigan Directed Payment Program (“DPP”)
In March 2024, CMS approved the Michigan Medicaid DPP retroactive to October 1, 2023 based on average commercial rates. The Michigan DPP provides for an additional payment for Medicaid managed care contracted services. In connection with this program, included in our results of operations was approximately $11 million and $7 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this program will approximate $46 million during the year ended December 31, 2026. The Michigan DPP for the period of October 1, 2025 to September 30, 2026 was approved by CMS.
Idaho Upper Payment Limit (“UPL”)
In April 2024, the Idaho Department of Health and Welfare (“IDHW”) released its updated Medicaid UPL calculation for SFY 2024 (July 1, 2023 to June 30, 2024) and revised its SFY 2023 (July 1, 2022 to June 30, 2023) UPL calculation. Subject to CMS approval, the IDHW plans to continue this UPL program through SFY 2026 (July 1, 2025 to June 30, 2026). Due to the transition of to Medicaid managed care on July 1, 2024 and the end of the two year run out, the UPL program will sunset June 30, 2026. For SFY 2026, the IDHW will not replace the UPL program with a Medicaid managed care state directed payment program..
In connection with this program, included in our results of operations was approximately $4 million and $5 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this program will approximate $8 million during the year ended December 31, 2026.
Washington Safety Net Assessment Program
On April 2, 2024, CMS approved an expanded state directed payment program in Washington whereby payments will now be based on the average commercial rates. The program was approved retroactively for the period January 1, 2024 to December 31, 2024.
In connection with this program, included in our results of operations was approximately $11 million and $12 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this expanded program will approximate $42 million during the year ended December 31, 2026. The program for the period of January 1, 2025 to December 31, 2025 was approved by CMS.
New Mexico State Directed Payment Program (“SDP”)
In November, 2024, CMS approved the New Mexico Medicaid SDP, retroactive to July 1, 2024, based on average commercial rates. The New Mexico SDP provides for an additional payment for Medicaid managed care contracted services. The program requires the submission of an annual report that demonstrates that 75% of the incremental net funds were used for the delivery of and access to healthcare services in the state.
The New Mexico SDP for the period of January 1, 2025 to December 31, 2025 was approved by CMS.
In connection with this program, included in our results of operations was approximately $10 million and $4 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this program will approximate $26 million during the year ended December 31, 2026.
Tennessee Directed Payment Program (“DPP”)
Tennessee SB1740, enacted in May, 2024, imposes an annual coverage assessment on covered hospitals for fiscal year 2024-2025. The total assessment on all covered hospitals in the aggregate will be equal to 6% of the federally recognized annual coverage assessment base. The assessment proceeds will be used to fund an increase to the state’s DPP payment pool to be based on average commercial rates.
In January, 2025, CMS approved the DPP payment increase for the period July 1, 2024 to December 31, 2024, contingent upon CMS' approval of the state's 1115 Medicaid Waiver amendment. In addition, the DPP program for calendar year 2025 (January 1, 2025 to December 31, 2025) was approved by CMS in April, 2025, also contingent upon CMS' approval of the state's 1115 Medicaid Waiver amendment which was approved by CMS in June, 2025.
In connection with this program, included in our results of operations was approximately $17 million recorded during the three-month period ended March 31, 2026 and no revenue was recorded during the three-month period ended March 31, 2025
We estimate that our net reimbursements pursuant to this program will approximate $54 million during the year ended December 31, 2026.
Washington, D.C. State Directed Payment program (“SDP”)
In September, 2025, CMS approved the SDP program for the period October 1, 2024 to September 30, 2025. This SDP program provides for an add-on to in-network Medicaid managed care paid claims.
In connection with this program, included in our results of operations was approximately $27 million recorded during the three-month period ended March 31, 2026. No revenues related to the program were recorded in the three-month period ending March 31, 2025.
We estimate that our net reimbursements pursuant to this program will approximate $107 million during the year ended December 31, 2026.
Ohio Medicaid Managed Care DPP
The Ohio DPP provides for an additional payment for Medicaid managed care contracted services. In connection with this program, included in our results of operations was approximately $26 million and $4 million recorded during the three-month periods ended March 31, 2026 and 2025, respectively.
We estimate that our net reimbursements pursuant to this program will approximate $50 million during the year ended December 31, 2026, approximately $16 million of which relates to the period January through December, 2025.
Texas DSH and Nevada SPA Programs:
Texas DSH
Upon meeting certain conditions and serving a disproportionately high share of Texas’ low income patients, our qualifying facilities located in Texas receive additional reimbursement from the state’s DSH fund. The Texas DSH program was renewed for the state’s 2026 DSH fiscal year (covering the period of October 1, 2025 through September 30, 2026).
In connection with this program, included in our results of operations was approximately $8 million recorded during both the three-month periods ended March 31, 2026 and 2025.
We estimate that our aggregate net reimbursements earned pursuant to the Texas DSH program will approximate $24 million during the year ended December 31, 2026.
The ACA and subsequent federal legislation provides for a significant reduction in Medicaid disproportionate share payments beginning in federal fiscal year 2028 (see above in Sources of Revenues and Health Care Reform-Medicaid for additional disclosure related to the delay of these DSH reductions). HHS is to determine the amount of Medicaid DSH payment cuts imposed on each state based on a defined methodology. As Medicaid DSH payments to states will be cut, consequently, payments to Medicaid-participating providers, including our hospitals in Texas, will be reduced in the coming years. Based on the CMS final rule published in September, 2019 (as amended by the CARES Act and the CAA), beginning in fiscal year 2026, annual Medicaid DSH payments in Texas could be reduced by approximately 33% from current DSH payment levels. However, states have discretion in the allocation of their respective federal DSH allotment and we do not believe the state's allocation will result in a material decrease to DSH payment levels to our hospitals located in Texas. A series of federal continuing resolutions were passed by the federal government which provided for ongoing federal funding.
In connection with certain previous DSH and UC adverse federal court decisions, including the Children’s Hospital Association of Texas v. Azar, we continue to maintain reserves in the financial statements for cumulative Medicaid DSH and UC reimbursements related to our behavioral health hospitals located in Texas that amounted to $33 million as of both March 31, 2026 and December 31, 2025.
Nevada State Plan Amendment ("SPA")
CMS initially approved an SPA in Nevada in August, 2014 and this SPA has been approved for additional state fiscal years, including the 2024 fiscal year covering the period of July 1, 2023 through June 30, 2024. CMS approval for the 2025 and 2026 fiscal years, which is still pending, is expected to occur.
In connection with this program, included in our results of operations was approximately $4 million recorded during both the three-month periods ended March 31, 2026 and 2025.
We estimate that our net reimbursements pursuant to this program will approximate $17 million during the year ended December 31, 2026
Legislation Commonly Known as the One Big Beautiful Bill Act ("OBBBA")
The OBBBA was enacted into law on July 4, 2025. This legislation includes material changes to the Medicaid program and other healthcare related programs including but not limited to:
Medicaid State Directed Payments (“SDP”)
•In states that expanded their Medicaid programs under the ACA ("Expansion States"), the SDP payment rate is capped at 100% of Medicare.
•For states that did not expand Medicaid under the ACA ("Non-Expansion States"), the SDP rate is capped at 110% of Medicare.
•These provisions grandfathered SDP programs already in existence or pending approval from CMS. Beginning with the 2028 state fiscal years, SDP provisions pursuant to the OBBBA are being phased in whereby grandfathered payment plans will be reduced by no more than 10% annually until the applicable Medicare rate is reached.
Limits on Provider Taxes
•Prior law capped Provider Taxes at 6% of net patient revenue. The new law reduces the percentage of revenue that can be taxed as a Provider Tax.
•The Provider Tax provisions pursuant to the OBBBA are largely being phased in over a 5-year period.
•In Expansion States, beginning with the 2028 state fiscal years, this percentage will be reduced by 0.5% each year until it reaches 3.5%. In Non-Expansion States, the Provider Tax percentage will remain unchanged.
•Establishes new discretion for CMS to refuse waivers of Provider Tax uniformity requirement.
•In January 2026, CMS issued its Medicaid Provider Tax Rule final rule changing how state provider taxes are evaluated for compliance with federal requirements. Transition periods for state compliance with the new requirements will vary based on state specific circumstances. We are unable to determine the financial impact on our future Medicaid supplemental payments.
Rural Health Transformation Program
•Establishes a $50 billion rural health grant program for states between fiscal years 2026 and 2030 to be used for payments to rural health facilities. 50% of the fund will go to states equally and 50% will be allocated based on a rural formula determined by the HHS Secretary.
•In December 2025, The Centers for Medicare & Medicaid Services (CMS) announced that all 50 states will receive awards under the Rural Health Transformation Program. In 2026, states will receive first-year awards from CMS averaging $200 million within a range of $147 million to $281 million. The state of Texas received the highest award amount.
•Although certain of our hospitals that are designated by CMS as rural may be eligible for reimbursement pursuant to this fund, we are unable to predict if any of our facilities will ultimately qualify for reimbursement and are therefore unable to quantify any potential favorable impact on our future results of operations.
Medicaid Eligibility:
•Institutes an 80-hour a month work requirement for all Medicaid individuals ages 19-64 at least every 6 months, with some exceptions.
•Requires states to conduct eligibility redeterminations at least every 6 months for Medicaid expansion adults effective no later than January 1, 2027.
•Although we cannot predict the potential unfavorable impact on our future results of operations from these changes to Medicaid eligibility requirements, these changes could reduce the overall number of Medicaid enrollees thereby potentially decreasing our Medicaid revenues (including revenues earned pursuant to various state Medicaid supplemental payment programs) while potentially increasing the level of uncompensated care provided by our facilities.
As noted above, the OBBBA has specific legislative language that will reduce SDP payments as well as limit Provider Taxes used by states to finance the non-federal share of Medicaid supplemental payments. However, certain OBBBA provisions that would impact payment levels could be subject to some interpretation by CMS and related future federal rulemaking such as the definition of an SDP grandfathered program.
Based upon our current 2025 full year net benefit related to various state Medicaid supplemental payment programs, amounting to approximately $1.361 billion, as reflected on the table above in Summary of Various State Medicaid Supplemental Payment Programs, we estimate that, commencing with the 2028 state fiscal years, our aggregate annual net benefit will be reduced, on an annually increasing and relatively pro rata basis, by approximately $432 million to $480 million by 2032. We cannot predict, among other things, if this legislation will ultimately be implemented as enacted, or if certain states may attempt to modify their respective SDP program in response to the OBBBA legislation. Given the various uncertainties and evolving state-by-state interpretations and computations related to this legislation, our forecasted estimates are subject to change, potentially by material amounts.
Other Risk Factors Related To State Supplemental Medicaid Payments:
As outlined above, we receive substantial reimbursement from multiple states in connection with various supplemental Medicaid payment programs. Failure to renew these programs beyond their scheduled termination dates, failure of the public hospitals to provide the necessary IGTs for the states’ share of the DSH programs, failure of our hospitals that currently receive supplemental Medicaid revenues to qualify for future funds under these programs, or reductions in reimbursements, could cause our estimates to differ by material amounts which could have a material adverse effect on our future results of operations.
In April, 2016, CMS published its final Medicaid Managed Care Rule which explicitly permits but phases out the use of pass-through payments (including supplemental payments) by Medicaid Managed Care Organizations (“MCO”) to hospitals over ten years but allows for a transition of the pass-through payments into value-based payment structures, delivery system reform initiatives or payments tied to services under a MCO contract. Since we are unable to determine the financial impact of this aspect of the final rule, we can provide no assurance that the final rule will not have a material adverse effect on our future results of operations. In November, 2020, CMS issued a final rule permitting pass-through supplemental provider payments during a time-limited period when states transition populations or services from fee-for-service Medicaid to managed care.
We receive Medicaid SDP payments from MCOs authorized by CMS under 42 CFR § 438.6(c). Consistent with capitated rates paid by Medicaid state agencies to MCO’s for managing Medicaid beneficiary lives under a risk-based arrangement, SDP program related capitated rates must also be developed by the state in accordance with actuarial soundness standards noted at 42 CFR § 438.4 and non-compliance could result in a reduction to SDP payment levels. In general, Medicaid SDP payments under 42 CFR § 438.6(c) are subject to annual CMS approval via the submission of a preprint application by a state agency which provides details of the SDP payment methodology and conformity with applicable federal regulations. CMS SDP preprint approval, and the timing of such approval, if it occurs, are not certain which can affect the both the SDP payment level and timing of SDP revenue recorded by us.
We incur Provider Taxes imposed by states in the form of a licensing fee, assessment or other mandatory payment which are related to: (i) healthcare items or services; (ii) the provision of, or the authority to provide, the health care items or services, or; (iii) the payment for the health care items or services that are used by respective states to finance the non-federal share of SDP’s (or other Medicaid supplemental payment programs). Such Provider Taxes are subject to various federal regulations that limit the scope and amount of the taxes that can be levied by states in order to secure federal matching funds as part of their respective state Medicaid supplemental payment programs. States are subject to CMS both concurrent and retrospective review for their compliance with the applicable Provider Tax regulations and related federal statute. If CMS determines Provider Taxes used by a state Medicaid program to finance the non-federal share of a SDP (or other Medicaid supplemental payment programs) are not in compliance with the applicable Provider Tax regulations and related federal statutes, our SDP payments (and other Medicaid supplemental payments) could be subject to recoupment by the respective state agency when non-compliance is determined by CMS to exist.
We believe that the SDP (and other state supplemental payment) programs are designed by each state to be in full compliance with the applicable federal regulations and federal statutes. However, we are unable to provide assurance CMS will determine on a retroactive basis that a state’s SDP (or other Medicaid supplemental payment program) design and Medicaid financing structures is in full compliance with the applicable federal regulations and federal statute(s).
On April 22, 2024, CMS issued Medicaid and Children’s Health Insurance Program ("CHIP") Managed Care Access, Finance, and Quality Final Rule (“Managed Care Rule”). CMS intends for the Managed Care Rule to:
•Strengthen standard for timely access to care and states’ monitoring and enforcement efforts;
•Enhance quality and fiscal and program integrity standards for state directed payments (“SDPs”);
•Specify the scope of in lieu of services and settings to better address health-related social needs;
•Further specify medical loss ratio requirements, and;
•Establish a quality rating system for Medicaid and CHIP managed care plans.
The SDP provisions included in the Managed Care Rule:
•Requires that provider payment levels for state directed payments for inpatient and outpatient hospital services, nursing facility services, and the professional services at an academic medical center not exceed the average commercial rate;
•Prohibits the use of post-payment reconciliation processes for state directed payments that are based on fee schedules;
•Makes explicit in regulation the existing requirement that state directed payments must comply with all federal laws concerning funding sources of the non-federal share, and;
•Requires that states ensure each provider receiving a state directed payment attest that it does not participate in any arrangement that holds taxpayers harmless for the cost of a tax. CMS concurrently released an informational bulletin regarding CMS’ exercise of enforcement discretion until calendar year 2028 for existing health-care related tax programs with certain hold-harmless arrangements involving the redistribution of Medicaid payments.
Fee-For-Service Short-Doyle Medi-Cal (“SD/MC”) Hospitals Change In Payment Methodology:
Under the California Medicaid prepaid inpatient health plan program, counties are required to ensure delivery of mental health services utilizing a system of county operated and contract providers. The California Medicaid program has adopted a new reimbursement method for inpatient psychiatric services with an effective date of December 12, 2023, incorporated a cost-based ceiling to negotiated rates. This change may require renegotiation of contracts our hospitals have had with counties, retroactive to December 12, 2023, and may also impact prospective rate negotiations. New California Medicaid rates could be materially lower than prior payment rates particularly if counties look to limit payment rates to a cost-based methodology rather than a market-based negotiated rate. We are awaiting formal guidance from California as to the manner in which this change will be implemented and whether the reimbursement method will change prospectively. Further, it is uncertain at this time whether and how counties will retroactively apply this change in method retroactively to December 12, 2023, given the previously negotiated payment terms. We are unable to predict with certainty the impact of this SPA at this time. However, under some scenarios, the adverse financial impact could be material.
As disclosed herein, we receive a significant amount of Medicaid and Medicaid managed care revenue from both base payments and supplemental payments. Although we are unable to estimate the impact of the Managed Care Rule on our future results of operations, if implemented as proposed, Managed Care Rule related changes could have a material adverse impact on our future results of operations.
Future changes to the terms and conditions of the various programs outlined above could materially reduce our net benefit derived from the programs which could have a material adverse impact on our future results of operations. In addition, Provider Taxes are governed by both federal and state laws and are subject to future legislative changes that, if reduced from current rates in several states, could have a material adverse impact on our future results of operations.
HITECH Act: In July 2010, HHS published final regulations implementing the health information technology provisions of the American Recovery and Reinvestment Act (referred to as the “HITECH Act”). The final regulation defines the “meaningful use” of Electronic Health Records (“EHR”) and establishes the requirements for the Medicare and Medicaid EHR payment incentive programs. The final rule established an initial set of standards and certification criteria. The implementation period for these Medicare and Medicaid incentive payments started in federal fiscal year 2011 and can end as late as 2016 for Medicare and 2021 for the state Medicaid programs. State Medicaid program participation in this federally funded incentive program is voluntary but all of the states in which our eligible hospitals operate have chosen to participate. Our acute care hospitals qualified for these EHR incentive payments upon implementation of the EHR application assuming they meet the “meaningful use” criteria. The government’s ultimate goal is to promote more effective (quality) and efficient healthcare delivery through the use of technology to reduce the total cost of healthcare for all Americans and utilizing the cost savings to expand access to the healthcare system.
All of our acute care hospitals have met the applicable meaningful use criteria. However, under the HITECH Act, hospitals must continue to meet the applicable meaningful use criteria in each fiscal year or they will be subject to a market basket update reduction in a subsequent fiscal year. Failure of our acute care hospitals to continue to meet the applicable meaningful use criteria would have an adverse effect on our future net revenues and results of operations.
In the 2019 IPPS final rule, CMS overhauled the Medicare and Medicaid EHR Incentive Program to focus on interoperability, improve flexibility, relieve burden and place emphasis on measures that require the electronic exchange of health information between providers and patients. We can provide no assurance that the changes will not have a material adverse effect on our future results of operations.
Managed Care: A significant portion of our net patient revenues are generated from managed care companies, which include health maintenance organizations, preferred provider organizations and managed Medicare (referred to as Medicare Part C or Medicare Advantage) and Medicaid programs. In general, we expect the percentage of our business from managed care programs to continue to grow. The consequent growth in managed care networks and the resulting impact of these networks on the operating results of our facilities vary among the markets in which we operate. Typically, we receive lower payments per patient from managed care payers
than we do from traditional indemnity insurers, however, during the past few years we have secured price increases from many of our commercial payers including managed care companies.
Commercial Insurance: Our hospitals also provide services to individuals covered by private health care insurance. Private insurance carriers typically make direct payments to hospitals or, in some cases, reimburse their policy holders, based upon the particular hospital’s established charges and the particular coverage provided in the insurance policy. Private insurance reimbursement varies among payers and states and is generally based on contracts negotiated between the hospital and the payer.
Commercial insurers are continuing efforts to limit the payments for hospital services by adopting discounted payment mechanisms, including predetermined payment or DRG-based payment systems, for more inpatient and outpatient services. To the extent that such efforts are successful and reduce the insurers’ reimbursement to hospitals and the costs of providing services to their beneficiaries, such reduced levels of reimbursement may have a negative impact on the operating results of our hospitals.
Surprise Billing Interim Final Rule: On September 30, 2021, the Department of Labor, and the Department of the Treasury, along with the Office of Personnel Management (“OPM”), released an interim final rule with comment period, entitled “Requirements Related to Surprise Billing; Part II.” This rule is related to Title I (the “No Surprises Act”) of Division BB of the Consolidated Appropriations Act, 2021, and establishes new protections from surprise billing and excessive cost sharing for consumers receiving health care items/services. It implements additional protections against surprise medical bills under the No Surprises Act, including provisions related to the independent dispute resolution ("IDR") process, good faith estimates for uninsured (or self-pay) individuals, the patient-provider dispute resolution process, and expanded rights to external review. On February 28, 2022, a district judge in the Eastern District of Texas invalidated portions of the rule governing aspects of the IDR process. In light of this decision, the government issued a final rule on August 19, 2022 eliminating the rebuttable presumption in favor of the qualifying payment amount by the IDR entity and providing additional factors the IDR entity should consider when choosing between two competing offers. CMS regulations and guidance implementing the IDR process has been subject to a significant amount of provider-initiated litigation. As a result, portions of those regulations and guidance materials have been vacated by a federal district court, causing CMS to, on several occasions, pause and resume IDR process operations, causing significant delay in the processing of claims. On October 27, 2023, HHS, the Department of Labor, the Department of the Treasury, and OPM issued a proposed rule intended to improve the functioning of the federal IDR process. Additionally, arguments made by the plaintiffs in such litigation have included allegations that CMS’s regulations and guidance materials are favorable to payers. We cannot predict the impact of the proposed rule on our operations at this time.
Other Sources: Our hospitals provide services to individuals that do not have any form of health care coverage. Such patients are evaluated, at the time of service or shortly thereafter, for their ability to pay based upon federal and state poverty guidelines, qualifications for Medicaid or other state assistance programs, as well as our local hospitals’ indigent and charity care policy. Patients without health care coverage who do not qualify for Medicaid or indigent care write-offs are offered substantial discounts in an effort to settle their outstanding account balances.
Health Care Reform: Listed below are the Medicare, Medicaid and other health care industry changes which have been, or are scheduled to be, implemented as a result of the ACA.
Medicaid Federal DSH Allotment:
The ACA (amended by subsequent federal legislation) requires annual aggregate reductions in federal Medicaid DSH allotment. In FFY 2028, DSH payments are scheduled to be reduced by $8 billion.
Value-Based Purchasing:
There is a trend in the healthcare industry toward value-based purchasing of healthcare services. These value-based purchasing programs include both public reporting of quality data and preventable adverse events tied to the quality and efficiency of care provided by facilities. Governmental programs including Medicare and Medicaid currently require hospitals to report certain quality data to receive full reimbursement updates. In addition, Medicare does not reimburse for care related to certain preventable adverse events. Many large commercial payers currently require hospitals to report quality data, and several commercial payers do not reimburse hospitals for certain preventable adverse events.
The ACA required HHS to implement a value-based purchasing program for inpatient hospital services which became effective on October 1, 2012. The ACA requires HHS to reduce inpatient hospital payments for all discharges by 2% in FFY 2017 and subsequent years. HHS will pool the amount collected from these reductions to fund payments to reward hospitals that meet or exceed certain quality performance standards established by HHS. HHS will determine the amount each hospital that meets or exceeds the quality performance standards will receive from the pool of dollars created by these payment reductions. As part of the FFY 2022 IPPS final rule and FFY 2023 final rule, as discussed above, and as a result of the COVID-19 pandemic, CMS has implemented a budget neutral payment policy to fully offset the 2% VBP withhold during each of FFY 2022 and FFY 2023. In FFY 2024, as part of the FFY 2024 IPPS final rule, CMS removed the budget neutral policy that was in place in FFY 2022 and FFY 2023.
Hospital Acquired Conditions:
The ACA prohibits the use of federal funds under the Medicaid program to reimburse providers for medical assistance provided to treat hospital acquired conditions (“HAC”). Beginning in FFY 2015, hospitals that fall into the top 25% of national risk-adjusted HAC rates for all hospitals in the previous year will receive a 1% reduction in their total Medicare payments. As part of the FFY 2023 final rule discussed above, and as a result of the on-going COVID-19 pandemic, CMS suppressed all nine measures in the HAC Reduction Program for the FY 2023 program year and eliminated the HAC reduction program’s one percent payment penalty. In FFY 2024, as part of the FFY 2024 IPPS final rule, CMS eliminated the suppression of the applicable HAC measures and as a result reinstated the HAC reduction program.
Readmission Reduction Program:
In the ACA, Congress also mandated implementation of the hospital readmission reduction program (“HRRP”). Hospitals with excessive readmissions for conditions designated by HHS will receive reduced payments for all inpatient discharges, not just discharges relating to the conditions subject to the excessive readmission standard. The HRRP currently assesses penalties on hospitals having excess readmission rates for heart failure, myocardial infarction, pneumonia, acute exacerbation of chronic obstructive pulmonary disease ("COPD") and elective total hip arthroplasty ("THA") and/or total knee arthroplasty ("TKA"), excluding planned readmissions, when compared to expected rates. In the fiscal year 2015 IPPS final rule, CMS added readmissions for coronary artery bypass graft ("CABG") surgical procedures beginning in fiscal year 2017. To account for excess readmissions, an applicable hospital's base operating DRG payment amount is adjusted for each discharge occurring during the fiscal year. Readmissions payment adjustment factors can be no more than a 3% reduction. As part of the FFY 2023 IPPS final rule discussed above, CMS modified all of the condition-specific readmission measures to include an adjustment for patient history of COVID-19 for FFY 2024.
Accountable Care Organizations:
The ACA requires HHS to establish a Medicare Shared Savings Program that promotes accountability and coordination of care through the creation of accountable care organizations (“ACOs”). The ACO program allows providers (including hospitals), physicians and other designated professionals and suppliers to voluntarily work together to invest in infrastructure and redesign delivery processes to achieve high quality and efficient delivery of services. The program is intended to produce savings as a result of improved quality and operational efficiency. ACOs that achieve quality performance standards established by HHS will be eligible to share in a portion of the amounts saved by the Medicare program. CMS also developed and implemented more advanced ACO payment models that require ACOs to assume greater risk for attributed beneficiaries. Through various subsidiaries, we participate in ACOs in many of our acute care hospital markets.
Infectious Disease Outbreaks, Pandemics, or Other Public Health Emergencies or Crisis:
Our business and financial results may be harmed by an international, national or localized outbreak of a highly contagious or epidemic disease, including but not limited to, COVID-19 or similar corona viruses, Ebola or Zika. Such outbreaks may stress the capacity of all or a part of our health care facilities, could result in an abnormally high demand for health care services which may require that resources be diverted from one part of operations to another, or disrupt the supply chain for equipment and supplies necessary for operations. In addition, unaffected individuals may decide to defer elective procedures or otherwise avoid medical treatment, resulting in reduced patient volumes and operating revenues.
In addition to statutory and regulatory changes to the Medicare program and each of the state Medicaid programs, our operations and reimbursement may be affected by administrative rulings, new or novel interpretations and determinations of existing laws and regulations, post-payment audits, requirements for utilization review and new governmental funding restrictions, all of which may materially increase or decrease program payments as well as affect the cost of providing services and the timing of payments to our facilities. The final determination of amounts we receive under the Medicare and Medicaid programs often takes many years, because of audits by the program representatives, providers’ rights of appeal and the application of numerous technical reimbursement provisions. We believe that we have made adequate provisions for such potential adjustments. Nevertheless, until final adjustments are made, certain issues remain unresolved and previously determined allowances could become either inadequate or more than ultimately required.
Finally, we expect continued third-party efforts to aggressively manage reimbursement levels and cost controls. Reductions in reimbursement amounts received from third-party payers could have a material adverse effect on our financial position and our results.
Other Operating Results
Interest Expense:
As reflected on the schedule below, interest expense was $37 million and $40 million for the three-month periods ended March 31, 2026 and 2025 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31,
2026 |
|
|
Three Months
Ended
March 31,
2025 |
|
Revolving credit facility (a.) |
|
$ |
5,902 |
|
|
$ |
1,794 |
|
Tranche A term loan, 2029 (a.) |
|
|
14,636 |
|
|
|
17,192 |
|
$800 million, 2.65% Senior Notes due 2030 |
|
|
5,356 |
|
|
|
5,356 |
|
$700 million, 1.65% Senior Notes due 2026 |
|
|
2,932 |
|
|
|
2,932 |
|
$500 million, 2.65% Senior Notes due 2032 |
|
|
3,345 |
|
|
|
3,345 |
|
$500 million, 4.625% Senior Notes due 2029 |
|
|
5,792 |
|
|
|
5,792 |
|
$500 million, 5.050% Senior Notes due 2034 |
|
|
6,352 |
|
|
|
6,352 |
|
Subtotal-revolving credit, term loan A and Senior Notes |
|
|
44,315 |
|
|
|
42,763 |
|
Amortization of financing fees |
|
|
1,251 |
|
|
|
1,252 |
|
Other combined interest expense |
|
|
1,961 |
|
|
|
3,031 |
|
Capitalized interest on major projects |
|
|
(10,303 |
) |
|
|
(6,583 |
) |
Interest income |
|
|
(91 |
) |
|
|
(407 |
) |
Interest expense, net |
|
$ |
37,133 |
|
|
$ |
40,056 |
|
(a.)Interest on outstanding borrowings pursuant to our Credit Agreement, as discussed herein.
Interest expense decreased by $3 million, or 7%, during the three-month period ended March 31, 2026, as compared to the three-month period ended March 31, 2025. The decrease was due to: (i) a net $2 million increase in aggregate interest expense on our revolving credit, term loan A and senior notes resulting from a decrease in our aggregate average cost of borrowings pursuant to these facilities (3.84% during the first quarter of 2026 as compared to 3.98% during the comparable quarter of 2025), as well as an increase in the aggregate average outstanding borrowings pursuant to these facilities ($4.60 billion during the first quarter of 2026 as compared to $4.28 billion during the first quarter of 2025); (ii) a $4 million decrease resulting from an increase in capitalized interest on major projects, and; (iii) a net $1 million decrease in other combined interest expense.
The average effective interest rates, including amortization of deferred financing costs and original issue discount, on borrowings outstanding under our revolving credit, term loan A and senior notes, which amounted to approximately $4.60 billion and $4.28 billion during the first quarters of 2026 and 2025, respectively, were 4.0% and 4.1% during the three-month periods ended March 31, 2026 and 2025, respectively.
Provision for Income Taxes and Effective Tax Rates:
The effective tax rates, as calculated by dividing the provision for income taxes by income before income taxes, were as follows for the three-month periods ended March 31, 2026 and 2025 (dollar amounts in thousands):
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|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
2026 |
|
|
2025 |
|
|
Provision for income taxes |
|
$ |
110,438 |
|
|
$ |
98,800 |
|
|
Income before income taxes |
|
|
469,116 |
|
|
|
420,428 |
|
|
Effective tax rate |
|
|
23.5 |
% |
|
|
23.5 |
% |
|
The provision for income taxes increased $12 million during the first quarter of 2026, as compared to the comparable quarter of 2025, due primarily to an increase in the provision for income taxes resulting from the $44 million increase in income before income taxes ($49 million increase in income before income taxes net of a $5 million increase in income attributable to noncontrolling interests).
Liquidity
Net cash provided by operating activities
Net cash provided by operating activities was $402 million during the three-month period ended March 31, 2026 and $360 million during the first three months of 2025. The net increase of $42 million was attributable to the following:
•a favorable change of $40 million resulting from an increase in net income plus/minus depreciation and amortization expense, stock-based compensation expense and gains on sales of assets and businesses;
•a favorable change of $95 million in accounts receivable (due, in part, to delays experienced during the first quarter of 2025 in receipt of funds in connection with certain Medicaid supplemental payment programs in various states);
•an unfavorable change of $80 million in other working capital accounts due primarily to the timing of accounts payable disbursements, and;
•$13 million of other combined net unfavorable changes.
Days sales outstanding (“DSO”): Our DSO are calculated by dividing our net revenue by the number of days in the three-month periods. The result is divided into the accounts receivable balance at March 31st of each year to obtain the DSO. Our DSO were 55 days and 53 days at March 31, 2026 and 2025, respectively.
Net cash used in investing activities
During the first three months of 2026, we used $198 million of net cash in investing activities as follows:
•$217 million spent on capital expenditures including costs related to a new acute care hospital being constructed in Florida, and capital expenditures for equipment, renovations and new projects at existing facilities;
•$15 million received in connection with net cash inflows from forward exchange contracts that hedge our investment in the U.K. against movements in exchange rates;
•$14 million received from the sales of assets and businesses;
•$5 million spent on the acquisition of businesses and property, and;
•$5 million paid in connection with the purchase and development of an enterprise resource planning application.
During the first three months of 2025, we used $271 million of net cash in investing activities as follows:
•$239 million spent on capital expenditures including capital expenditures for equipment, renovations and new projects at various existing facilities;
•$24 million paid in connection with net cash outflows from forward exchange contracts that hedge our investment in the U.K. against movements in exchange rates, and;
•$8 million spent on the acquisition of businesses and property.
Net cash used in financing activities
During the first three months of 2026, we used $222 million of net cash in financing activities as follows:
•spent $164 million to repurchase shares of our Class B Common Stock in connection with: (i) open market purchases pursuant to our stock repurchase program ($127 million), and; (ii) income tax withholding obligations related to stock-based compensation programs ($37 million);
•spent $45 million on net repayments of debt as follows: (i) $36 million related to our revolving credit facility; (ii) $7 million related to our tranche A term loan facility, and; (iii) $2 million related to other debt facilities;
•spent $13 million to pay quarterly cash dividends of $.20 per share;
•spent $8 million to pay profit distributions related to noncontrolling interests in majority owned businesses;
•received $4 million from the sale of ownership interests to minority members, and;
•generated $4 million from the issuance of shares of our Class B Common Stock pursuant to the terms of employee stock purchase plans.
During the first three months of 2025, we used $91 million of net cash in financing activities as follows:
•spent $223 million to repurchase shares of our Class B Common Stock in connection with: (i) open market purchases pursuant to our stock repurchase program ($181 million), and; (ii) income tax withholding obligations related to stock-based compensation programs ($42 million);
•generated $152 million of additional borrowings as follows: (i) $148 million pursuant to our revolving credit facility, and; (ii) $4 million related to other debt facilities;
•spent $14 million to pay quarterly cash dividends of $.20 per share;
•spent $9 million on net repayments of debt as follows: (i) $7 million related to our tranche A term loan facility, and; (ii) $2 million related to other debt facilities;
•spent $6 million to pay profit distributions related to noncontrolling interests in majority owned businesses;
•received $4 million from the sale of ownership interests to minority members, and;
•generated $4 million from the issuance of shares of our Class B Common Stock pursuant to the terms of employee stock purchase plans.
Expected capital expenditures during remainder of 2026
During the full year of 2026, we expect to spend approximately $950 million to $1.1 billion on capital expenditures which includes expenditures for capital equipment, construction of new facilities, and renovations and expansions at existing hospitals. During the first three months of 2026 we spent approximately $217 million on capital expenditures and expect to spend approximately $733 million to $883 million during the remainder of 2026.
We believe that our capital expenditure program is adequate to expand, improve and equip our existing hospitals. We expect to finance all capital expenditures and acquisitions with internally generated funds and/or additional funds, as discussed below.
On March 9, 2026, we announced that we entered into a definitive agreement to acquire Talkspace, Inc. ("Talkspace") for $5.25 per share, or approximately $835 million in the aggregate. Talkspace is a virtual behavioral healthcare company, with a network of approximately 6,000 licensed professionals that serve all 50 states, Washington, D.C., and Puerto Rico. We intend to finance the acquisition of Talkspace with additional borrowings pursuant to our Credit Agreement, as amended in April, 2026, as discussed in Note 4 – Treasury - Credit Facilities and Outstanding Debt Securities. The transaction is expected to close during the third quarter of 2026 and is subject to approval by Talkspace’s stockholders, satisfaction of regulatory approvals and other customary closing conditions.
Capital Resources
Credit Facilities and Outstanding Debt Securities
On April 22, 2026, we entered into the Eleventh Amendment and Increased Facility Activation Notice (the “Eleventh Amendment”) to our credit agreement ("Credit Agreement"), dated as of November 15, 2010, and as amended and restated at various times from March, 2011 to September, 2024, among UHS, as borrower, the several banks and other financial institutions or entities from time to time parties thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent.
The Eleventh Amendment, among other things, increased our borrowing capacity by an aggregate of $900 million as follows: (i) increased the borrowing capacity of the revolving credit facility by $200 million to $1.5 billion (from $1.3 billion previously); (ii) increased the existing tranche term loan A by $300 million to $1.455 billion (from $1.155 billion previously), and; (iii) initiated a new $400 million delayed draw term loan A which is expected to be drawn upon the closing of our acquisition of Talkspace, Inc. The maturity date for our Credit Agreement, which is scheduled for September 26, 2029, remained unchanged. As of March 31, 2026, we had approximately $373 million of borrowings outstanding pursuant to the revolving credit facility.
Prior to the Eleventh Amendment, the tranche term loan A in effect as of March 31, 2026 (outstanding balance of $1.155 billion as of that date), provides for installment payments of $7.5 million per quarter through September 30, 2026, and $15.0 million per quarter commencing on December 31, 2026 through June 30, 2029. The unpaid principal balance at June 30, 2029 (scheduled to be $975.0 million) is payable on the September 26, 2029 scheduled maturity date of the Credit Agreement.
Pursuant to the terms of the Eleventh Amendment, which became effective in April, 2026:
•Increased tranche term loan A ($300 million): Installment payments are scheduled to be $1.875 million per quarter commencing on September 30, 2026 through June 30, 2028, and $3.75 million per quarter commencing on September 30, 2028 through June 30, 2029. The unpaid principal balance at June 30, 2029 (scheduled to be $270.0 million) is payable on the September 26, 2029 scheduled maturity date of the Credit Agreement.
•Delayed draw term loan A ($400 million): Once drawn, the $400 million principal balance will be payable on the September 26, 2029 scheduled maturity date of the Credit Agreement.
Revolving credit and tranche term loan A borrowings under the Credit Agreement, prior to the Eleventh Amendment, bear interest at our election at either (1) the ABR rate which is defined as the rate per annum equal to the greatest of (a) the lender’s prime rate, (b) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (c) one month term SOFR rate plus 1.1%, in each case, plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 0.25% to 0.625%, or (2) the one, three or six month term SOFR rate plus 0.1% (at our election), plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 1.25% to 1.625%. As of March 31, 2026, the applicable margins were 0.25% for ABR-based loans and 1.25% for SOFR-based loans under the revolving credit and term loan A facilities. The Eleventh Amendment provides for the removal of the .10% credit spread adjustment from existing and increased credit and tranche term loan A borrowings. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Credit Agreement is secured by certain assets of the Company and our material subsidiaries (which generally excludes asset classes such as substantially all of the patient-related accounts receivable of our acute care hospitals, if sold to a receivables facility pursuant to the Credit Agreement, and certain real estate assets and assets held in joint-ventures with third parties) and is guaranteed by our material subsidiaries.
The Credit Agreement includes a material adverse change clause that must be represented at each draw. The Credit Agreement also contains covenants that include a limitation on sales of assets, mergers, change of ownership, liens, indebtedness, transactions with affiliates, dividends and stock repurchases; and requires compliance with financial covenants including maximum leverage. We were in compliance with all required covenants as of March 31, 2026 and December 31, 2025.
As of March 31, 2026, we had combined aggregate principal of $3.0 billion from the following senior secured notes:
•$700 million of aggregate principal amount of 1.65% senior secured notes due in September, 2026 ("2026 Notes") which were issued on August 24, 2021. Interest on the 2026 Notes is payable on March 1st and September 1st until the maturity date of September 1, 2026.
•$500 million of aggregate principal amount of 4.625% senior secured notes due in October, 2029 ("2029 Notes") which were issued on September 26, 2024. Interest on the 2029 Notes is payable on April 15th and October 15th, commencing April 15, 2025 until the maturity date of October 15, 2029.
•$800 million of aggregate principal amount of 2.65% senior secured notes due in October, 2030 ("2030 Notes") which were issued on September 21, 2020. Interest on the 2030 Notes is payable on April 15th and October 15th, until the maturity date of October 15, 2030.
•$500 million of aggregate principal amount of 2.65% senior secured notes due in January, 2032 ("2032 Notes") which were issued on August 24, 2021. Interest on the 2032 Notes is payable on January 15th and July 15th until the maturity date of January 15, 2032.
•$500 million of aggregate principal amount of 5.050% senior secured notes due in October, 2034 ("2034 Notes") which were issued on September 26, 2024. Interest on the 2034 Notes is payable on April 15th and October 15th, commencing on April 15, 2025 until the maturity date of October 15, 2034.
The 2026, 2029, 2030, 2032 and 2034 Notes (collectively "All the Notes") are guaranteed (the “Guarantees”) on a senior secured basis by all of our existing and future direct and indirect subsidiaries that guarantee our Credit Agreement, other first lien obligations, or any junior lien obligations (the "Subsidiary Guarantors"). All the Notes and the Guarantees are secured by first-priority liens, subject to permitted liens, on certain of the Company’s and the Subsidiary Guarantors’ assets now owned or acquired in the future by the Company or the Subsidiary Guarantors (other than real property, accounts receivable sold pursuant to a Company-related receivables facility (as defined in the Indentures pursuant to which All the Notes were issued (the “Indentures”), and certain other excluded assets). The Company’s obligations with respect to All the Notes, the obligations of the Subsidiary Guarantors under the Guarantees, and the performance of all of the Company’s and the Subsidiary Guarantors’ other obligations under the Indentures, are secured equally and ratably with the Company’s and the Subsidiary Guarantors’ obligations under the Credit Agreement. However, the liens on the collateral securing All the Notes and the Guarantees will be released if: (i) All the Notes have investment grade ratings; (ii) no default has occurred and is continuing, and; (iii) the liens on the collateral securing all first lien obligations (including the Credit Agreement and All the Notes) and any junior lien obligations are released or the collateral under the Credit Agreement, any other first lien obligations and any junior lien obligations is released or no longer required to be pledged. The liens on any collateral securing All the Notes and the Guarantees will also be released if the liens on that collateral securing the Credit Agreement, other first lien obligations and any junior lien obligations are released.
In connection with an asset purchase and sale agreement, and related lease agreements, completed with Universal Health Realty Income Trust ("Trust") in December 2021, our consolidated balance sheets at March 31, 2026 and December 31, 2025 reflect financial liabilities, which are included in debt, of approximately $69 million and $70 million, respectively. In connection with that transaction,
as a result of our purchase option within the lease agreements related to two of our facilities, the asset purchase and sale transaction was accounted for as a failed sale leaseback in accordance with U.S. GAAP and we have accounted for the transaction as a financing arrangement. Our lease payments payable to the Trust are recorded to interest expense and as a reduction of the outstanding financial liability, and the amount allocated to interest expense is determined based upon our incremental borrowing rate and the outstanding financial liability.
At March 31, 2026, the carrying value and fair value of our debt were approximately $4.7 billion and $4.5 billion, respectively. At December 31, 2025, the carrying value and fair value of our debt were approximately $4.8 billion and $4.6 billion, respectively. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.
Our total debt as a percentage of total capitalization was approximately 39% and 40% as of March 31, 2026 and December 31, 2025, respectively.
We expect to finance all capital expenditures and acquisitions and pay dividends and potentially repurchase shares of our common stock utilizing internally generated and additional funds. Additional funds may be obtained through: (i) borrowings under our $1.5 billion revolving credit facility (as amended in April, 2026, as discussed above), which had $373 million of borrowings outstanding as of March 31, 2026, or through refinancing the existing Credit Agreement; (ii) the issuance of other short-term and/or long-term debt, and/or; (iii) the issuance of equity. We believe that our operating cash flows, cash and cash equivalents, available commitments under existing agreements, as well as access to the capital markets, provide us with sufficient capital resources to fund our operating, investing and financing requirements for the next twelve months. However, in the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on terms acceptable to us could have a material unfavorable impact on our results of operations, financial condition and liquidity.
Supplemental Guarantor Financial Information
As of March 31, 2026, we had combined aggregate principal of $3.0 billion from All the Notes:
•$700 million of aggregate principal amount of the 2026 Notes;
•$500 million of aggregate principal amount of the 2029 Notes;
•$800 million of aggregate principal amount of the 2030 Notes;
•$500 million of aggregate principal amount of the 2032 Notes, and;
•$500 million of aggregate principal amount of the 2034 Notes.
All the Notes are fully and unconditionally guaranteed pursuant to the Guarantees on a senior secured basis by the Subsidiary Guarantors. All the Notes and the Guarantees are secured by first-priority liens, subject to permitted liens, on certain of the Company’s and the Subsidiary Guarantors’ assets now owned or acquired in the future by the Company or the Subsidiary Guarantors (other than real property, accounts receivable sold pursuant to the Company’s existing receivables facility (as defined in the Indentures pursuant to which All the Notes were issued ), and certain other excluded assets). The Company’s obligations with respect to All the Notes, the obligations of the Subsidiary Guarantors under the Guarantees, and the performance of all of the Company’s and the Subsidiary Guarantors’ other obligations under the Indentures, are secured equally and ratably with the Company’s and the Subsidiary Guarantors’ obligations under the Credit Agreement. However, the liens on the collateral securing All the Notes and the Guarantees will be released if: (i) All the Notes have investment grade ratings; (ii) no default has occurred and is continuing, and; (iii) the liens on the collateral securing all first lien obligations (including the Credit Agreement and All the Notes) and any junior lien obligations are released or the collateral under the Credit Agreement, any other first lien obligations and any junior lien obligations is released or no longer required to be pledged. The liens on any collateral securing All the Notes and the Guarantees will also be released if the liens on that collateral securing the Credit Agreement, other first lien obligations and any junior lien obligations are released.
All the Notes will be structurally subordinated to all obligations of our existing and future subsidiaries that are not and do not become Subsidiary Guarantors of All the Notes. No appraisal of the value of the collateral has been made, and the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. Consequently, liquidating the collateral securing All the Notes may not produce proceeds in an amount sufficient to pay any amounts due on All the Notes.
We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although our Credit Agreement contains restrictions on the incurrence of additional indebtedness and our Credit Agreement and All the Notes contain restrictions on our ability to incur liens to secure additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. In addition, if we incur any additional indebtedness secured by liens that rank equally with All the Notes, subject to collateral arrangements, the holders of that debt will be entitled to share
ratably with holders of All the Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our company. This may have the effect of reducing the amount of proceeds paid to holders of All the Notes.
Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of All the Notes and the incurrence of the Guarantees. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, All the Notes or the Guarantees (or the grant of collateral securing any such obligations) could be voided as a fraudulent transfer or conveyance if we or any of the Subsidiary Guarantors, as applicable, (a) issued All the Notes or incurred the Guarantees with the intent of hindering, delaying or defrauding creditors or (b) under certain circumstances received less than reasonably equivalent value or fair consideration in return for either issuing All the Notes or incurring the Guarantees.
Basis of Presentation
The following tables include summarized financial information of Universal Health Services, Inc. and the other obligors in respect of debt issued by Universal Health Services, Inc. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with GAAP, are excluded from the below summarized financial information pursuant to SEC Regulation S-X Rule 13-01.
The summarized balance sheet information for the consolidated obligor group of debt issued by Universal Health Services, Inc. is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
March 31, 2026 |
|
|
December 31, 2025 |
|
Current assets |
$ |
2,846,780 |
|
|
$ |
2,746,857 |
|
Noncurrent assets (1) |
|
9,503,036 |
|
|
|
9,453,432 |
|
Current liabilities |
|
2,851,937 |
|
|
|
2,837,781 |
|
Noncurrent liabilities |
|
4,784,092 |
|
|
|
4,828,865 |
|
Due to non-guarantors |
|
1,235,385 |
|
|
|
1,235,522 |
|
(1) Includes goodwill of $3.262 billion as of March 31, 2026 and December 31, 2025. |
|
The summarized results of operations information for the consolidated obligor group of debt issued by Universal Health Services, Inc. is presented in the table below:
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|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
(in thousands) |
March 31, 2026 |
|
|
December 31, 2025 |
|
Net revenues |
$ |
3,546,372 |
|
|
$ |
13,798,773 |
|
Operating charges |
|
3,086,039 |
|
|
|
12,012,189 |
|
Interest expense, net |
|
36,796 |
|
|
|
206,845 |
|
Other (income) expense, net |
|
(3,694 |
) |
|
|
(134,903 |
) |
Net income |
$ |
314,706 |
|
|
$ |
1,302,496 |
|
Affiliates Whose Securities Collateralize the Senior Secured Notes
All the Notes and the Guarantees are secured by, among other things, pledges of the capital stock of our subsidiaries held by us or by our secured Guarantors, in each case other than certain excluded assets and subject to permitted liens. Such collateral securities are secured equally and ratably with our and the Guarantors’ obligations under our Credit Agreement. For a list of our subsidiaries the capital stock of which has been pledged to secure All the Notes, see Exhibit 22.1 to this Report.
Upon the occurrence and during the continuance of an event of default under the indentures governing All the Notes, subject to the terms of the Security Agreement relating to All the Notes provide for (among other available remedies) the foreclosure upon and sale of the Collateral (including the pledged stock) and the distribution of the net proceeds of any such sale to the holders of All the Notes, the lenders under the Credit Agreement and the holders of any other permitted first priority secured obligations on a pro rata basis, subject to any prior liens on the collateral.
No appraisal of the value of the collateral securities has been made, and the value of the collateral securities in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. Consequently, liquidating the collateral securities securing All the Notes may not produce proceeds in an amount sufficient to pay any amounts due on All the Notes.
The security agreement relating to All the Notes provides that the representative of the lenders under our Credit Agreement will initially control actions with respect to that collateral and, consequently, exercise of any right, remedy or power with respect to enforcing interests in or realizing upon such collateral will initially be at the direction of the representative of the lenders.
No trading market exists for the capital stock pledged as collateral.
The assets, liabilities and results of operations of the combined affiliates whose securities are pledged as collateral are not materially different than the corresponding amounts presented in the consolidated financial information of Universal Health Services, Inc.
Off-Balance Sheet Arrangements
During the three months ended March 31, 2026 there have been no material changes in the off-balance sheet arrangements consisting of standby letters of credit and surety bonds.
As of March 31, 2025 we were party to certain off balance sheet arrangements consisting of standby letters of credit and surety bonds which totaled $182 million consisting of: (i) $163 million related to our self-insurance programs, and; (ii) $19 million of other debt and public utility guarantees.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative disclosures about market risk during the three months ended March 31, 2026. Reference is made to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2025.
Item 4. Controls and Procedures
As of March 31, 2026, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we performed an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”). Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the 1934 Act and the SEC rules thereunder.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the first quarter of 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.