Universal Health Services, Inc. (UHS) Earnings Call Transcript & Summary

Hi, everyone. I'm A.J. Rice, the health care service analyst at Crédit Suisse. Thanks for tuning in to our next presenter, it's Universal Health Services. We're very pleased to have once again with us Steve Filton, who's the Chief Financial Officer of the company. And I should say, as we start here, if you want to e-mail any questions that I can ask on your behalf, feel free to do that, aj.rice@credit_suisse.com. I've got plenty of questions, but I'm always interested if people want to add to the mix. Steve, thanks for doing the conference again this year. Maybe I'll just ask you to start off with maybe sort of summarizing where things stand 3 quarters of the way in the year, coming off the third quarter which you guys recently reported. What are the 2, 3, 4 takeaways that you'd offer for the business and how we think about it.

Yes. Look, not surprisingly, A.J., I mean, I think that the single biggest variable that we have faced during the year that has affected our performance both positively and negatively and often differently between the 2 business segments has been the amount of COVID in our geographies and our markets. So we started the year with a COVID surge, which I think actually started in probably December of 2020 and continued into January of '21, pretty significant. I mean, the most significant surge that we had seen up until that time. Kind of mid-January, we saw a pretty precipitous decline in COVID volumes. But the first quarter still was sort of impacted by kind of more muted volumes, labor pressures, et cetera, in both business segments. And it took, I think, a few months, 2, 2.5, 3 months, whatever for those sort of dynamics to kind of work their way out such that by the time we got into Q2, which was clearly our most, if you will, COVID-free quarter of the year, both business segments really outperformed our internal forecast, the labor pressures had eased, volumes were coming back much more strongly. And again, I mean, we were well ahead of, again, our internal forecast and consensus estimates in Q2 for really both business segments. Then Q3 rolls along, and now we have the Delta variant, another surge comes in. And we have an exacerbation of the labor shortage that I think we've never seen before. And I think in large part driven by the fact that for the first time, we had a COVID surge during which many of our nurses and other employees were vaccinated. And so I think they felt more comfortable and safer chasing some of these what I'd describe as COVID opportunities, working in an acute care setting somewhere else for $10,000 a week or, whatever, some of these crazy numbers were. And so we kind of saw a divergence in Q3 in the 2 business segments. The acute care segment, I think, really wound up benefiting from the COVID surge, if you will, because the COVID patients have higher acuity, higher revenue per admission and some incremental reimbursement for the Medicare 20% add-on and HRSA reimbursement for uninsured patients. And so even though the acute care segment experienced a significant increase in their salaries and wages because of all these premium pay they were having to incur, the higher revenues and particularly higher revenues -- higher COVID revenues that didn't really crowd out emergency room traffic or scheduled and elective procedures, which in previous surges that had occurred, this crowd out. So the benefit of COVID and the acuity and revenue that comes along with COVID, plus a recovery in non-COVID volumes, sort of outweighed on the acute care side these higher salary costs and ultimately resulted in really strong performance in Q3. Sort of almost a converse performance on the behavioral side where we -- I think with a lot of other subacute providers, we're seeing nurses flowing out of our facilities into acute care settings, chasing these really excessive premium dollars and opportunities really for most of the quarter. So higher labor expense, but also lower volumes, because in many cases, even at the higher labor cost, we just couldn't fill all of the nursing hours and even some non-nursing hours that are involved in patient care. And so we clearly had a severe underperformance on the behavioral side. As we emerged from the third quarter, the good news, I think, is beginning in about mid-September, we see COVID volumes declining in most of our geographies. I think they've declined for the last 5, 6, 7 weeks. They seem to be plateauing in the last week or 2. I don't know whether that's just a pause or we'll see some of that decline continue into the balance of this year and into next. Just starting to see kind of the very early signs of easing of labor pressures and volumes rebounding a little bit in the behavioral segment. But as we -- as I mentioned earlier, I think we think it will take a good 2.5, 3, 3.5 months for that to sort of fully work itself through the system. So I don't think we're going to see any sort of really measurable recovery until kind of late in this year, early into next year. The hope is that 2022 is kind of a more manageable COVID year, not as much ebb and flow, not any new variants, as some of the new drugs that are sort of just been announced to hopefully begin to have an impact in terms of more effective treatment for those who'd actually get the illness. So hoping that 2022 looks more like growth over 2019, which is our last nonpandemic year, we discussed that at some length in the third quarter. But I'd like to see how the next couple of months play out before we give our more detailed and precise guidance that we would normally give in February '22 for the '22 year.

The -- obviously, the market was cheered on Friday with the news that Pfizer had some positive data on their potential treatment for COVID. Not commenting on that, it will make a drug pharmaceutical prognosticator. But if we were to get a drug, we just wiped out COVID and it was gone heading into, say, January 1 next year, there's some benefits you've seen on the hospital side. There's some negative you've seen on the behavioral side. Would your outlook for next year be materially more positive, about the same, worse by any chance if COVID were just to go away completely next year?

Yes. I mean -- so I think -- and this is a bit of a generalization, but I think largely true, A.J. I mean I think what you would see is somewhat of a flip-flop of our experience in Q3. So if COVID volumes decline, in your example if they completely go away, I don't think we're really counting on that, but if they decline back to much more manageable levels like we experienced in Q2, I think we would likely see kind of a moderation in acute care performance because they will lose that COVID revenue and the acuity and the special reimbursement that goes with that. I think other non-COVID volumes will increase to offset that to a degree. But I think, overall, acute performance would probably moderate some. I think, clearly, behavioral performance would improve. We saw that again in Q2. We wouldn't have as much labor pressure. We'd be able to fill more of those vacancies. We'd be able to deflect and turn away fewer patients, and I think that would be helpful. As we sort of struggle internally with thinking about a more precise model, I think over time we believe that the upside in behavioral and the upward trajectory and runway for improvement in behavioral would exceed any acute care moderation. But I think what we struggle with is, is that sort of timing kind of 1:1 where I think one happens faster than the other. And I'm not sure we know that. As I joke with some people, this is the first pandemic for all of us, so it's not like we have a model to work off. We use, quite frankly, the second quarter as sort of our best guess as to how this will play out, but it's a little challenging. But I think broadly, I think we look forward to a period of much more manageable COVID volumes because I think we feel like the most significant drag on the behavioral business during the last 20 months has been increased COVID volumes. When COVID volumes increase, behavioral performance declines. When COVID volumes moderate, behavioral performance improves. So we're looking forward to a period in which COVID volumes for an extended period of time are more modest.

It's been interesting in the third quarter and hear people talk about the labor challenges because different providers are describing the challenge in different ways. Some are putting a lot of emphasis on the amount of nurses they had out on quarantine and the fact that they had to backfill those with contract labor. Others are saying, as you mentioned, that some of their people chase those transactions. There's also this sort of perceived undercurrent. You got turnover rates up because people are retiring, starting families, expanding families, whatever. Some of those would suggest that this could be a relatively short-term tightness and some suggests that it could persist for a while. Maybe just get you to spend a few more minutes on you guys thought about where the labor situation is and how persistent the challenge is likely to be looking out into '22 and beyond.

Yes. Look, I think there's no question, A.J., that it's a bit of a blend of the sort of the 2 scenarios that you painted. I think there's no question that some of this disruption is temporary in nature. These opportunities that nurses are chasing did not exist in Q2. In Q2, we didn't have nurses leaving to make $10,000 a week or get a $35,000 sign-on or that sort of thing. So I do think they're directly correlated to these -- the sort of short-term, I'll call it, the COVID opportunities. But look, I think there is -- there's got to be a structural element to this as well in the sense. And you kind of alluded to it, are the nurses who've left the profession because they've just gotten burned out. They retired early. They've chosen to do something else. Are there nurses who have left -- and by the way, I mean, look, you talked to lots more companies than I do, but my sense, as I talked to colleagues and what I would broadly describe as the subacute sector is, we're all facing similar challenges with home health providers, skilled nursing, nursing homes, rehab. Our nurses have historically made less than nurses in acute care settings and always sort of had that opportunity to leave our employee to make 10% or 15% or 20% more but have opted, based on personal preferences, to work in a subacute setting, less stress, patients aren't as sick, whatever it may be, in the last 3, 4, 5 months when they've had the opportunity to leave not for a 10% or 15% premium but literally a 400% or 500% premium, it just changed the equation. Now most of those nurses have sort of told us, anecdotally, "Look, I'm just going to go make what I can make, and I'll be back when this sort of passes." They have families at home. They negotiated, quite frankly, in many cases, with us to keep their benefits in place because their long-term or even intermediate-term sort of plan is to come back. That doesn't mean there aren't examples of 20-something nurses without families who have now sort of gotten on this traveling nurse bandwagon, I think, in a more permanent way. That's not to say that some nurses haven't left the profession permanently. We keep making the point to people. I mean we have every expectation that as COVID volumes recede, there will be a natural easing of this labor pressure. But we're not just waiting on our hands or sitting on our hands and waiting for that to happen. I think we're doing a lot of other things in terms of ratcheting up our recruitment and retention efforts, but also looking at different patient care models or alternative patient care models that are not so reliant on our end and rely more on LPNs or CNAs or EMTs or even nonprofessionals like mental health technicians, because I think the view is that in -- at least in the near and -- immediate and intermediate terms, there are going to be fewer RNs especially. And we're really going to have to create different patient care models that rely less on RNs. So instead of having 2 RNs staff a 24-bed behavioral unit, now maybe you have an RN and 2 LPNs and a tech, or whatever it may be that's appropriate, still delivering an appropriate level of patient care, but less reliant on RNs. Okay. Just broadly, I think it's going to be -- some of this is temporary, some of it is structural. And I'm not sure any of us are smart enough to know exactly how much is each. By the way, I suspect every hospital, every geography will experience this a little bit differently, just as that's been the case, I think, up to now.

And interesting you're talking about looking at the workflow and what you can do to maybe -- not deemphasize, but have maybe, let's say, use the RN talent to have better or more efficiently. Is that mainly you're seeing that opportunity on the behavioral side? I just want to make sure that -- or is it on both sides you guys are looking at that?

Yes. I think, honestly, it's on both sides. I mentioned EMTs, that's something we're using more EMTs in our emergency rooms, acute care emergency rooms. I mean they're obviously a logical sort of fit, again, at a skilled level below nurses, but clearly used to as to an emergent environment. And again, I don't want to say we've done that everywhere or in a vast way. But we've done it in a few places and I think it's worked out and we certainly want to do more of it. I think the other nice thing or maybe sort of unintended or side benefit of these different patient care models, as an example, is we're hiring more LPNs in both of our business segments. I think we do so sort of with the opportunity for those LPNs to upgrade their degrees. So they come work for us as LPNs, but we give them every opportunity to go back and get their RN certification. So hopefully, not only are we sort of solving an immediate problem but creating a pipeline of more RNs into the future.

And I guess the question that begs on both the acute and the behavioral side is how much flexibility within their minimum bed to RN patient ratios, et cetera, et cetera is, does the current state of play give you a lot of flexibility to do this kind of thing in the behavioral or acute setting or at least some of the areas in the acute setting?

So the truth is, A.J., that with some discrete exceptions like California has kind of very strict nursing ratio rules and laws, most geographies do not. And it's really a question of hospitals being able to demonstrate to regulators that they're providing all the appropriate patient needs. And one of the personal experiences I've had talking to nurses over the years is nurses will tell you that, and now I'll talk about behavioral nurses in particular, that a lot of what they do is they sort of describe it as activities below their license. So they're answering phones and they're making notes and transcribing notes and that sort of thing, that clearly other licensed or even, in some cases, unlicensed professionals can do those. And what we're really trying to do is not skimp on patient care, but get the nurses to do what they're licensed to do: delivering medication, performing psychological assessments, assessing patients. That sort of thing. And getting others who really don't need the license to do that. And I don't think there's any diminution in patient care or, by the way, I think patient satisfaction. Because I think what we find with patient satisfaction is the more contact they have with caregivers, the better they feel. They're not necessarily focused on, is it a nurse, is it an LPN or CNA or tech. They just feel better when more people are sort of touching them, not in a physical way, but just encountering with them. So yes, I mean, look, I think in the long run or even the intermediate run, this can be a win-win for everybody. We can increase our capacity to treat more patients, but I think at the same time, not really skimp on patient care or patient satisfaction, but actually improve it.

Right. I don't think I've ever seen a statistic on it, but people talk about working at the top of your license quite a bit. Do you have a sense of, in a behavioral setting, how much of a nurse's time is spent working at the top of their license? Have we ever seen a statistic on that?

Yes. I mean probably nothing that would sort of pass muster from kind of a scientific or clinical perspective. But again, as I talk to our nurse administrators and we talk about the opportunity to do this, I think their sense, their intuitive sense, is that it's a significant portion. The -- it's not like of nurse's time is spent on administrative tasks that could be done by others. I don't know whether it's 1/4, 1/3 or half, but it's a large number. And so I do think there is a significant opportunity here. And again, it's relatively new, but I think we've been experimenting with these and implementing some of these newer models. And I think they're working. And it's one of those things where I do think it's turning out to be a win-win in the sense that the RNs are happier because I think they would prefer to work at the top of their license. We're creating opportunities for LPNs and CNAs or whatever that maybe wasn't there before as well as, I think, a more sort of defined career path. And as I said, at least initially, we're finding that patients are actually happier.

Okay. All right. Interesting. One of the other aspects of labor I wanted to ask about was the recruitment. Is that done at the local hospital level? How much of that is done at the national, corporate level? And is there an opportunity to do more to somehow broaden your reach for the local hospitals by taking more of it on at the corporate level? It might be a differentiator that you have versus a local one-off hospital or nonprofit that might be trying to compete, but not -- doesn't have the big catcher's net that you would have potentially.

Yes. So the fact is that historically nurse recruitment, and really recruitment at the hospital level outside of the C-suite, the CEO and the hospital CFO, the CNO, was really all done locally. And in the last couple of years, as we've faced more labor pressures and really been exacerbated by the pandemic, we've, I think, centralized and standardized a lot of that activity. Now the activity still tends to take place locally. Nurses for the most part, again, with the exception of traveling nurses, et cetera, who is not really the target of our recruitment efforts, we're looking for permanent nurses, et cetera, and they're usually in the market. Obviously, we do have a large network of nurses. So we have a nurse in Memphis who expresses some desire, he or she is moving to Boston. We're often making that connection for them. But broadly, I think the activity takes place locally, but it has been much more kind of centralized and standardized in the last few years so that we've upgraded all of our websites. Today, almost every nurse applies for jobs online, et cetera. So we want to make sure that the process of simply uploading your resume is very seamless. Because, again, what we have found is if the nurse takes 5 minutes to upload a resume, she's on to another opportunity, it just becomes too much of a hassle for her. So a lot of the technology and the infrastructure has been standardized and streamlined. A lot of the processes in terms of we want to make sure we get back to everybody who's inquiring about a job within 24 hours, sometimes even less than that. We want to arrange for interviews. We want that all to happen quickly because, again, what we find is if we don't make it happen quickly, somebody else will. So a lot of that. We've also hired a lot more, I'm going to call them national recruiters, who are really helping hospitals sort of with their own programs, whether it's job fairs or relationships with local nursing schools, whatever it is, again, a lot of those processes have been sort of standardized in the last few years to a degree that I've never seen before in my tenure with the company.

Okay. Interesting. I should ask you about the managed care contracting, the dynamics there, where you stand relative to next year. Are you seeing any change? We always hear about value-based contracts, but it seems like there's not been that much change, especially on the acute side. What -- any updated comments on there?

No. Look, I think the reality is during the pandemic, both providers and payers were largely distracted by pandemic activity, if you will. And as a consequence, I think a lot of the sort of activity that you alluded to, kind of the continued shift of away from fee-for-service to more fee-for-value and risk based, a lot of those initiatives were sort of put to the side by both payers and providers. Look, I think we continue in both of our business segments to try and think about what the post-pandemic world looks like. And I think especially to have sort of a more fulsome continuum of care in both of our business segments, that includes more ambulatory access points, more telemedicine on the front end, freestanding EDs in acute, et cetera, urgent care centers, physician offices, on the back end. More home health, more subacute care on the behavioral side. More outpatient -- intensive outpatient hospitalization, partial hospitalization, more telemedicine. So we've been standing up a number of those things during the pandemic, but I think the notion is, I think post pandemic, I think there'll be more of a push on our part to go to payers and sort of really make this pitch that we're in a unique position to be able to provide not only that sort of core inpatient service that has really been the hallmark of our business for many years to those patients who are in the greatest crisis, whether that's physical or mental, but really a kind of a much broader continuum of services as we sort of think about upstream and downstream in both of those business segments. So really thinking about doing both. But I think to your point, during the pandemic, there's been less of that activity and sort of, I'll call them, sort of partnerships and joint ventures with payers, than we might have imagined there would have been had there been no pandemic.

And I think there was some discussion -- this is probably 2 years ago now, in December of 2019, pre-pandemic, about the possibility of maybe rethinking how you negotiate with managed care on the behavioral health side to the extent that it was at that point it still seemed like a lot of it is done facility by facility or certainly in local market, there might be opportunities to do more regional, national contracting. Have you moved any of that at this point? Or is that still...

No. So I think those comments will echo or my commentary on that question will echo what I said about the labor side or the recruitment side of things. And that is -- and to Matt Peterson's credit, I think a lot of this was at his initiative. Coming from a United Optum background at least for the last decade, he very much had this point of view that the more that we centralize our managed care negotiating and managed care administration sorts of processes and we're able to lever our size and scope and market share, the better off we'd be. And that we really kind of definitely have moved away from a much more decentralized approach to managed care contracting. And we've talked, I think, quite a bit during the pandemic about the fact that we've been able to negotiate, particularly increases in some of our managed Medicaid contracts that had gone for many years, in some cases, without increases. And I think in large part, that's a function of this centralization and willingness to sort of try and lever our market share strength to do that. So that's been something we've done. And I think we've had some measurable success of doing. And the measurable part of it is if you look at our -- in the behavioral segment, while volumes and muted volumes have really been the focus and certainly the disappointing part of the last several years, revenue per adjusted day has steadily increased during the pandemic, and that's been a real positive and I think in many respects an outgrowth of this centralization of that function.

And it seemed like a year or 2 ago, there was a lot more talk about pressure from managed Medicaid on length of stay. I don't hear you talking as much about that. Has that also been part of this little different posture in the way you're contracting? Is that why we don't hear as much about that?

So I think it's probably 3 different dynamics, A.J., at play there. So I think your overall sort of statement is correct. We have definitely seen less length of stay compression, which really had been a pretty prevalent theme, especially in sort of 2017, '18. Now some of that, I think, just sort of naturally eased. And we were making the argument back then that we thought it would, as more and more of our Medicaid population shifted to a managed program, that length of stay compression would just sort of naturally anniversary and we'd have more favorable comparisons. And I think we started to see that towards the end of 2019. Secondly, I think we've seen a little bit less aggressive behavior on the part of the managed care companies during the pandemic. So I think the amount of denials, the amount of uncompensated care as a result of denials has clearly diminished during the pandemic. But I think, thirdly, this is another area of centralization, that we hired a Chief Medical Officer during the pandemic. And he really has been -- he comes from an Aetna background, so he's got a very sort of for-profit managed care orientation, much like Matt, and he has very much taken over our whole sort of denial management, appeal sort of processing. And I just think we're -- we've been much more effective with that. He's been dealing with Chief Medical Officers at the facility and regional level and engaging them much more in that process. So I think we've been much more effective in that process as well. So I think all those 3 dynamics together have really benefited us and seeing us sort of stem that length of stay compression that had plagued us for a couple of years.

And another important aspect of the growth story on the behavioral side has been the ability to add bed additions within the existing footprint and also the JV opportunities. On the one hand, tightness of labor make you scale that back. On the other hand, I think the pandemic might actually accelerate some of that activity. What's your thinking about all of that?

Yes. So look, I think that we continue to add beds during the pandemic, although I can think of certain examples where in markets where we're running very high occupancy rates but can find a sufficient number of patient care personnel today, we've sort of tapped the brakes on that a little bit because what's the point of opening new beds if we can't staff them? But generally, I think we've continued to invest in the business, because sort of harkening back to the first part of our conversation, I think we view the labor shortage as, at least in large part, transitory in nature. And we want to be in a position when we emerge from that difficult environment to really be able to respond. Because I think as we've talked about and you've heard us talk about throughout, we believe the underlying demand for behavioral services has not diminished at all, and in most cases, has continued to increase. So when the labor situation eases, when we become more fully implement these alternative care models, et cetera, we'd certainly like to make sure that we have the capacity to treat patients in greater numbers than we're currently able to. So we've continued a lot. The joint ventures have continued. We've opened a couple of joint ventures this year in Missouri, in Iowa. We're about to open one in Michigan, in Wisconsin. Wisconsin and Iowa were estates that we had never been in before. So we continue to do that. And we've got probably a dozen or more joint ventures in the development pipeline that will come on in the next couple of years as well.

Do you think the dynamics that acute care hospitals are dealing with, trying to free up bed capacity space, whatever, maybe the labor themselves, is prompting more activity on the joint venture side around behavioral? Or is it about the same as it was pre-pandemic?

So I think the rationale that, first and foremost, drives the acute care hospitals to developing a more comprehensive behavioral strategy is their emergency room dynamics. So many acute care hospitals are overwhelmed with behavioral patients who have overdosed on drugs and alcohol or attempted suicide or whatever. And you look -- UHS has a unique perspective on this issue because we're sort of on both sides of this, if you will. But behavioral patients in acute care emergency room can be terribly disruptive, sort of dissatisfying to staff, disruptive to other patients, et cetera. And so acute care hospitals are looking to move patients -- behavioral patients safely, but move them through their emergency rooms as expeditiously as possible. And I think having a dedicated behavioral partner and particularly one like UHS, who also has acute care emergency room experience, is very attractive to them. And to your point, I think that whole dynamic has been exacerbated during the pandemic because if acute care emergency rooms were sort of overwhelmed before the pandemic, they certainly have been overwhelmed during the pandemic. And in fact, we've heard stories during the pandemic of acute care emergency rooms doing some of these surgeries who just turned behavioral patients away and said, "Look, we can't treat you. You have to go somewhere else for treatment. We're overwhelmed with COVID patients." So yes, I think if anything, the pandemic has probably heightened the sensitivity that acute care hospitals have about making their emergency room processes for behavioral patients as efficient and streamlined as possible.

I know we often ask you about puts and takes. And on the third quarter call, you were asked about that even though you're not ready to give guidance for next year. What are your biggest open questions? I want to ask you to go through the puts and takes again, but what's one of the big open questions that in your mind, COVID I'm sure is probably right at the top of the list. I would assume you guys would guide conservatively around that. But what else would be the open questions on thinking about next year?

Yes. So look, the obvious ones, and I think we've largely touched on them already, is this idea of what's the trajectory of COVID, how COVID volumes play out over the balance of this year and into next year. And then sort of because the converse of that is I think we believe on the acute side there's a certain amount of non-COVID backfill that will replace the COVID volumes as they decline, the pace at which that occurs, et cetera, is, I think, part of the puts and takes. We've discussed, I think, at length on the behavioral side, I think the COVID decline eases labor pressures, I think, allows us to see more robust volume recovery than we've seen. Again, the pace at which that occurs is sort of an open-ended question. I think the other major point and take that investors focus on is there is benefit that hospitals have received associated with COVID patients. The 3 most significant items that I can think of is the sequestration waiver, the 20% add-on for the Medicare DRG and this HRSA program that has reimbursed hospitals for uninsured COVID patients. We disclosed in our 10-Q recently filed what the year-to-date and Q3 impact is. I'm recalling that the Q3 impact of those 3 items combined is about $30 million. So not an insignificant run rate. So investors say to me, okay, so let's say -- and at least the 2, the HRSA and the 20% add-on are directly tied to the public health emergency. The public health emergency, at least at the moment, is scheduled to lapse in, I think, the middle of January of next year. So if it lapses and if those programs go away and if the sequestration waiver goes away, even though it's not directly tied to the public health emergency declaration, does a $120 million annual run rate, do we just lose that reimbursement? The answer is yes. Obviously, I think there's also -- the reason those supplemental reimbursement benefits exist is because the government was recognizing that hospitals were incurring significant incremental expenses, labor, supplies, COVID-specific drugs like remdesivir, very expensive, that sort of thing. So as we are playing with our 2022 model, we sort of assume those COVID volumes decline, those reimbursements go away, but we also see a significant decline in our average length of stay because the COVID patients have a much longer length of stay and the use of a lot of these expensive drugs and the labor pressure. So that's the put and take. I think, again, in the long run or maybe even the intermediate run, we view that as a benefit. That is the reimbursement we'll lose is more than outweighed by these excessive expenses and long length of stays, et cetera. The question is, in the short run, what happens faster? Do you offload the expenses faster and the reimbursement goes away? And again, I'm not sure anybody has the perfect answer to this because I'm not sure we've lived through it before. But yes, those are the puts and takes that I think we're spending a lot of time focused on as we continue to sort of hone our 2022 budget and forecast.

And finally, when I look at your leverage at the third quarter, you're probably as low as I've ever seen, I think, and I've seen it for a long time. But just more buyback activity. You guys have stepped up pretty aggressively this year on the buyback. Is that the focus? I mean, it doesn't sound like there's a lot of front burner on the deal activity at this point. Am I reading that right?

No, I think that's a fair characterization. I think whenever we get asked this question, I'll say or Marc will say that we do get a lot of opportunities that sort of cross the transom and we sort of evaluate anything that we think is reasonably serious and executable, potentially executable. But I think the last several years have indicated for a variety of reasons that, at the end of the day, those deals either wind up not being terribly compelling from a financial or a returns perspective, or they're just, for whatever reason, is not really actionable or executable. So that may change, and we'll continue to evaluate whatever deals get presented to us. But I would think that as long as we're in an environment where stock seems to us to be locally undervalued, as we certainly believe at the moment, and as long as there are not a lot of other really large compelling opportunities to use our capital elsewhere, we'll continue to be, I think, a more active acquirer of shares and maybe even step that activity up some.

All right. Well, that's great. So Steve, I appreciate you participating in the conference once again this year. It's great to have Universal Health represented. Thanks, everyone, for dialing in. Hopefully, this year -- next year, we'll be doing this live. So thanks again for participating.

Thanks, A.J. Good to see you.