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

All right. Good afternoon, everyone, and thank you for joining the last panel of Citi's Healthcare Conference. I'm Jason Cassorla. I cover health care services here at Citi. We're happy to have Universal Health Services here today. Joining us from the company is CFO, Steve Filton. Thank you, Steve, for being here today.

Sure. My pleasure.

Maybe just let's start off with your acute care business, you reported fourth quarter earnings earlier this week -- with solid volume growth, adjusted admissions up 5.5%. I guess from a holistic volume picture, maybe help describe what you're seeing in your markets from an underlying demand perspective, and how you're expecting the volume growth backdrop to play out within '23 guidance?

So the -- I think the ongoing challenge for the acute care business during the pandemic has been that while treating COVID patients and dealing with COVID surges has certainly involved its challenges, there were certain benefits to the COVID patient population. They were generally a high acuity population, which meant high revenues, they were generally well reimbursed. Medicare had their 20% add-on. The government had a program to reimburse for uncompensated COVID patients, et cetera. So when the COVID patient volume declined or declines the acute industry just generally, but obviously UHS's acute hospitals and specifically, we're faced with the challenge of replacing that business and especially replacing it with that higher acuity, higher revenue and higher viability, surgical procedural elective business. And I think what we have found throughout is that for a variety of reasons, including sort of changes in the way patients and the general population, we're getting their health care utilization and physician practices and a bunch of different things, it's been a slower process than we originally imagined. And I think we clearly saw that in the back half of 2022, much lower COVID volumes and challenges in recovering that higher acuity non-COVID business. I think our guidance for 2023 assumes that we'll continue to make progress there. We'll continue to recapture some of that acuity. But that's -- quite frankly, that's a big part. I mean, in my mind, the 2 big parts of or the big variables, if you will, at guidance. particularly for the acute hospitals is the ability to recapture that non-COVID acuity and the ability to continue to drive down wage inflation that we experienced lower wage inflation.

Got it. So on that capturing the higher acuity, but you still kind of -- you flagged the nuance here that you saw a bit of a higher outpatient kind of trend in the fourth quarter. You've discussed the construct that is the after effects of the pandemic. But you've also stated a focus on freestanding EDs and ASCs. Maybe just as you think about that trend and your focus there, how is that playing out as you unpack and invest in the outpatient arena in response to maybe just capturing more of the volume in a holistic manner.

So I think it has been a significant part of our strategy for a number of years and certainly pre-COVID as well as more currently to acknowledge the fact that patients, physicians, but probably most importantly, payers have been looking to have their patient population treated in the lowest cost but yet still safest setting of care. And so we've been expanding our continuum of care to include a lot of increased access points. I think you mentioned freestanding EDs probably 5 years ago, and I know chronology a little bit wrong, but I think 5 years ago, we probably had zero freestanding of EDs. We'll probably finish 2023 with close to 30. So we've invested heavily in a business that basically is just another more convenient access point in which -- for which patients to enter the health care system, and we have found it to be -- or found them to be very popular. Patients really enjoy them. They go to them. They're treated much more quickly and yet with equal efficiency, et cetera. And particularly for the nonemergent patients, especially, I think it's a much more pleasant experience. But we're also doing urgent care centers and more physician offices and more ASCs that you mentioned and freestanding imaging centers, et cetera. So it's really that whole kind of array of capabilities, what we think is -- and there's plenty of others who are doing that and many of them are doing it, I would describe is on a niche basis. So there are freestanding imaging providers, and there are telemedicine providers, et cetera. But I think one of the things that is really a distinct advantage to an acute care hospital system is that we're in a position to offer that sort of broad continuum of services and that sort of one-stop shopping and a continuum of care that is really more seamless from a patient's perspective. So they're not being handed off from one provider to another, and with different practices and having to reverify insurance all time, it's much more seamless. And I think that's the advantage that we've been trying to take advantage of.

And then maybe in that holistic capture argument to -- the goal post probably continue to move a bit, but -- is there any way you can help frame as you think about your markets today, what inning you might be in on that? How much more investment is going to be significant near term, more gradual as you see things kind of play out? Or how would you kind of frame an inning on that holistic kind of type?

Yes, yes. I mean, the challenge with the inning question, as you know, I often get that question in all different context, but it sort of implies kind of a finite end -- and I don't think that's necessarily the case here. I think this is a continually involving sort of dynamic that's affected by a lot of different things. It's affected by clinical developments. I think the reason that more outpatient joint replaced -- or more joint replacements are done on an outpatient basis today than 5 years ago is the view that based on clinical improvements, patients just don't clinically need to be in a hospital overnight for 2 nights or 3 nights or whatever it is. So all those things, I think, continually evolve. And I think we would hope to evolve with it. But again, what I would stress is, I think the advantage that the acute hospitals have is this broader array of services that's not directed just the kind of 1 tiny sliver of the patient's needs, but also that really more integrated relationship with the physician community that I think is really critical because I think it's that the joint delivery of care and clinical strategizing, et cetera, between physician and hospital that's so important -- and again maybe lacking a little bit more in these niche businesses that focus on home health specifically or subacute specifically or telemedicine specifically.

Got it. Okay. Maybe shifting gears just a little bit. On the pricing backdrop, you noted the willingness to go to the table of commercial payers, you argue, the labor backdrop is completely very complex and been very difficult. I guess, how did that play out for '23 in terms of negotiating contracts with payers? Should we see some of that favorability also play out into '24, given maybe multiyear contracts? And -- or how are you thinking about that?

So specifically, the dynamic that you're referring to is something that we have talked about very specifically in our behavioral business. And the reason it's much more of an issue in our behavioral business is because it has been a capacity-constrained business, meaning that we have turned away measurable numbers of patients certainly over the course of the pandemic, in particular, because we simply didn't have the staff to care for -- or the adequate clinical staff to care for those patients. So in that sort of an environment, it could give us the optionality to approach some of our lowest paying payers and say to them, look, at the end of the day, we're turning patients away at a minimum, you've got to raise your rates so that you're competitive with it, we'll call it the lower, whatever it is 20th percentile of our payers because otherwise it just makes sense for us to cancel your contract and to admit another patient whose payer or whose employer is likely to pay us more. And I think we've had great success in that. So if you look at our behavioral business, our revenue per adjusted day which is probably the most accepted metric of pricing, if you will, it tended to be increasing at a kind of 1% to 2% rate pre-pandemic year-to-year. And I think during the pandemic, closer to 5% or 6%. I think our guidance for next year implies sort of 4-ish -- so obviously, we think we can continue kind of above that pre-pandemic level and maybe even do better than the 4 that's in that guidance. On the acute side, I don't think we have that same ability to lever the sort of notion that we're turning patients away or that we're capacity constrained. But certainly, on the acute side, too, I think most payers are acknowledging that we're in this high inflationary environment and hospitals are particularly facing wage inflation that's probably well in excess of general inflation rates. And I think we've been getting inflationary increases from our payers that are at least, I would say, 150, 175 basis points more than what they were on average pre-pandemic.

Got it. Okay. That's very helpful. I guess, in that type of context, the lack of reimbursement from COVID this year, right, coming this year, the $100 million you called out plus the 340B, to roll over some of the Medicaid supplemental payments. So Alan, should we think about revenue per adjusted admission in your acute care business at that 2% to 4% ex-COVID? Or how are you framing the revenue per adjusted admission growth in guidance?

Yes. So I appreciate the question because I think maybe I was a little imprecise in some of my answers on the call, that 2% to 4%, I think, was our view of how the acuity would increase or the pricing, which I think is affected by acuity would increase purely in that non-COVID population, which I think translates to a kind of more muted maybe 1% to 2% increase in the overall population because, again, we have to offset the declining acuity from the loss of patients. But that's a big lift to be fair, and probably in an overall forecast and guidance that I think is reasonably conservative. That's probably the most aggressive sort of metric in that guidance that will take a pretty big lift because there's a lot of acuity to be replaced with the loss of the COVID patients.

Got it. Okay. Understood. Very helpful there. I wanted to ask about the potential payer mix shift argument for '23 in the [ Q ]. I guess, just how are you balancing the economic backdrop, potential pressure on commercial mix, the growth in exchanges in your markets and then the effects of the resumption of Medicaid redeterminations that start next month. Maybe are you factoring all this in the guidance? Or how are you thinking about it as it plays out?

So the question that we were getting earlier in '22 was, okay, if we're going to go through a recession what's likely to be the effect on our business. And historically, and I have been around long enough to have been through a few recessions, historically, the impact of recession on the hospital business is not so much on demand. I think hospital demand is generally relatively elastic and not terribly sensitive to economic changes, but it's on payer mix. So as unemployment rises, people who are employed or were employed and had commercial insurance through their employer, lose their jobs and become either Medicaid or uninsured, and that's generally an unfavorable shift. A couple of things I think are worth noting. First of all, as you know, we haven't gone through much of an increase in unemployment, and it doesn't appear as if we're going to -- other than some high-profile layoffs like the tech industry, et cetera, it doesn't appear that unemployment is rising broadly. Secondly, even if it does, I think this would be the first recession that we will go through in which the Affordable Care Act is in place. And I think that Medicaid expansion in those states that expanded Medicaid and the availability of commercial exchanges really helps to cushion some of that. So I think the threat of recession first of all, it seems like recession or certainly a severe recession seems less likely today than maybe it did 6 or 8 months ago. But also, even if we have a recession, I think there's more of a cushion structurally than there has been. The other question you asked is about Medicaid redeterminations. That's a tougher one to do the analysis on. It's really a function of presuming that Medicaid redeterminations will result in a chunk, a measurable chunk of Medicaid recipients being tossed off the Medicaid roles. But again, a lot of those patients or a lot of those people will replace or at least a good chunk of those people will replace their coverage with commercial exchange coverage that, in theory, should actually be better coverage. And so the calculation you have to go through is, well, how many people are going to get booted off the Medicaid roles, how many of them will get commercial exchange coverage, et cetera. And we've tried this calculation. I've seen others try it. I don't know that anybody has attacked it with great precision or it seems to me with great precision. So I think there are scenarios I think we can envision in which this is actually a tailwind or a positive for hospitals if enough people are able to convert to commercial exchanges. I think the most likely outcome is sort of a slight negative. But to be fair, it's a guesstimate on our part, and I think a guesstimate on everybody's part at the moment until we really see how this plays out.

Fair enough. Okay. Got it. Let's switch gears to labor on the acute side, contract labor. Obviously, a huge topic that fell quarter-to-quarter throughout '22. But it largely stayed flat in 4Q. You discussed about $150 million, $160 million lower spend or about 1/3 in 2023 with improvements as the year progresses, would -- that would probably simply still imply spending well above pre-pandemic norms, maybe just twice as much as it trended before. So I guess, how are you thinking about next year just as a step function reduction and you would see continued improvements in '24? Or do you think we're leveling off at these '23 levels? And how would you frame that?

Yes. So as you described it, I think pre-pandemic, we were averaging about $35 million a quarter in premium pay and in premium pay, to be clear, is -- in the way that we define it is anything that we're paying someone generally a nurse to perform his or her duties in excess of the base rate of our sort of average nursing employee. So it could be our own employees that we're paying to work overtime, to pay them a shift differential as an incentive to work, whatever. But most of that premium pay expense is being paid to third parties who are providing temporary and traveling nurses. And most of that increased demand going from $35 million a quarter pre-pandemic to $105 million or $110 million per quarter during the last year is driven by the demand for COVID -- for nurses to work in a COVID environment to work during the COVID surges, to treat the COVID patients that sort of tended to overwhelm hospitals during the surges. We've been able to reduce that premium pay as COVID volumes have declined. We expected to do that. It's a reasonable question to ask. I don't think any provider at the moment is projecting that we're going to get back to pre-pandemic levels. I think what's built into our guidance is a number that's like $60 million, $65 million a quarter, which is still quite a bit lower than what we ran in '22, but certainly not anything close to where we ran in the pre-pandemic period. I think that's because we have found -- one of the things that developed during the pandemic is that a bunch of nurses who have never experimented or tried the temporary or traveling sort of environmental new view, tried it. They're okay with it. They certainly seem to be more willing to do it. But I think our view is that as long as we're not faced with the sort of wild swings in demand that the COVID surge has created, we should have success in continuing to reduce that number. Now again, maybe we don't get it any lower than the $60 million, $65 million target -- quarterly target that we have in our guidance. But I think there's a potential that we could go above that.

Got it. And that should ratably kind of move down throughout.

Yes. I think it continues to improve because the way that fundamentally, the way that you're reducing this premium pay is by adding more full-time employees -- and the way that we add more full-time employees net is we can continue to increase our hiring, but also we improve our retention. And both of those metrics have been improving in both business segments for a while. I think as long as we don't encounter another COVID surge of a material amount in '23, which I think at the moment, at least most people don't expect, we should continue to make progress.

Got it. Okay. Got it. And on the fourth quarter call, you called out higher physician subsidy expense. You're assuming that's up 15% to 20% for '23, $45 million to $50 million headwind. It sounds like your hands are pretty tied on that, but maybe just unpack for us a bit what you're seeing there in the trends. And if that's a release you think for '24 and beyond or how should we think about it.

So I think most people follow the industry kind of know the back story here. But very quickly, when I started in this business, 35-plus years ago, most of those hospital-based physicians, ER physicians, radiology groups, anesthesiology groups were just local physician providers who provided that service very often in a smaller community that had maybe 2 or 3 hospitals, they would be the service provider at all 3 hospitals in the community. That business, I think, particularly over the last decade, it really got consolidated by a couple of big consolidators who then, I think, controlled a significant percentage of the market share. The challenge, I think, is that both -- the 2 big consolidators, both, I think, went private within the last few years at kind of very high prices, took on a lot of debt. We're challenged by some of the restrictions on out-of-network billing, et cetera. And so they've been coming back to their hospital customers and asking for increased subsidies. And in the short run, I think those contract providers have a lot of leverage on hospital providers in the sense that making that change, changing to another provider or bringing the service in-house is a big lift. It's a difficult thing to do, and it's particularly difficult if what you're getting is like a 90-day termination notice, et cetera. So in the short run, I think hospitals have little choice but to meet those increased demands for physicians -- increased physician subsidy expense. I think in the longer run, and I think you're starting to see this already, I think hospitals are moving to in-source more of this, to hire a lot of those physicians on their own. A lot of those physicians are moving back to local or regional providers. I think this is one of these kind of cyclical things that everything comes around eventually. So in my mind, once we get past this current crunch, which is significant, I think you're going to see those subsidy expenses ease as we move into the back half of '23 and certainly as we move into '24. It will be definitely less of a headwind and maybe a bit of a tailwind.

Understood. Got it. All right. So let's -- maybe just on acute care, just on the '23 argument, the EBITDA. Putting all the pieces together, you're expecting EBITDA flat margins down a bit given some of these headwinds. You would -- basically the argument is the volumes increase throughout the year as labor comes on, contract labor improves. Is that how we should be thinking about the ratability of the EBITDA guide for the acute care? Or how would you kind of frame '23 at this point?

Yes. So again, on the acute side of the business, there are more puts and takes that have to be considered. I think we've largely enumerated them in the call. So I think what remains is sort of I think we talked about it earlier, in order for the acute business to sort of overcome some of those significant headwinds. The real improvements have to be made in again, replacing that non-COVID business and replacing it not just with equal volume but also with greater acuity and greater profitability in the business that gets replaced and then also see some moderation in labor costs. And I think the point that Marc Miller made in our earnings call was overcoming these challenges throughout the pandemic has just occurred more slowly on the acute side than we kind of imagined. And I think quite frankly, the industry imagined that it would. But at the end of the day, I think we do believe that both of those trends, the acuity and volume recovery as well as the moderation in labor will occur. I think they may occur, again, over a longer period of time than people originally expected or maybe we're hoping for, but they will. And as a consequence, I think our projections for our acute business are not as robust in the guidance as they are for our behavioral business. But again, I think as we get into '24 and '25, we'll begin this sort of recovery trajectory back to pre-pandemic margins. I don't think we believe that fundamentally, the business model for that business has changed in a sort of structural way that prevents us from getting back to those pre-COVID margins. May take us a few years to do it, but I think we should get back there.

Okay. Got it. We'll stop there for a second. Is there any questions in the audience at this time. Otherwise, we'll shift gears a little bit. All right. Let's come to the side of your business, the behavioral side, right? I think by and large, that business has generally held up a little bit better, obviously, in the acute over the past couple of quarters. main pressure point, as you pointed out before in '22 as the volume throughput given the lack of labor supply, I guess, unpack some of the work that you're doing on that front to help shore up the labor construct and behavioral.

Yes. So look, I think we made the argument throughout the pandemic that the big headwind for our behavioral business has been an inability to fill all of our labor vacancies, most particularly nursing, but also therapists and psychologists and sometimes nonlicensed professionals, the people we call them health technicians. And we argued or postulated all along that as COVID volumes declined, we would have an easier time filling those positions because a lot of those positions or a lot of those vacancies were created by clinicians leaving the behavioral milieu, much like they left other subacute milieus, nursing homes, sub-acute facilities, home health to go work and take advantage of these sort of incredibly generous rates and wage packages they could earn in acute care settings, largely again because of the demand created by COVID patients. And I think as you know your comment or -- the basis of your question indicates, as COVID volumes have declined, what you saw in the third and fourth quarter is that we filled more of these vacancies. As we filled more of these vacancies, we were able to treat more patients. Our patient base rose. And there's a bit of a sort of a cascading effect here because, quite frankly, as we fill the vacancies, and we are able to admit more patients and quite frankly, our productivity improves, and our salaries look even better than they did before. So all that's been happening. We certainly -- it's not just happening as a result of the COVID decline. There have been a multiple of initiatives that we've taken to recruit and retain new nurses and quite frankly, to keep them and to keep our new clinicians in the full. That's equally, if not more important. So obviously, you start with the wage base itself. We've increased base wage rates in many of our facilities to recognize the realities of where the market is today. We've provided other benefits like sign-on bonuses and educational tuition opportunities and reimbursement, all those sort of things. But we've also been very focused on retaining the people that we do hire. And so we've got mentorship programs. We've got career and tracks that we've established tuition reimbursement to encourage people to continue their studies and increase their licensing capabilities, all those sort of things. So -- to be honest, all that's been a slow go, but we've made incremental progress, and I think we've made a lot of incremental products in the last couple of quarters. I think the good news is I think there's still a lot to be done and a lot of opportunity to be realized, which is all very helpful.

Got it. So you just kind of highlighted this a bit, but you've had to turn away patients for this labor kind of backdrop. Does this create a sort of a pent-up demand argument for behavioral. Obviously, I think we all know that the underlying demand is obviously extremely favorable in behavioral broadly, but are you -- do you think this is a pent-up kind of argument for you? Or shouldn't we not think that way?

It's a great question, and it's a little bit harder to sort of frame or even, I think, kind of precisely calculate on the behavioral side. On the acute side, it's sort of a discrete procedure that you're talking about. So somebody was scheduled for a knee implant in March or April or May of 2020 and didn't have it because of the pandemic and the question becomes when does that knee implant sort of get done? And the argument goes that at some point, it's going to get done. As the knee is not going to get better on its own. And at some point, that procedure at a very simplified or micro level gets done. The challenge on the behavioral side is almost all of our admissions, particularly inpatient admissions are emergent. So somebody is expressing suicidal ideation or somebody has had significant drug or alcohol overdose or somebody has tried to commit suicide. And the question becomes, if we don't have the space to admit them, what happens to them? Where do they go? And the answer is not always clear. But one of the things we know, and we hear this all the time, we hear it from our own acute care hospitals, and we hear it from many of the acute care hospitals with whom we have engaged in discussions. There's a lot of these patients wind up really being for want of a better word stuck in acute care emergency rooms, which is really a very unfavorable sort of development for everybody, meaning I think it's not good for the patient, they're not really getting care. They're not getting therapy care in that sort of setting. It's bad for the acute care hospital. Those patients tend to be disruptive. They tend to be staffing intensive, et cetera. So what I think the real opportunity there is to move these patients who haven't been getting care out of the acute care emergency room. In many cases, I think we've all read that the pandemic has been very tough on the adolescent population, school age kids, getting them the care that they need, getting soldiers the care that they need and helping on military bases that are in our communities provide that sort of care. So it's that sort of thing. It's a little bit harder to sort of identify that pent-up demand. But I think virtually all of the data suggests that mental health has probably by everyone's calculation deteriorated during the pandemic. I remember being locked down. And I think even for the health -- the person with a generally good mental health, it was a pretty stressful time. So if you're already inclined to have some sort of mental health disorder, et cetera, is more difficult, and I think remains so. So -- yes, I mean, I think that's the opportunity is that there's a lot of mental health demands that have been unmet for much of the pandemic. And to the degree that we can be in a position to have the staff to treat those folks, et cetera, I think that -- I mean I don't want to say the demand is infinite because, of course, that would be an overstatement. But there's a significant amount of demand that remains unmet.

Got it. Okay. And maybe just quickly back to '23. We've talked about acute in the back half improvement you're expecting there. sounds like that behavioral business, too, should stabilize in that same kind of time frame, improve into the back half of the year as well. Is that fair? And maybe just elaborate more on your confidence of the trajectory?

Yes. No, again, and I think we were clear on this. I mean our presumption is in terms of the cadence of the 2 segments, it's probably easier for the behavioral health business to improve more quickly. And I think, again, we saw that evidence in the back half of '22, in large part because -- there was no -- there was nothing positive, if you will, about the COVID or the pandemic on the behavioral side of the business. We didn't really have incremental patients. We didn't have incremental reimbursement. As a matter of fact, sort of having to isolate patients in behavioral hospitals, which is not something we routinely do sort of created problems. Obviously, the staffing vacancies created a problem. So as we emerge from the pandemic, I think we always expected that the behavioral business would recover on a faster kind of steeper tempo and that seems to be the case. But again, I think we think both businesses will continue to recover as we sort of enter or continue into this post-pandemic era. Although I think we think it will happen more quickly and kind of at a steeper rate on the behavioral side than on the acute side.

Okay. Got it. That's very helpful. I guess we can discuss, right, to your point around the favorable underlying demand framework for behavior health services broadly. But as we think about service lines, outpatient, et cetera, where do you believe you're perhaps underpunching your weight? And as an offset, are you looking to build out on those investments in a way?

Yes. I think it's fair broadly to say that our approach in both of our business segments is the same. I think that we think of ourselves as having a significant competitive advantage as an inpatient provider, there are a lot of niche providers in both business segments who are providing telemedicine services or home health services or subacute services or ASC services, you can go down the line. But the advantage that I think in acute -- and in this case, when I say acute, I'm really meaning an inpatient hospital on either the behavioral or the acute side of the business has is number one, the ability to work with its physicians to really create a more comprehensive treatment plan and to be able to monitor that plan in a more seamless way for our patients. So -- if our patients need inpatient care, they can get. If our patients need telemedicine assessment, they can get it. If before, after inpatient care, they need some sort of outpatient treatment, they can get it through us. Now they can certainly get those services elsewhere. But I think we find that in health care, having to sort of get that care and for want of a better term, sort of an a la carte way where you're having to choose providers here and there, and there's not necessarily a coordination between the providers themselves is a lot less efficient than if a single provider in conjunction with your physician advisers is helping to design that care. I think we just find is a huge advantage for us. So to your point, as we think about sort of rounding out in particular our behavioral continuum of services, it's just that idea. We want to make sure that we have the right number of access points in places that patients can be evaluated and care points so that if they don't need inpatient care, but need the outpatient care either again either before or after admission, they can get that. That's really our focus, and I think we continue to build that continuum of care in both of the segments.

Got it. And maybe to build on to that argument, I want to ask you about the joint venture opportunity, right, in behavioral. You've had a few open this year. It's been a big part of your story. How is that pipeline developed as we sort of move through the pandemic in this underlying trend dynamic. Ad has that accelerated in your view? And how should we think about the additive nature of those JVs to volumes over time?

So I alluded to this a little bit before when I talked about sort of the emergency room dynamic. So when we talk to acute care hospitals about their behavioral services, they tend to have, in my mind, 2 very broad observations. One is they really want to solve the emergency room problem that I described before. Behavioral patients can be disruptive and sort of difficult in an acute care emergency room setting. And having a behavioral partner, particularly having a behavioral partner, who also runs acute care hospitals and understands that emergency room dynamic, I think, as well as anybody is, I think, helpful. The other issue that I think that most of them can see is that these big acute care hospitals are complicated organizations. And again, we understand that better than most. And at the end of the day, their behavioral service line tends to be a red-headed stepchild when compared to orthopedics and cardiology and obstetrics, et cetera. And I think most of our acute care providers or acute care hospitals that we talk to will acknowledge to us that they're just not as efficient. They're not as attentive, they're not as focused on behavioral as a dedicated behavioral provider would be. And so when they turn to us, it's with this idea that in some sort of joint venture, and look, the interesting thing is when these conversations began a number of years ago, they began from our perspective, almost as M&A transaction conversations, we would sort of go to the acute care hospital and say, "Look, let us take it off your back, sell us your behavioral hospital, let us lease your behavioral floor, whatever the issue would be. But I think we found that they wanted to retain an interest in the business. And so they've remained minority partners in a lot of these, which is why they're JVs. But yes, I think -- now again, I think we slowed the pace of these a little bit in the pandemic because we were facing other challenges. If staffing was going to be an issue, why did we want to build new beds, et cetera, if they were going to be difficult to staff. But I think as we emerge from the pandemic, the pace of those JVs is likely to pick up because I think that, again, they're just our -- the issue is that 50% of the behavioral beds in the country in the U.S. are operated by acute care hospitals. And not every single acute care hospital has this view, but if they're sort of being under managed, which I think a lot of them do share that view, I think that's an enormous opportunity for dedicated behavioral providers, quite frankly, there's only a handful of us that are sort of capable of taking on these kind of JVs.

Got it. Got it. Okay. Maybe -- get a few minutes here left. Just wanted to ask about your balance sheet, right? You're 2.9x leveraged right now, relatively underlevered versus most of your peers, obviously, interest rate environment is tough. But should we think that you're kind of holding tight to that leverage just given the backdrop? Or do you have a willingness to lever up a bit, should the want arise, including perhaps incremental share repo, above your $600 million target M&A or anything along those lines?

Yes. So I think it's fair to say that sort of all other things being equal, absent some extraordinary M&A opportunity that we viewed as compelling, et cetera, I think our goal is to operate in and around the leverage level that we're at currently. I think we have a view that if our businesses improve in some of the ways that we've been talking about over the course of '23 and then certainly into '24, that leverage will naturally decline and allow us to potentially become a more active acquirer of shares and that sort of thing. But yes, I mean, I think in the current environment, our focus is on improving the underlying business, improving operating results and financial results, which would still allow us to do the sort of capital deployment that we've talked about on the guidance call, roughly $800 million of CapEx, $600 million of share repurchase. And again, I think we made this point in our comments on the call, I think over the last, whatever it's been, 6 or 7 years, we've repurchased about 20% of the company's outstanding stock. So we've been a pretty consistent and aggressive repurchaser of shares over an extended period of time now.

Got it. Okay. Maybe just a last question here as we're wrapping up. I wanted to ask on the fee-for-service versus the value-based care backdrop. We saw you are participating in the ACO REACH program in Texas a little bit. It sounds like you're testing the waters there. And if I remember correctly, you have other areas where you're taking some level of financial risk. But I guess as we think about the broad shift from fee-for-service to value-based care, where do you see UHS fitting in that concept and how you're thinking about it over the long term?

Yes. So we have ACOs operational in some form or fashion in all of our acute care markets. Our prominence insurance subsidiary is really another way that we feel like we're delivering value-based care. The challenge that I think hospitals just generally have in this environment is that even though there's great attention and great discussion about value-based care, it is still from a reimbursement percentage perspective, still a pretty small percentage of our overall reimbursement. So we're trying to live, if you will, in a fee-for-service world that still dominates our reimbursement while at the same time being prepared for what we think is this inexorable shift towards value-based care. I think the issue is that shift has been occurring more slowly than people thought. And so it's that balance of let's be as efficient as we can in the fee-for-service world while at the same time making sure we, making sure our positions, making sure our insurance subsidiary is well prepared for the fee-for-value world that we're going to live in, in years from now.

All right. Looks like we're out of time here. Steve, thank you very much for participating. Thank you, everyone, in the audience for attending today, and we'll wrap it up here.

Thanks, everybody.

Thank you.