環球健康 (UHS) 2012 Q2 法說會逐字稿

Good morning. My name is Bonita, and I will be your conference operator today.

At this time, I would like to welcome everyone to the UHS Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. I would now like to turn the call over to Mr. Steven Filton, Chief Financial Officer. Sir, please begin.

Thank you. Good morning. Alan Miller, our CEO, is also joining us this morning.

Welcome to this review of Universal Health Services results for the second quarter ended June 30, 2012. During the conference call, Alan and I will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections, and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2011, and our Form 10-Q for the quarter ended March 31, 2012.

We would like to highlight just a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the Company reported net income attributable to UHS per diluted share of $1.10 for the quarter. After adjusting for the prior-year impact of several reimbursement items recorded during the quarter, and the revenues and expenses associated with the implementation of electronic health records applications at our acute care hospitals, our adjusted net income attributable to UHS per diluted share for the quarter ended June 30, 2012, was $1.12.

On a same-facility basis, revenues in our behavioral health division increased 4.1% during the second quarter of 2012 over the comparable prior year quarter. Adjusted admissions and patient days to our behavioral health facilities owned for more than a year increased 3.3% and 0.2% respectively during the second quarter. Revenue per adjusted patient day rose 3.5% during the second quarter of 2012 over the comparable prior-year quarter. Operating margins for our behavioral health hospitals owned for more than a year increased to 28.6% during the quarter ended June 30, 2012, as compared to 26.9% during the comparable prior-year period.

On a same-facility basis in our acute care division, revenues increased -- decreased, excuse me -- 2.2% during the second quarter of 2012. The decrease resulted primarily from a 1.3% decrease in adjusted patient admissions and a 0.9% decrease in revenue per adjusted admission to our hospitals owned for more than a year. The revenue decline reflects a difficult comparison to the prior-year quarter, when our net revenues were favorably impacted by positive changes in payer mix, especially stabilization in uninsured volumes.

On a same-facility basis, operating margins for our acute care hospitals decreased to 16.3% during the second quarter of 2012, from 17.8% during the second quarter of 2011. Our acute care hospitals provide a charity care and uninsured discounts based on charges at established rates, amounting to $266 million and $239 million during the three-month periods ended June 30, 2012, and 2011, respectively.

As a percentage of acute care net revenues, bad debts, charity care expense, and the uninsured discount, in this year's second quarter we're at levels higher than those experienced during the second quarter of 2011. However, due primarily to the increase in behavioral health revenues and the very low levels of bad debt and uninsured discounts in that business, our overall percentage of bad debt to charity care and uninsured discounts were lower than those experienced during the second quarter of 2011.

Our cash from operating activities was approximately $246 million during the second quarter of 2012, as compared to $173 million in the second quarter of 2011. Our accounts receivable days outstanding decreased to 54 days during the second quarter of 2012 from 56 days during the first quarter of this year, as we collected a portion of outstanding Medicaid receivables from the state of Illinois. At June 30, 2012, our ratio of debt-to-total capitalization was 57.7%, and debt-to-EBITDA was 2.99 times.

We spent $90 million on capital expenditures during the second quarter. Included in our capital expend expenditures during the first half 2012 were the construction costs related to the construction of a new acute care hospital in Temecula, California; a new bed tower at our Wellington facility in Florida, and 222 beds added to facilities within our behavioral health division.

Against the backdrop of a sluggish economic recovery and based upon the operating trends and financial results experienced during the first six months of 2012, our revised estimated range of adjusted net income attributable to UHS for the year ended December 31, 2012, is $4.25 to $4.35 per diluted share. This revised guidance, which represents a 2% to 3% decrease from our original 2012 guidance, excludes the estimated favorable impact associated with the implementation of electronic health records applications at our acute care hospitals. And the impact of the other items reflected on the supplemental schedule for the six months ended June 30, 2012, as disclosed in last night's press release. As well as any incremental impact resulting from our previously announced acquisition of Ascend Health Corporation, which we expect to complete during the fourth quarter of this year.

Alan and I would be pleased to answer your questions at this time.

(Operator Instructions)

Tom Gallucci, Lazard Capital Markets.

Thanks. Good morning. Two quick questions. Steve, first on the acute care side, given the trends you've seen and the change in guidance, just wondering what you've baked into your guidance as we think about the second half of the year versus first-half trends.

Tom, in our original guidance, if people recall, was that acute care revenues would grow in 2012 by somewhere in the neighborhood of 3%, and I think we believe, because of the comparisons to 2011, that was back-end loaded. We grow by, let's say, 2% in the first half of the year, and by 4% in the back half of the year.

I think the revised guidance is, frankly, almost exclusively a reflection of the fact that we think that 4% growth that was embedded in the back half of the year in the original guidance is now probably 1.5% or 2%, and is reflective just of the existing operating trends that we're seeing.

Okay. On the behavioral health side, obviously you had very good trends there for 18 months or so that were above average, is I guess the way we looked at them. We sort of came back down to earth a little bit this quarter. Can you point to anything in particular that may have changed, and I guess what is your long-term growth outlook for that business at this stage?

Yes, I think Tom, that we've said a number of times that we think that going forward a reasonable revenue growth rate in the behavioral division is probably in the 5%, 5.5% range, and we've been pretty consistently meeting those targets. We were a little lower than that in Q2.

As we looked at the detail of it, I think we identified a number of facilities where, because of ongoing either new construction projects, or ongoing construction projects to convert residential to acute beds, we had to close down some capacity. We think that cost us maybe 50 or 60 or 70 basis points of revenue growth in the second quarter. I think when adjusted for that, I think we feel like, again, that 5%, 5.5% growth rate is reasonable. The other piece is that beginning in July of 2012, the severe Medicaid reductions that we saw at this time last year of 3% to 4% moderate to something like flat to down 1%, and so that's a helpful comparison, as well.

Okay. Thank you very much.

AJ Rice, UBS.

Hi, everybody. Maybe I'll ask two questions, as well. Following up on the Behavioral business, can you point to -- is the moderation, and albeit slight and you had great margins -- is it basically a capital constraint issue in the second quarter that somehow gets a little better in the back half of the year? How much of it was that, or how much of it's just the natural ebb and flow from Q1 to Q2?

AJ, just following on what I was saying to Tom, I think that the 50, 60, 70 basis points that I alluded to is exactly what you're talking about. We had beds that we had to have out of service for these construction projects, and I think our sense is two-fold. Once we are able to get those beds back in service, and once the new beds that we're building, or the converted beds that we're building go back on line, that we're very comfortable that the demand is actually there to support this sort of 5%, 5.5% growth rate.

Right, okay. On the -- back on the acute side, and I guess I'm sitting here, again, cost-control-wise, you guys have done a good job. I can't remember the last time I've seen someone post negative same-store revenue growth in acute business, but, obviously, you had a very tough comp a year ago. One of the things we're seeing from some of the other guys is they report soft in-patient volumes. It seems like they're getting a little help from revenue per adjusted admission being somewhat stronger.

The argument that at least is being made is that the soft volumes tend to be in cases that have lower revenues associated with them, and, therefore, it's not impacting the overall revenue growth. They're still posting 3%, 4%, 5% revenue growth on a same-store basis. It doesn't seem like that dynamic is at play here in your case. I just wondered if you had any thoughts about it in terms of where you're seeing the softness in the volume and the revenue per adjusted admission being a little -- sort of flattish, or only slightly up?

Yes, so I think if you look at the difference between our admissions, our unadjusted admissions, and our adjusted admissions, there is a measurable difference, which obviously implies that our outpatient revenues are growing faster than our inpatient. We are certainly experiencing some of that same shift that you're alluding to, AJ, that I think the other companies are referencing.

What it does also highlight, however, is that the unadjusted admissions, that is really the straight inpatient admissions, are rather weak and remain rather weak, and we think that's largely a function of these sort of very difficult economic conditions in certain of our markets, most notably Vegas and South Texas. I think that's the major explanation. I think other than that, we feel like, as we look at what the other companies are reporting, that in general and directionally, we're experiencing much of the same trends.

I guess the point I was making is, Steve had pointed to upper respiratory, ob-gyn cases, which sometimes can be lower revenue cases, and then obviously your surgery and so forth, and suggests that maybe they're not losing as many as the inpatient hiring cases, is that -- when you look at where the softness is on the inpatient volume, is that sort of across the board, or does it tend to be in those types of cases?

Well, I think that's a valid observation, and I think the way we would or I would sort of proof that, if you will, is by saying that our acuity has changed very little, and that our acuity has remained consistently high, which suggests that we continue to get the most tertiary and the most severe and acute cases, and that the business that we're losing tends to be the less intense business that is shifting either to outpatient or just shifting to a non-admitted status.

Okay. All right, thanks a lot.

Ralph Giacobbe, Credit Suisse

Steve, do you have the payer mix in the quarter, if possible, the percentages by payer, maybe, this quarter versus a year ago?

Ralph, I don't have the specific metrics in front of me, but I will tell you that the trend that we saw in the quarter was, again, very similar to what we have been seeing, which is taking whatever metric you like, if you take the 1.3% decline in adjusted admissions, that commercial and Medicare admissions declined more than that, and Medicaid and uninsured admissions increased more than that. That unfavorable shift is one that's been under way for some time, and continues. Quite frankly, until we believe the economies improve in our local markets, et cetera, that it's going to be difficult to reverse those trends.

Okay. Can you remind me of the drag on Medicaid from the cuts that started last July, and then the head wind or, I think, tail wind that you see for fiscal 2013?

Yes. In July of 2012 -- excuse me, in July of 2011, we said that Medicaid rates, on average, were decreasing 3% to 4%. Our guidance for 2012 presume that in July of 2012, Medicaid rates would be flat to down 1%, and given all the states that we've been able to get results from, et cetera, and have their rates in place, we believe we're in that range.

Okay. All right, that's helpful. Just the last one. I think there's been questions in the past on sort of the margin and EBITDA growth in behavioral and revenue trends have been higher. Revenue was obviously a little bit lower this quarter, but you had better margins and growth. Is that related to PSI synergies incrementally coming on board, or is it just more broad-based and maybe sustainability of that going forward?

I think the answer is sort of two-fold. One, again, as you alluded to Ralph, I certainly think that we continue to improve the PSI legacy margins, if you will. In short order, we're going to stop using that term. I also believe, and we've made the case, that if we're able to grow revenues by 4% or 5%, in what amounts to a fixed, a largely fixed and semi-fixed cost business, we should be able to continue to expand margins. Again, I think you saw in that Q2.

It's not always absolutely linear, so there's some quarters in which we -- revenue grew by a little bit more, and margins didn't increase quite as much, and in Q2 of this year, revenue was a little more moderated, but cost controls were better. In general, I think if we can have that 5% revenue growth that I have mentioned a few times on the call, we should continue to generate expanded margins in the Behavioral business.

Okay. Thank you.

Gary Lieberman, Wells Fargo.

Good morning. Thanks for taking the call. Alan, I would be interested to get your perspective on Washington heading into the elections and with the fiscal cliff coming up, the potential that Congress addresses sequestration, either in a lame duck or in a new Congress?

Yes, I thought you were going to ask about anything that is new. Nothing happens before the election, and lame ducks are difficult. We don't really have any indication, except that Vice President Cheney came out of sort of seclusion and went up on the Hill and talked about the defense. So, I think they're going to have to try and address something, but we have -- we don't have any indication as to where and how, except that the other thing I'll say is that we are in good shape with the administration, the hospitals are. I think we've got them on the defensive a little bit because of the state's reaction to Medicaid. I think that -- I know for a fact that the administration is going to try and be helpful to hospitals.

Since you brought it up is there anything new?

In what regard?

Just in general.

You mean legislatively?

Yes, anything that you're aware of or anything that's come across your radar screen that you find particularly interesting.

No, nothing. I think that it is the law, but a lot of people don't like it, and a lot is happening at the state level, as you're well aware with regard to the Medicaid, and it is going to be a very brutal, challenging situation legislatively in Washington, regardless of who wins. I think it's unlikely that Republicans can have a sweep of all three, house, Senate, White House. But it's going to be a really very interesting year next year.

As I said, I think we're in good shape. We're in as good a shape as we can be, because of, I, think, very smart moves on the part of some of our representatives. I don't mean legislatively, representing the different organizations. I think the administration is very strongly on our side, for whatever good that is.

Okay, great. Thanks for your thoughts.

Darren Lehrich, Deutsche Bank.

A few things here. As it relates to the M&A activity, Steve, we saw the deal termination and the cash flow statement. I just want to confirm that you have exited that South Texas situation. Is that what that was?

Yes. As we've, I think, disclosed at the end of last year, we had a tentative agreement to buy Knapp Medical Center in the South Texas market. Subsequent to reaching a definitive agreement, the seller discovered some limitations they had in being able to sell the facility, and as a result of that, they were unable to resolve those, and the agreement was terminated.

Right, and I guess just a refund of your money. Auburn, we're still on track for a September close there. I just wanted to also ask about Ascend timing. Is there anything different that we should be thinking about there?

No. As you suggest, we -- our intent is to close Auburn late in the third quarter, and our intent, which is a little less precise and specific because it involves FTC approvals, is that we close, or be able to close Ascend sometime during the fourth quarter.

If I could, Alan, would love to just get your thoughts on the acquisition outlook for the Company. Obviously, Ascend is a really unique situation for you in behavioral. How are you thinking now about acute and the outlook in that pipeline, the opportunity for more behavioral like Ascend? Just would love to get your updated thoughts there.

I think Ascend is very unusual in that the quality of it, nine facilities, every one of them is really good. There's new beds coming on. They've been very well managed, but there's a lot of growth in it. We think Ascend was unusually good quality-wise. We're very happy with that, very happy with it. We think we can see a lot of growth coming from it. I don't think there are networks that we know of that are similar to Ascend. I think ascend was -- we think Ascend was just a great acquisition.

With regard to other acquisitions, we're seeing a lot. I think in this environment, it's a question of what you want to direct yourself towards, but there's a lot of opportunities. We're going to close Ascend and move on to look at other opportunities, both acute and behavioral. I just want to stress, I think the Ascend deal was really an excellent deal for us, unusually excellent.

Thanks for that. The last thing here, we have heard your commentary a lot about just the comps, and obviously, knew going into this year that that was going to be a challenge, particularly in Vegas, given the success first half in Summerlin. I guess the thing I'd like to ask, is there anything new or different beyond the macro you're seeing in Vegas competitively, the way physicians are being organized, anything that we ought to also consider?

I don't think so, Darren. I would make the comment that, obviously, when a market is contracting the way that Vegas or South Texas has been, that, you know, it's natural to see competition ramp up. People are competing for a smaller base of patients, and it becomes sort of more intense and more severe, and I think we've seen in that both markets. But I think our market position remains largely the same. There are small shifts in market share, et cetera, but I think that the overarching issue, again, in both of those markets has been market softness that quite frankly, we've been struggling with for a long time now.

Okay. Thanks a lot.

Kevin Campbell, Avondale Partners.

Good morning. Thanks for taking my questions, a couple quick ones on guidance. Can you give us an estimate of the impact that moving Auburn Regional Medical Center out of continuing ops had on the earnings guidance?

Just to be clear, because of its relative immateriality, we did not show or report Auburn as a discontinued op, we just removed the detailed revenues and expenses and recorded the EBITDA loss of Auburn, which was a couple of million dollars in the quarter in the other operating expense line. Because we expect to dispose of Auburn in the third quarter, we've included in our guidance a comparable amount for Q3, and then assume that it's no longer owned by us.

Okay, that's helpful. As you look at your volumes, particularly in the fourth quarter and the new re-admission rules coming into play, are you anticipating any unusually -- unusual difference in volumes fourth quarter this year versus prior years because of the new re-admission rules, or do you feel like you already have a pretty good handle on re-admissions, and therefore it's not going to be a material impact on your volumes in the fourth quarter?

No, I think Kevin, as you sort of suggest, that the attention to the re-admission rules has now been present for a while. The government regulations and rules about the incentive penalties in that regard have been well-known now for a while. I don't sense that we're likely to see any significant or impactful change as we move forward.

Okay. Last question on the non-controlling interest. How should we think about that from a modeling perspective going forward, just on a pure dollars basis?

As everybody, I think, knows, the most significant item on that non-controlling interest line is the minority interest in the Vegas market. As Darren, I think, and others have asked about, that's a market that's been soft. I think that part of our reason for revising guidance is an expectation that at least in the short run it remains so. To me, the current run rate in that market, and therefore the impact on that line is probably as good a guide to at least the next couple of quarters as anything else.

Okay, great, thank you very much.

Gary Taylor, Citigroup.

Good morning. Just a couple of housekeeping things, Steve. On the high tech payment that you receive and that you break out in the supplemental tables, I think it's actually called revenue. I just wanted to make sure, that's being netted in the other operating expense line, it's not in the revenue line, correct?

No, it is on the revenue line, Gary.

Okay. On the minority interest share attributable to some of those high tech expenses, I assume that's down in the minority interest line as part of that line, as well, right, not rolled up in other ops?

Yes. No, that's correct. It is on the minority interest line.

I guess my last question is, can you talk a little bit about the length of stay pressure in RTC and any expectations of when that might abate, or is there a significant state where some policy changes might anniversary, or when we should expect, or if we can expect reasonably that some of that length-of-stay pressure is going to ease?

Again, this is another dynamic that certainly has been present now for, I would say going on a couple of years, where we've seen, really since I think the recession began, we've seen Medicaid programs throughout the country tighten up on both the rate of payment, which lots of companies discuss; but for us, in the behavioral division, also on utilization, which really I think is most notably reflected in length of stay contraction.

Actually, I thought one of the encouraging, albeit mildly encouraging, dynamics in Q2 was that I thought the length-of-stay reduction decelerated a little bit. To your point, Gary, and may sense is that just as we talked about rates, Medicaid rate reductions decelerating in July of 2012, my sense is that length-of-stay contractions should respond the same way, because it quite frankly is emblematic of the same sorts of budgetary issues. I think it remains to be seen. I don't think we've bottomed out yet, but I think the hope is that we'll at least start to see some deceleration or stabilization in that contraction.

Are there, I guess in RTC, are there some hard stops or policy changes, or this is just more active utilization management, I guess, for lack of a better word in terms of number of days a state is allowing?

Yes, I think much less than hard stops is just kind of a series of initiatives that different states take on in different ways, trying to move these kids out sooner, move them into less-intensive settings like group homes and stuff like that. Those are the kinds of things you see, as opposed to again, as you describe, a hard stop where they just say absolutely not after 25 days, or whatever the issue is. It's just a variety of initiatives.

Interestingly, the admission growth level has not really changed, which sort of implies, and to some degree I think it's remained pretty strong, which sort of implies that clinically, the effort to get these kids out sooner in the end is not really meeting the overall objectives, in that they may just be returning to facilities because they're not completing an effective course of treatment.

Okay, thank you.

John Ransom, Raymond James.

Hi, good morning. Just based on our estimate, it looks like your profit contribution between behavioral and acute, if you factor in Ascend is close to 70% behavioral and 30% acute, if we do some estimate allocation. As you look at your mix of M&A and you think about your portfolio, do you think that number is a good number? Is that going to hold, or are we at the high-water mark, in terms of the relative behavioral mix in the business?

John, I think we've said many times over the years that we've never set target percentages in the way that you've framed your question. As you know, obviously that allocation used to be dramatically different with the acute contribution being higher.

I think our view always is we're looking for the next dollar of invested capital to go into whatever investment that is, whether it's an external M&A investment in acute or behavioral, or an internal CapEx investment in one of those segments, or in buying back our own shares. We are always looking for it to go in the place where we think it's going to earn the greatest return, and I think that remains our approach and our point of view.

Do you -- are you seeing any large acute care deals that you're even close to pulling the trigger on? I know you guys are very picky, and you should be commended at being so. Conversely, do you think it's possible you might explore any more acute divestitures?

I think as Alan suggested, we are seeing a large number of deals available out in the market place, and I think that's reflective of what our peers say, as well. As you suggest, John, we're quite proud of the fact that we're very judicious in how we evaluate those deals and what we choose to pursue. Our general sense, on the acute side especially, is that those deals are going to be available. Not those specific deals, but deals of that kind will be available now for the foreseeable future.

I think the landscape of healthcare is changing in the country, and this pipeline that is robust at the moment, I think, will remain so. And so, we'll continue to look at those kinds of deals. Just as we're looking at organic expansion, I alluded to a couple of new project in my remarks that were under way, and new beds in behavioral. Again, all those items are on the table as we think about our Business going forward.

I've heard -- I mean there's plenty of second-tier and rural deals. I guess I was curious if there were kind of whole-market acquisitions and larger urban market type deals, or if it's still kind of more one-off a hospital in this market or that market or maybe a market that's not growing. Are you seeing the upper -- like the opportunity to go and do a large market and take 30% share or something? Are you seeing any of those kind of deals?

It strikes me that there is starting to be an evolution, as you suggest of the deals available. I think for the last couple of years it's been heavily skewed towards the single, stand-alone, more rural providers, and I think that we're starting to see a shift to bigger systems, multiple facility systems, et cetera. Again, my sense is that's going to continue, that we're nowhere near the top of the curve on that yet.

John, you're particularly astute, and I can tell you, and I'm sure you have seen this, or you -- the industry is going through a real transition. These things take time. It's going to be slow, but it's going to be a real transition. I think the companies that are experienced and have been successful over a long period of time, and know how to evaluate opportunities, and are not impatient are going to do really well.

I guess that's what I think. I would think there's a pretty high probability we're going to wake up in the next two years and you guys are going to go into a new market in a pretty big way. You've husbanded your resources accordingly, and I know you're not going to jump at something just because it's there. Anyway that will be interesting.

My other question is, I guess there was a little bit of chatter about the revenue multiple that you paid for Ascend. I know they have very high margins, and it's been a very well run company, but this seemed a little bit like a stretch multiple, for you guys in particular. What are we missing? Is it the growth? Is it the ability to add capacity on the back end of this? Is that what we might be missing here?

I'll just say one thing. Really good opportunities are not bargain priced, so I wouldn't say that this was a bargain price. Cole Hamels just went for $144 million. There aren't a lot of really great left-handers around, so we think Ascend was worth what we paid in the long run.

Okay, thank you.

Next question.

Frank Morgan, RBC Capital Markets.

Good morning, thanks. Steve, I was hoping you could go back on the volume side, obviously weak by geographies. But in terms of service lines, can you comment and give some kind of characterization of the volume between, say, what looked better or worse between, say ortho or cardio, or any of those specific business lines. On the topic of the weak volume, I know Gary asked about tighter utilization management in behavioral care. Are you seeing anything different in your acute markets? Would that be a contributor, as well as just a weak economy?

Sure. Again, I think the trends, Frank, overall, remain much the same. That is -- and again, I think AJ was asking a similar question, kind of from a different angle. We continue to see relatively steady volumes in our most tertiary, most severe procedures. As you would expect, because quite frankly, there sort of is no alternative to in-patient treatment for those kinds of procedures.

Within those kinds of procedures, we've seen a shift, as I think most of our peers have, away from cardiac into orthopedics and certain other specialties over the last few years. We've seen the same decline in births that many of our peers have seen. Again, I don't necessarily feel like any of the trends that we've seen, other than sort of as indicated by the specific conditions in our market, are terribly different than what our peers say and experience, as well.

As far as the utilization management goes, in effect, I'd give the same answer. I think we face the same increased pressure on rigorous review of the appropriateness of admissions as every hospital in the country, and as a consequence, we're feeling that same shift from inpatient to outpatient that again, I think every hospital feels, but I don't necessarily have any reason to believe that in our markets or in our hospitals we're sort of experiencing it in any sort of unique way or any differently than the average hospital in the country is experiencing it.

Okay. One more follow-up. You mentioned in your earlier comments on -- you had a theory about re-admission, potential re-admissions, on the behavioral side of the RTC. Do you actually have a number, like what percentage of RTC patients actually end up being re-admitted in any given year? Have you ever seen that number, or do you look at that number?

I'm not aware of that. It may well be that we have that data. Really, all I was suggesting is that as Medicaid programs try and reduce utilization, one might expect to see a reduction in both admission rates and length of stay, and for the most part what we have seen over the last few years is really no decline in admissions, in fact, pretty strong admissions on both the residential and acute side, but a contraction in length of stay.

Again, my sort of conclusion that I draw from that is that it may be a somewhat self-defeating strategy, in that you're getting some patients out sooner, but you're not really helping drive down the overall utilization if they're not effectively completing a course of treatment.

Thank you.

(Operator Instructions)

Kevin Fischbeck, Bank of America Merrill Lynch.

You talked a little bit about it, but could you just talk a little bit more about what was going on in Las Vegas this quarter? I know that we had commentary last quarter was that some of the economic data points were starting to firm, and that you kind of hoped that things might start to turn by the end of the year. We've seen some data points get a little bit weaker in Vegas. What are your thoughts there?

Kevin, I think you've summarized it fairly accurately. I think there were some macro indications last quarter that there was going to be overall improvement in the market. Some of those indicators have moved sideways or slipped a little bit. The one thing we've consistently said, and I think we would repeat this quarter is that we're not seeing the recovery in the hospital business yet, and that's still the case. Again, I think part of the decision to take guidance down a little bit is tied to that idea that our expectation now, at least in the short term, is that there's not likely to be significant recovery in that market.

Okay. You did mention earlier you have some CapEx projects coming, you're starting. But obviously, you took down guidance in part because of concern about the economy impact on things. How do you balance those two things -- the desire to invest for growth down the line, versus kind of what you're seeing right now as a weaker demand profile? What's your thought process there?

My general sense, Kevin, is that CapEx decisions tend to have a longer-term perspective to them than operating decisions. We, I thought, had very good cost control, as an example, in both of our business segments this quarter as we reacted to a more modest revenue growth environment, and we react very much in real time to those kinds of changes.

As we think about CapEx, and particularly as you think about bigger CapEx, building a new hospital in Temecula, building a new tower at Wellington, or adding beds in behavioral, those I think are much longer-term decisions. We have to think beyond just the current economic recovery and just the market position and what we view as the long-term projections in the market, and that's how we do it. I think that's why you see sort of more immediate changes in our operating cost structure, and less immediate changes in our capital planning.

Okay. I don't know, maybe I missed it, but you guys are booking high-tech revenue differently than your peers. I guess it's in the revenue number for you. Where does that show up in your same-store metrics? Is that excluded from same store? Does it show up in other revenue on your supplementals?

It's excluded from same-store, which, and you guys know this better than I do, but I think may be a reason why sometimes our revenue data compares unfavorably to our peers, because I think they do include it in their same-store numbers.

Now most companies are booking it on a net basis as a contrary expense line. Okay, so does that number then show up in other revenue for you?

Yes, it's in non-same store acute, is where it will show up in the Q.

All right. Great, thanks.

(Operator Instructions)

Mr. Filton, there are no further questions.

I have an announcement before everybody gets off. Hello? I have been asked by the Republican Party to host the vice presidential nomination very, very directly after he is named. I say he, most likely a he. It's going to be at my home in Philadelphia sometime between August 12 and 23.

The convention starts the 24th and, of course, the 27th, I believe that's a Monday night, is when all the confirmations are done, et cetera. If you would like to come to Philadelphia and have a really first-hand opportunity to meet the vice presidential prospect, let Steve know. Of course, there's a contribution involved. I will look forward to seeing some of you. It should be really a fun event.

Okay. Thanks everybody for your time, and we will talk with everybody next quarter.

And this concludes today's conference call. You may now disconnect.