環球健康 (UHS) 2014 Q1 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services first-quarter 2014 earnings call.

(Operator Instructions)

I would now like to turn the call over to Mr. Steve Filton, Chief Financial Officer. Please go ahead, sir.

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

Welcome to this review for Universal Health Services results for the first quarter ended March 31, 2014. During this conference call, Alan and I will be using words such as believes expects, anticipates, estimates, and similar words that represent forecast 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, 2013. We'd 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 recorded net income attributable to UHS per diluted share of $1.38 for the quarter. After adjusting each quarter's reported results for the items disclosed on the supplemental schedule included with last night's earnings release, adjusted net income attributable to UHS increased 11% (sic - see press release "13.8%") to $1.36 per diluted share during the first quarter of 2014, as compared to $1.22 per diluted share during the first quarter of last year.

On a same facility basis, in our Acute Care division, revenues increased 5.8% during the first quarter of 2014. The increase resulted primarily from a 6.3% increase in revenue per adjusted admission. The revenue increase was due in part to strengthening surgical volumes. Additionally, payer mix improved in the quarter with less uninsured patients and more Medicaid and commercial insurance patients. On the same facility basis, operating margins for our Acute Care hospitals increased to 19.8% during the first quarter of 2014 from 16.0% during the first quarter of 2006 (sic - see press release "2013").

On a same facility basis, revenues in our Behavioral Health division increased 3.7% during the first quarter of 2014. Adjusted admissions to our Behavioral Health facilities owned for more than a year increased 2.3%, and adjusted patients days were relatively flat during the quarter. Revenues per adjusted patient day rose 2.1% during the first quarter of 2014 over the comparable prior-year quarter.

On a same facility basis, operating margins for our Behavioral Health division decreased to 27.9% during the quarter ended March 31, 2014, as compared to 28.5% during the comparable prior-year quarter. The decline is largely attributable to continued length of stay pressures and a reduction in the number of military patients.

Our cash provided by operating activities increased 9% to approximately $195 million during the first quarter of 2014, as compared to $178 million in the first quarter of 2013. Our accounts receivable days outstanding increased slightly to 57 days during the first quarter of 2014, from 56 days during the comparable 2013 quarter.

Our ratio of debt to total capitalization decreased 48.6% on March 31, 2014, as compared to 56.4% at March 31, 2013. We spent $92 million on capital expenditures during the first quarter of 2014. We are pleased to answer your questions at this time, and in the interest of fairness, ask that everybody limit themselves to one question.

(Operator Instructions)

Justin Lake, JPMorgan.

Good morning. My question is on reform. Obviously, a great payer mix in the quarter. Can you give us a little more color on what you saw in terms of the benefits of reform? Maybe in states that expanded versus didn't expand commercial mix, et cetera? Thank you.

Sure. So, I think that I cited in my prepared remarks two factors that really contributed to the strength in Acute Care revenues. One is the increased surgical volume, and I don't think that's necessarily reform related. It's probably more related to the improving economy and hospitals gaining traction in that regard.

As far as the payer mix goes, as I suggested in my opening remarks, we saw a slight reduction, maybe a 2% or 3% reduction in our uninsured volumes in the quarter, and an increase of a comparable, maybe slightly lower amount, in the Medicaid admissions, or Medicaid volumes, and maybe a slightly larger increase in our commercial insurance volumes. We saw those trends probably more pronounced in the states that have opted into Medicaid expansion, which in our case, from an acute care perspective, are California, Nevada, and Washington, D.C.

We saw in a state like Nevada, definitely more of an impact from the Medicaid expansion. The state of Nevada has been pretty open about the fact that they've had a very robust expansion process. California, which has had a more robust commercial exchange expansion process, we definitely saw the impacts of that and saw more enrollees with Covered California in that location.

But the difficulty is, it's difficult, particularly based on one quarter's worth of data to take our payer mix changes and isolate them and identify them as specifically related to reform. So, we saw improved payer mix, quite frankly, in states that are not participating in Medicaid expansion.

We saw some payer mix changes that we believe are unrelated to payer mix. They are more related to the recruitment of new physicians or opening of new service lines or a contract in the market that has gone to a narrower network that we are benefiting from. So, all those kinds of things are also at play, and it's difficult for us to isolate any one change. We certainly feel like there was a benefit from reform in the quarter, but difficult to quantify with precision.

Thanks for all the color.

Whit Mayo, Robert Baird.

Just to clarify on the 2% to 3% decline in your self-pay volume, Steve, are you saying that's in terms of a percentage of your total volumes, or are you saying that on an absolute basis, your self-pay volumes declined 2% to 3%?

I think it is the latter, Whit. So our self-pay volumes declined, and in this case, I'm using patient days as a volume measure. We saw a bit of a spike in our self-pay length of stay in the quarter, so our self-pay admissions actually declined a little bit more. And I'm not quite sure I can really explain what would drive the increase in the length of stay in a particular quarter, but the 2% to 3% decline is a decline in our self-pay patient days on an absolute basis.

Got it. And how do you classify your Medicaid pending. Does that fall under Medicaid, or does it fall under your self-pay receivables?

Medicaid pending we categorize as Medicaid. And not surprisingly, given the expansion activity in the quarter, we definitely saw a spike in Medicaid pending, and that was included in the 1% to 2% increase in Medicaid overall. So we include accounts in Medicaid pending, and -- but we reserve for those, or we only account for the revenue on our historical portion that we are able to successfully qualify for Medicaid.

Got it. And anything to note around that the state process is adjudicating those claims? Have there been any issue that you think could have a potential future impact?

No. I think the only thing I would say is that some states, Nevada notably, because of the flood of new Medicaid applications, has been measurably behind in processing applications and processing payments. I don't think the state believes, nor do we believe, that will ultimately impact in the long term anything. It won't impact cash; it won't impact our ability to take those patients, et cetera. But I think there is some administrative backlog there.

Got it. And my last one is just on the uncompensated bad debt trends. There is some confusion on what the right read is. Your compensated care as a percentage of gross was down slightly, bad debt down meaningfully, bad debt plus charity up a little. So can you spend maybe a minute fleshing out some of those moving pieces and what the right read is from your perspective?

Sure. So as I think we always do, we encourage people to look at the uncompensated care expense in total. That is the cumulative total of bad, charity care, and uninsured discount. And as we disclosed in our press release, as a percentage of gross revenue, that is down slightly in the quarter. That trend has clearly over the last several years been an upward and a fairly measurable upward trend, but the fact it is slightly down in Q1 is the meaningful takeaway in the quarter.

As you suggest, there's is a pretty big shift between bad debt and charity and uninsured for the quarter. As always, I think that is far less meaningful. Our hospitals are frequently changing their policies to fit their local needs in terms of how much of an uninsured discount they give. In this particular case, in the first quarter, we increased our uninsured discounts in most of our hospitals, and that resulted in just more dollars shifting out of bad debt and into uninsured discount. But again, I would suggest to people that the real meaningful movement is the total.

Thank you.

Darren Lehrich of Deutsche Bank.

Thank you. Good morning, everybody. I wanted to ask about the behavioral margins. And Steve, you mentioned a couple of things. We continue to see the length of stay pressure, so I can understand that.

You mentioned a reduction in military patients. I'd be curious just to get a little bit more commentary about what you think is driving the margins. And if you can maybe also comment as to whether there was any weather impact at all in the Behavioral business or anything else that we ought to be thinking about from a margin standpoint as we move through the rest of the year. Thanks.

Sure. So I appreciate, actually, you mentioning the weather, Darren. I should have mentioned it myself. We didn't really have any weather impact for the most part in our Acute Care hospitals because of our geographies. We tend to be in markets other than Washington, D.C. that really don't experience much severe winter weather.

But the Behavioral geographic fingerprint is different. We're in the upper midwest; we're in the northeast, and even in places in the south, in places like Atlanta. We clearly experienced some bad weather in the quarter. Probably resulted in a couple million dollars of lower earnings in the quarter, which I think, as the year goes on we should ultimately recover from.

As you suggest, the length of stay issue has been one that has been a continuing one, pretty much uninterrupted for the last few years. We've seen -- we saw a little improvement in Q4, maybe a little bit of stabilization, but the trend seems to -- and as we discussed, we have largely assumed that that trend would continue in our guidance for 2014.

And then lastly, we referenced, as we did in our year-end call, some amount of reduction in the business from the military at -- and even though that's a relatively small part of our overall business, probably less than 10% for the whole division, we've seen a measurable decline, and it is fairy profitable business. And that's just a function, I believe, of the federal budgetary pressures.

Obviously, in the last year, we've had sequestration; we had the government shutdown. I think military bases have felt that pinch. And like other insurers and other employers, if you will, they've looked for a way to put their employees, their soldiers, in the lowest cost settings that they can. I think that means trying to keep them out of hospitals, or at least trying to keep them on the base hospitals. I think that is a delicate balance.

These are folks who are in often, as we all know from just reading the newspapers, in need of fairly significant care. And I think even there were early signs in Q2 that that pendulum may be swinging the other way, and if not improving the trend, at least stabilizing it. So we'll continue to track that.

That's great.

And if I could, I just wanted to follow up on one thing with Alan. As it related to PIW, Alan, you reference GW in the release. And I'm just hoping you can help us think about how you think that hospital fits in and whether it will be affiliated with GW. It looks like a pretty prestigious hospital. So maybe a comment or two there.

Thank you.

Well, we're excited about it. It's been a very fine hospital for a number of years, and they were independent. And now, they selected us, and we closed yesterday, and they will be working closely with GW. Interestingly, the Medical Director at GW is a psychiatrist, which is unusual. Very fine guy and knows the hospital well. And we're very excited about them working together.

Great. Okay. Thank you.

Just a quick note to add on to that. GW has always had, or has had for some time, at least, an inpatient psychiatric unit. So obviously, the adding of behavioral beds into the market is complimentary to a service they already had. So, our plan would be to try and make sure that the hospitals are synergistic with each other in terms of the service.

Colleen Lang, FBR.

Steve, just on the Acute Care side, given the very strong performance we saw this quarter, are there any changes to your underlying assumptions for revenue and EBITDA growth for the balance of the year, or is it too early to call the positive trends that we saw in Q1 a true trend?

It's a very good question, Colleen, and one we've struggled in preparation for the release and the call. It's always tough to make a call on long-term trends based on one quarter's results. Most folks remember 2012, and the first quarter of 2012, we reported really a bang-up first quarter with very strong payer mix and we had a hard time, quite frankly, explaining it at the time, and even in retrospect have a hard time explaining it.

And as the year went on, the payer mix moderated, and we returned to more normalized results. Obviously, the big difference in 2014 is we have the presence of the Affordable Care Act. As I mentioned earlier, though, however, it's been difficult to tease out the precise impact of that.

So the bottom line, to answer to your question is, we are not prepared to really change any of our forecast, change any of our trends. We're certainly not prepared to change our overall guidance for the year. But we've been pleased with the strength of our Acute Care revenues in Q1, and we'll certainly continue to track, and try and, as best as we can, parse out what the drivers of that improvement is, and we hope, obviously, that we can sustain it as the year goes on.

Okay, great. Thank you.

Jason Gurda, KeyBanc.

Thanks. Steve, how long does it take to get a Medicaid -- get approval on -- that a patient on Medicaid to going to get paid for?

In the normal course, Jason, that's probably a one- or two-month process. And as I said, in a couple of states, it's probably been extended for the moment.

So you're using a Medicaid conversion rate in order to estimate what happened in March?

Correct. So -- and then that's something we've always done. So for each hospital, we track our historical experience, or our historical success rate in converting Medicaid-pending patients to Medicaid, and that's what we use to book all our contractuals.

So if we have a historical 2/3 conversion rate, then for 2/3 of the patients in Medicaid pending, we assume we're going to get paid the Medicaid rate, and for the remaining 1/3, we assume we're not going to get paid anything. And we change those assumptions as our actual experience changes.

Okay. And then lastly, you have the potential for new behavioral rule coming out shortly? Any expectations or new expectations on that?

Our expectation is that there will not be any major surprises in the new behavioral rule. I think it's entirely possible now that we're -- that the industry is six years into the full implementation of the Prospective Payment System, that there will be tweaks to the rule and changes in how co-morbidities and that sort of thing are treated. But I think that our expectation is that our base rate will not be materially impacted by any of those changes.

Okay. Thank you.

Josh Raskin of Barclays Capital.

Hi, thanks. Steve, just following up on the Medicaid process. I'm curious what percentage of your uninsured volumes, those that show up at your hospitals uninsured, what percentage of those did you assume in the first quarter were now Medicaid eligible, and how did that change relative to 2013?

I'm not exactly sure I am answering your question, but I will do my best. I think as we talked about in our year-end call, and as we thought about guidance, that our assumptions for 2014 were that something like 7% or 8% of our uninsured volumes would become insured, and that we made further assumptions about -- the most of those would become insured through Medicaid and others through -- a lesser number through commercial exchanges. And I think we ramped that a bit as the year went on. But I'm not sure I have that -- the exact assumptions for Q1 or the ramp in front of me.

So what I'm getting at, Steve, is that it sounds like your process is still conservative in the sense that you're not assuming any change in the conversion rate, the number of people that you think are Medicaid eligible that actually get signed up. But I'm just curious, are you assuming -- there are risks that you're assuming more of these people are Medicaid eligible, and therefore, maybe that conversion rate might even go down in the future because it turns out that you were being more -- you were assuming that more people would be eligible for Medicaid now. Is that possible?

So I think that your point -- and I've had this question from others -- which I think is really premised on the idea that presumptive eligibility is likely to change the conversion rate. I am not sure we're convinced of that. But if you are convinced of that, that presumptive eligibility will mean a much greater percentage of patients will qualify for Medicaid. Then I think you could argue that we're being conservative using our historical percentages.

I do think there's a little bit of an offset to that in that as we're accounting for our commercial exchange patients, we obviously don't have any experience yet as to this whole idea of how many of them have actually paid premiums, et cetera. So when somebody presents an insurance card to us and we're able to verify that insurance, there may be a payment risk there that we're not accounting for, as well. So I think in our own minds, those two risks to some degree offset each other.

Got you. That was actually my next question (inaudible). Just on the exchanges, what happens when someone doesn't pay their premium? They get the card; they show up at your hospital; they receive service; the health plan may even pay that. But what happens in a situation where the health plan hasn't paid that claim yet and it turns out that that individual actually never paid their premium? Who's on the hook there?

Yes, so this is one of those question that we are so early in the process as not to really have any experience to be able to answer. But my gut is that either the insurance company will not pay the claim until the premium is paid, or if they have paid, they will make an effort to recoup that payment.

Right. So on your exchange-based members that have been showing up with exchange insurance, are you booking 100% of those revenues?

Yes.

You are. Okay.

Yes, and the reason for that, for the most part, is we really don't have access to that payment information. So again, when we verify the insurance, I think the insurance company is verifying that there is insurance. They are not giving us payment information. Some time in the future, we may do this much like we do Medicaid pending, and if there is a historical percentage of people who ultimately really don't qualify, we may alter our procedures to try and take that into account. But at the moment, it's been too early for us to do that.

Yes. The market assumption sounds like 15% or so are not paying their premiums, so I didn't know if you were just saying, all right, let's take a haircut to start or --

We're not. But part of that is because, as the first part of your question implied, we thought that on the Medicaid pending side, we might have some cushion to offset that.

Okay. Got you. Thank you.

Kevin Fischbeck of BofA Merrill Lynch.

Great. Thanks.

Just a question for you around those exchange assumptions. I think at the beginning of the year, you guys said 7% to 9% reduction uninsured. I think that the enrollment numbers seem to have all come in above everyone's expectations.

Two questions then. First is, how do you think about that range? Do you feel better at the high end of the range because of all this, or is there a reason not to move up here from assumptions?

And then secondly, we can see in payer mix and pricing setting in Acute Care margins some benefits of reform. How much, maybe, is unclear. But it's always clear what happens on the psych side, because you had some benefit built in at the high end of your range from maybe psych seeing some benefit. Is there any indications on that side of the business that you maybe we're seeing something? Just want to get your perspective on those two.

Sure. So far as the exchanges assumptions go, Kevin, just to be clear, we talk about the experience being better than what most people assumed. To be fair about it, we gave our guidance two months ago. We were using pretty recent data when we made those assumptions and put out our guidance.

So, I think we were using the -- I forget the exact number -- but something close to the 8 million newly insured numbers that the government has been working with. So, I think our assumptions were relatively up to date when we made them two months ago, and therefore, I don't think they are terribly out of date in that regard today.

And like I said, I think that we would feel much more comfortable, certainly, a quarter or two down the road -- another quarter or two down the road before we start to modify those assumptions one way or the other just given a lot of the uncertainty that still exists.

On the Behavioral side, as our guidance implied, at the low end of the guidance, there was a presumption that there would be no impact from the ACA on Behavioral, and that was really premised on the idea that from a Medicaid perspective and the idea that most of the benefit or most of the impact in 2014 would be from Medicaid, that the behavioral hospitals would not enjoy that benefit because of the IMD exclusion. And then I think the further assumption was that for some of the commercial exchange products, the nature of the high deductible benefit design in those products would limit the benefit that we might get on the behavioral side as well.

So that's why we saw -- or we presumed that there would be no benefit to the behavioral hospitals in the low end of our guidance. And in the first quarter, I would say that we really didn't see any impact. Now again, if you assume that one of the challenges is the high deductible nature of the plans, in theory, that might ease some as the year goes on and those deductibles get exhausted, but we'll see. But I think the bottom line was we would say that there was no visible impact from reform on Behavioral Q1.

That is interesting. You should have told me that you were expecting 8 million people back in February because at the time, it was 4 million, and we were looking for 5.5 million to 6 million, and the CBO had cut their estimate down to 6 million. So I'm surprised that you thought it was going to be as high as it was, but --

(Multiple speakers) -- Our point, Kevin, is we used -- all we did to do our assumptions was we used the data that HHS had published. And I thought it already by February had reflected 7 million people. But whatever it reflected is what we used.

Okay. Great. Thanks.

Ralph Giacobbe of Credit Suisse.

Thanks.

Steve, just struggling a little bit still to understand why the charity would go up so much. I think the last several quarters, we've seen bad debt actually pop, and one of the rational around that was that you guy went to your operators and had them maybe more aggressively -- or maybe go after payments as opposed to just writing them off right up front.

And now we get into reform, and I would think that a lot of even just the charity care would go away, particularly in Medicaid expansion states. So am I missing anything in terms of the thought process around that?

No. Well, two things, Ralph. One is just a nuance, but from a process perspective, we're trying to allow our hospitals to do what they think is best as opposed to the other way around. And you're right, they tweaked this a number of times.

So we have gone in the last few years -- we have moved along the continuum in some quarters or in some periods, increasing or making the charity care policy more liberal, which I think is what we did in Q1 of this year, which just has the affect of shifting some of those unpaid dollars into charity care versus bad debt. And then in some cases, we've made the charity policy more rigorous, which simply had the opposite affect, which is what you saw in 2013, of shifting dollars into bad debt.

I appreciate the fact it's confusing, but at the end of the day all you're doing is taking uncollected dollars based on gross billings and allocating them among these three buckets, effectively based on this idea of why a patient hasn't paid. I've always viewed that as a fairly meaningless distinction. And at the end of the day, I'm only concerned with what we really are being paid, which is why I think we are always focused on our actual cash revenue as opposed to the deductions from gross revenue.

Fair enough.

But I appreciate the fact that it's confusing, because the accounting powers that be still insist on showing that bad debt on the face of the income statement. And not that anybody cares what I think, but the way to solve this problem is simply to take the bad debt off the face of the income statement.

What was the charge [master] increased to?

I don't have it in front of me, Ralph, but I am guessing it was probably 6% to 8%.

That's helpful. And if I could just sneak one more in. Can you talk a little bit more about the acuity mix in the quarter, the drivers of that, maybe any stats around how much surgery was up, and maybe the categories where you are seeing that strength? Thanks.

So I think our inpatient surgeries were up like 1% in the quarter, and our outpatient surgeries were up 5%. If you compare that to where we were a year ago, we were down 5% for both in and outpatients, so it's a pretty significant swing. I don't necessarily have the service line analysis in front of me, but my recollection was that strength was an across-the-board strength across all specialties, and quite frankly, across most of the hospital portfolio, as well. So it wasn't limited to certain specialties or even to certain geographies.

Okay. Thank you.

A.J. Rice of UBS.

Hello, everybody. I figured I might just ask you first real quick about the capital deployment. Obviously, you have done a couple one-off Behavioral deals lately, not anything on the Acute Care side. Can you just comment on what you're seeing out there, what your predispositions are and so forth?

As we've said before, A.J., we have a sense that most hospitals, for profit, not for profit, are really reevaluating their going-forward strategies, taking stock, et cetera. And I think they're making all kinds of decisions about how they should position themselves or could position themselves for the future.

I think some of the processes are resulting in hospitals who have chosen to look for a partner or to sell outright, et cetera. We've been involved in some of those processes, and we continue to be very interested in any hospital that is looking to change their strategy in any form, whether that's looking to take on a partner, looking to sell outright, et cetera, and we continue to be interested in those opportunities.

I think a lot of the opportunities, as we've discussed, over the last few years have been focused more on the rural end of the continuum. And I think that, not surprisingly, therefore, the rural hospital companies have been more active, but we believe that going forward, the universe of the hospitals that are considering those kinds of changes is expanding to include larger hospitals in larger markets.

Okay. And maybe just a follow-up since everyone else seems to be doing one question plus a follow-up. Specifically on Temecula Valley, obviously, that opened in the fourth quarter. Is that still a drag for you in the first quarter, or is it breakeven? Is it contributing?

And second, can you just comment, did that have any impact on the metrics that we should be aware of when we think about your same store volume trends, for example?

Clearly, A.J., I would not make a good grade school teacher since no one listens to my instructions. But as far as Temecula goes, Temecula is -- and this is how we anticipated it -- still a drag in the first quarter, and I think we expected it would be diluted in the first half of the year and then accretive in the second half. I will say that the overall California market has been fairly strong. I alluded to this in earlier comments.

I do think they are benefiting, again, from the two trends, both from increased surgical trends, but also from, in their case, improved payer mix, and specifically, I think improved commercial payer mix. Obviously, California has probably had the most successful state exchange implementation, and I think we've seen some benefit from that.

You think it is affecting your admissions?

(Multiple speakers) No, I think it is a payer mix issue, again. I think those exchange patients are replacing patients who were previously uninsured.

Right. I'm asking about Temecula valley. Is that somehow depressing your same store (multiple speakers) --?

Yes, I think there's a bit of cannibalization here, A.J., but again, that's clearly been included in our guidance.

Thanks a lot.

Gary Taylor, Citi.

Good morning, Steve. A couple questions. On the same store -- I just want to go back to your self-pay decline on the patient days, and you said self-pay admissions were actually down more than a 2% to 3%. Would you care to actually give us that number?

Yes. I think self-pay admissions were down 7% or 8%, Gary. And then I think the length of stay was up 5%, 6%, which makes the patient days down 2% or 3%.

So would it be fair to think about probably double-digit decline in expansion states versus probably much less so in Texas?

Definitely more pronounced. That's probably right, but I don't have the data in front of me.

Okay. Last question. On Behavioral, you called out -- you said $2 million to $3 million EBITDA or EBIT you were talking about impact from the weather potentially. Does that imply roughly like a 1% top line or a 1% adjusted patient day impact. Am I in the ballpark of what you are thinking?

So you've obviously done the math. I am trying to do it in my head. I think that's right -- that sounds right.

I was just thinking, put your average margin on there and take it up to the revenue line and divide it. So that's what it comes out to, around 1%. So there weren't any other assumptions about significantly different operating leverage or anything as you guys came up with that, it doesn't sound like.

No.

Okay. All right. Thanks.

John Ransom, Raymond James.

Hey. I just want to try to recap the obvious here, make sure I've got it. Are you saying essentially that it was almost a one-for-one swap from lower -- fewer uninsured days and increased Medicaid, so in other words, very little impact from the exchanges so far?

Well, and I think that's part of the challenge, John, is that we saw an increase in commercial volumes, which I did say earlier in the call. It's not clear to us in every case what that's attributable to. So in a place like California, it's easier to see where that's attributable to the exchange process in California.

But we saw some payer mix improvement in Texas, which, by the way (inaudible), so we're making the assumption that obviously there is nothing or little to do with the exchanges in Texas, especially in the markets that we're in, because we just don't sense there's been a lot of exchange activity. So we think in those cases, it's newly recruited physicians or new contracts that we have or other dynamics.

But again, this is the ongoing challenge I've mentioned a few times in the quarter. I think it's difficult to take every one of those metrics on payer mix and attribute a very specific part to reform, to the economy, and then to other dynamics at play.

If a patient comes in with an exchange plan, do you even know that it's an exchange plan, it's just another commercial plan to you?

Again, I think that in some cases, the answer is yes, but I think it's a little too early in the process for us to know with great confidence how accurate we are about that. As time goes on, I do believe we will get better data.

Okay. Thank you.

(Operator Instructions)

Paula Torch, Avondale Partners.

Was curious, what are some of the learnings as you've increased physician employment and acquisitions. Are they generating the returns you've hoped for? How should we think about the growth there, and maybe what types of physicians would you prefer to employee versus outsource? And maybe you could give us some other percentages of outsource versus employee.

Generally, when you're talking about outsourced physicians, I think you're talking about hospital-based physicians, ER doctors, radiologists, pathologist, et cetera. I don't have the exact percentage. The vast majority of our ER physicians are outsourced. As far as our other house-based physicians, it's really a market-by-market decision.

As far as your actual admitting physicians, as we've discussed in our calls, it varies by market, how many of those and what percentage of those are employed. We employee both primary care physicians and specialists, although our emphasis tends to be on primary care physicians.

In terms of the lessons learned, I think all hospitals would generally have the same observations. We like to -- or the advantage of employing physicians is to integrate them into the hospital and to hopefully have them associated more exclusively with your facility. And the challenge is that once physicians are on a salary as opposed to working on their own, the historical tendency has been for them to lose some of the incentives and to be less productive. I think that's the delicate balance that all hospitals try and work through as they employee physicians.

Great. Thank you for the color there.

Gary Lieberman, Wells Fargo.

Good morning. Thanks for taking the questions. The comments regarding the impact of reform versus the economy, when you think about the impact of the economy, what are maybe some of the metrics or some of the things that you've seen in your market that would lead you to believe there is more or some impact from the economy?

Well, I think the main thing, Gary, as I said at the outset and we've talked about a couple of times, is the increased surgical volume. To me, that -- if it's related to either the ACA or the economy, would seem to be much more logically related to the ACA. It's entirely possible it's related -- excuse me, to the economy.

It's entirely possible it's relate to other things as well, again, recruitment of new physicians, new contracts, et cetera. But I don't know that anybody was really predicting that the ACA would drive more surgical volume. So that's the best example I can give of the Acute Care revenue strength in the quarter that I think clearly didn't have much to do with that.

The other piece is, as a result of more people going back to work, let's just say in a market like Las Vegas, I think that we would expect improved payer mix just from that trend, from lower unemployment, more people going back to work and getting insurance from their employer. And again, in those cases, it's been difficult for us to tease out who's got insurance as a result of going back to work and who's got insurance as a result of a commercial exchange product.

And then maybe you could follow up on that. As you look out toward your 2015 negotiations for managed care contracts, are you seeing any impact from the exchanges in terms of managed care looking for more narrower networks or anything like that?

It's still pretty early when you talk about negotiating 2015 benefit plan design and rates, et cetera. So I would say the answer to your question is no, although I think that's an expectation that we have, that as we get into the late summer and early fall and those negotiations are taking place more in earnest, that those kinds of conversations will become more frequent.

Great. Thanks very much.

Anton Hie, RBC Capital Markets.

Thanks. Just curious to see if you have any update on the AR buildup in, I believe it was Illinois and Texas?

Our Illinois receivables are actually down, I think, about $10 million in the quarter, so that's a good development. We did get a $25-million payment on our Texas UPL receivable in the quarter, although I think the receivable has also then been built up some, as well. Obviously, the Temecula opening and the fact that we have new payers, et cetera, that's contributed some to the receivable buildup, as well.

Okay. And then any update on the planned psych bed expansions for the year?

No. Again, I think we talked in call, the year-end call, and gave a psych bed target for the year, which was in the 600 range, and we believe we're still tracking to that number.

Can you give a number that you may have added in the first quarter, or is that --

I do not have a first-quarter number in front of me, Anton.

Thank you.

Chris Rigg of Susquehanna.

Good morning. Thanks for taking my question. Just for clarification here as to what is assumed in the guidance for the year on the drop in uninsured admissions versus the 2% to 3% you saw in the first quarter. You are assuming 7% to 9% drop?

That was what was in our guidance.

Okay. So the first quarter was obviously very strong, and you barely saw any benefit relative to what you're looking for for the year, correct?

And mostly because of the increase in length of stay in our uninsured volumes, Chris. In answer to a question earlier, I think that the actual drop in uninsured admissions was pretty close to what we had guided to.

Okay. All right. Thanks a lot.

I have no further questions in queue. I'll turn the call back over to the presenters for closing remarks.

We'd just like to thank everybody for their time and look forward to speaking with them next quarter. Thank you.

Thank you, everyone. This concludes today's conference call. You may now disconnect.