環球健康 (UHS) 2015 Q1 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services' first-quarter 2015 earnings conference call.

(Operator Instructions)

Mr. Filton, you may begin your conference.

Thank you, and good morning. Alan Miller, our CEO, is also joining us this morning. Welcome to this review of Universal Health Services' results for the first quarter ended March 31, 2015.

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, 2014.

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 $1.73 for the quarter. After adjusting for the depreciation and amortization expense associated with the implementation of electronic health records applications at our acute-care hospitals, our adjusted net income attributable to UHS per diluted share was $1.78 for the quarter ended March 31, 2015.

On a same-facility basis in our acute-care division, revenues increased 12.2% during the first quarter of 2015. The increase resulted primarily from a 5.7% increase in adjusted admissions, and a 6.1% increase in revenue per adjusted admission. On a same-facility basis, operating margins for our acute-care hospitals increased to 21.6% during the first quarter of 2015, from 19.2% during the first quarter of 2014.

On a same-facility basis, revenues in our behavioral health division increased 6.3% during the first quarter of 2015. Adjusted admissions to our behavioral health facilities owned for more than a year increased 6.0%, and adjusted patient days increased 2.6% over the prior-year first quarter. Revenue per adjusted patient day rose 3.7% during the first quarter of 2015, over the comparable prior-year quarter.

On a same-facility basis, operating margins for our behavioral health division increased to 28.6% during the quarter ended March 31, 2015, as compared to 27.7% during the comparable prior-year period. Our cash provided by operating activities increased 39% to approximately $271 million during the first quarter of 2015, as compared to $195 million in the first quarter of 2014. Our accounts receivable days outstanding remained at 56 days during comparable first quarters of 2015 and 2014.

Our ratio of debt to total capitalization decreased to 44.6% at March 31, 2015, as compared to 48.6% at March 31, 2014. During the first quarter of 2015, we spent $89 million on capital expenditures. During the quarter, we completed construction and opened 54 new beds in our acute-care division, and 148 new behavioral health beds at some of our busiest behavioral facilities.

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

Kelly, are we ready for questions?

Yes, sir.

(Operator Instructions)

We do have a question in queue from the line of Kevin Fischbeck with Bank of America.

Great, thanks. I guess the market often times has a hard time getting your numbers right on a quarter-to-quarter basis. How would you characterize this quarter versus your internal expectations? It seems like a pretty strong quarter on our side?

Sure, Kevin. We certainly would share the view that this was a strong quarter. I would note that our internal expectations for the quarter were somewhat higher than the street's, maybe by $0.07 or $0.08. We didn't have quite as much of an internal bead, but still a very nice bead in the quarter, but it's also part of the reason why we chose not to revise our guidance at this point.

Okay. If there's anything that you could point to that kind of, versus your internal budget, where numbers came in a little bit stronger?

My guess is directionally our experience was much like the street expectations and models in that clearly the biggest excess over budget or expectations was in the acute division, the 12%-plus revenue growth, same-store revenue growth in the acute division was well in excess of the 7% to 8 % that we talked about having guided to in our 2015 guidance. So that was clearly the biggest element of the bead.

Okay. And then I know that you guys usually don't update numbers with Q1, but any thoughts about how reform is coming in versus your expectations? And I will jump off.

Sure. Look, I think we have made the point throughout 2014 that I think the signs, if you will, of identifying the discrete impact of reform was difficult in 2014. I think as we move into the second year of reform implementation, it becomes even sort of more blurry from our perspective. I think that we estimated that about 6% to 7%% of our acute-care EBITDA would come from reform patients, either Medicaid-expansion patients or commercial-exchange patients.

And I think we still believe that, that's a best-guess number and I think we ran at that rate in Q1. But again I will caveat that I think we believe that it is becoming more and more difficult to precisely identify that impact. And it will become even more difficult as time passes.

Great, thank you.

Your next question will come from the line of Paula Torch with Avondale Partners.

Great, thank you so much for taking the question and congrats on a very nice quarter to start the year. I just wanted to know if you could update us on the percentage of the business that may be related to the economic environment improving, and maybe how we should think about those trends for the rest of the year in 2015? And also if you could give us more color on your larger markets and what is happening in Texas, Florida and Vegas?

Sure, Paula. I think what we had said in 2014 was we attributed something like 35% to 40% of our acute-care improvement to ACA-related impact; a comparable amount, another 35% to 40% to just the economic improvement in our markets; and then the remaining 15% to 20% to kind of discrete market share improvements, et cetera, in our individual markets.

Again, it strikes me that those percentages are probably still reasonably accurate in 2015. In terms of geographically how the quarter looked, we had a very, very strong quarter in our Las Vegas market. The volumes were very strong in the Las Vegas market. We continue to see a full-quarter's worth of benefit of the Medicaid expansion in Nevada, which is a Medicaid expansion state, obviously. And so just real strong results in the Las Vegas market in Q1.

Additionally, a very nice swing between years in our Temecula facility. I will remind people that Temecula was a startup in the first quarter of 2014, so it is ramping up quite nicely, and while I think a lot of that ramp is reflected in our guidance, it does provide a real nice tailwind year to year. So those are the two markets I would highlight. Obviously I think when you post as solid and as robust a quarter as we did, you are going to have strong results pretty much through the portfolio, and we did, but I would at least highlight those two markets.

Do you think some of the strength is sustainable throughout the year? You talked about the 7% to 8% increase, we had a 12%, so would that mean that just given the difficult compares that we might see some softness sort of as we go through? Or is it too soon to tell?

Well, I think part of the reason why we made no change to guidance is that I think after one quarter we think it is generally premature to make changes to the outlook. We certainly feel like the core strength that both business segments demonstrated in Q1 is largely sustainable. I mean, that 12%-plus same-store revenue growth in the acute division, particularly as the year progresses and the comparisons become more difficult and the volume comparisons in particular become more difficult, I think it will be difficult to sustain. And I think the core directional trends that are very strong in the two businesses we certainly believe should be sustainable.

Okay, thank you for that color. And I just wanted to know, what do you attribute the strength in the revenue or the pricing per adjusted admit to? Is there anything in particular that you could call out for us that happened during the quarter in terms of pricing or payer-mix shift?

I think it's a continuation of some of the trends that we called out in the fourth quarter. We talked about in Q4 very strong surgical volume strength. We saw those same trends in Q1. I highlighted in Q4 the fact that for the first time, at least in recent memory, our inpatient surgical growth rate was higher than our outpatient, and we saw that same dynamic continue into Q1. So that is certainly driving a lot of the sort of acuity element of the revenue improvement.

And then secondly, we just have that continued payer-mix improvement. We anticipated that 2015 would benefit from a full year of that enrollment that we saw occur sort of incrementally throughout 2014. And I think Q1 was a reflection of that, again, in particularly in places like Las Vegas which had huge Medicaid expansion growth in 2014, and you are seeing that play out in a full quarter in the first-quarter 2015.

Thank you for the color. Good luck for the --

Your next question will come from the line of A.J. Rice with UBS.

Thank you. Hi, everybody. First of all, obviously you had a good cash flow quarter as well as operating quarter. But you didn't do too much in the buyback mode. Is that indicative of you are seeing an uptick in deal activity? Or any thoughts about the buyback going forward?

The first quarter is a little different for us and I think for most in the sense that we spend most of the first quarter in a quiet period. So most of the buyback during the first quarter is done, in our case, under a 10b-5 preplanned repurchase that we establish some price parameters around and sometimes we miss those estimates some. So I think, I wouldn't read the relatively modest repurchases in Q1 to be terribly meaningful in any regard.

I will repeat what we've said in the last few quarters since the buyback authorization in Q2 of 2014 was approved by the Board. And that is, we anticipate we are going to generate a significant amount of free cash. We're not anxious to see our leverage levels go any lower than they were when we established the share buyback. And while we continue to explore opportunities in the M&A space in both of the business segments, I think we feel comfortable we have the room to do most size deals as well as share repurchase as well as continuing CapEx at the current levels.

So we are very comfortable that we can accomplish all those things and still maintain what, in our minds, is a comfortable leverage level.

Okay. And I might also just ask you, because we get asked a lot about it. A couple of weeks ago you filed another 8-K indicating some additional request for information in the behavioral business. Broadly, I will just throw out on the table, is there anything that can be said about what is happening behind the scenes there?

And then I would also throw it out in terms of the operating performance looking at the behavioral business from a high level, doesn't look like those inquiries are having any impact, at least in aggregate, on the business. Is that your assessment of it? Or anything we should be aware of?

So the investigation has been ongoing now for a little over two years, A.J. We take it very seriously. We have cooperated fully with the government and have responded to all their requests and continue to respond to any new and incremental requests that they make.

But I think your observation is a fair one in the sense that we also continue to operate our business consistent with what we believe are the highest standards, and we will continue to do so. I think, unfortunately, those who follow the industry know that these investigations can be a long process. This certainly has been long already.

But I also do not believe that it is necessarily in its end stages. It may go on for a while, and while it does we will continue to take it seriously and comply with the government and cooperate with the government. But at the same time we will continue to run the business which we feel delivers high-quality care throughout the portfolio.

Okay, maybe I will slip in a last technical question. The California-provider fee, I think you were not accruing previously the managed care portion, did you accrue anything in this quarter? And what might that be if it ever comes to fruition for you?

We did not recognize any incremental California UPL revenue in the quarter. If it were to be approved, it is probably another, at my recollection, A.J., is another $5 million, $6 million. It's not a huge number.

Okay, thanks a lot.

Your next question will come from the line of Ralph Giacobbe with Credit Suisse.

Thank you, good morning. I wanted to jump to the behavioral side. Do you think there was any help from mental health parity in the quarter? Any way to discern that? And then I know we talk about this every quarter, but any more visibility or optimism around sort of the length-of-stay challenges?

Sure, Ralph. So I think on the length-of-stay issue, we continue to see length of stay decline. Although I will repeat a comment that I made in the fourth quarter, and I think it continued into Q1. And that is that at least some of that length-of-stay decline, at least in the last few quarters, is self-imposed or self-manufactured in the sense that we continue to convert residential beds and residential services to acute beds and acute services.

And when we do that we are, by definition, lowering our length of stay because acute services length of stay is markedly lower than the residential length of stay is. So at least some element of the length-of-stay decline is intentional. And, quite frankly, I think, in our minds, a positive development in that we are replacing higher-revenue beds with lower-revenue beds. I think that is partly what you see in the strong revenue growth, that same-store revenue growth of 6%-plus, which is clearly at the high end of our own expectations.

As far as being able to identify the effect from parity, I think we always believed that would be difficult to do, and I think we still believe that. And almost well-nigh impossible to do. And that is because when we see a patient who has valid and legitimate insurance, we really don't sort of know the history of that insurance to what degree benefit plan design has changed, et cetera. I think the insurance companies or the government might have better insight into that.

What we are very focused on as a Company, I think, and as an industry is in making sure that the parity rules and regulations, including some of the newer ones and some of the clarifications, are being properly enforced, because I think we believe that there still are plans and that there still is executions of plans that are not compliant, and therefore that there is sort of upside to us if we can ensure that compliance is met throughout the country.

Okay. That's helpful. And where are you, I guess, in the process of converting beds? Is there a timeline for us to think about in terms of where you are at this point or is this just ongoing?

I don't know that it is a finite sort of process, Ralph, where we have X number of beds that we want to convert. I think it's an issue of we're always looking at the best and highest use of all of our beds.

And to the degree that beds become underperforming because rates go down, or length of stay is under great pressure, or whatever it may be. And if the demand is there for another, better performing service, we are willing to convert those beds. I don't know that we would sort of put in the context of we're done with 50% of our conversions. I think for us it is sort of an ongoing process and will remain so.

Fair enough. One more if I can. Just SWB came in a lot better. Is it anything more than just leveraging the top line? Or are there specific initiatives there that help? And I guess more importantly on a go-forward basis, can you help us in terms of what a fair range on thinking about that line item as a percentage of revenue, particularly considering your commentary around being tough to sustain the level of topline growth that we have seen in the quarter?

Look, as salaries and wages are obviously the single biggest expense item in both of our divisions, and get a lot of attention from the operators. But the nature of the business is such that when you have the really sort of strong revenue growth that we had in Q1, you are likely to see a significant amount of operating leverage. You did see that, particularly in the acute division in Q1.

If that revenue run rate does start to sort of modestly regress, as I suggested before that it might, from the 12%-plus we ran in Q1, would be a little bit challenging to generate quite as much leverage as we did. But our operators are very focused on controlling those salary numbers, and delivering an efficient and high-quality product. So I think they will continue to remain focused that way.

Fair enough, thank you.

Your next question will come from the line of Frank Morgan with RBC Capital Markets.

Good morning. I guess hopping back to that discussion on parity. I know CMS recently put out a proposal about extending mental health parity to manage Medicaid and [shield], and I'm just curious how much of an impact that might have? And do you think this may be a step in the direction at least toward striking down value IMD exclusion?

Look, Frank, I think you get to the point that -- and I think as most of the people listening know, that the IMD exclusion precludes freestanding behavioral facilities from treating or from being paid, at least, for adult Medicaid patients. And that is a big hurdle from our perspective.

The recent parity clarifications that you mentioned I think are helpful for the non-adult population, be it the Medicaid population that's under age 21. And I think what it says is that Medicaid managed-care organizations and other like organizations have to comply with parity as to our case that under-21 population. So I think it is helpful, not in a sort of game-changing way, but it is definitely helpful around the edges, if you will.

We are hopeful and continue to work as an industry for a more rational sort of approach to the IMD exclusion. And that means, I think we continue to lobby CMS and cooperate with their data-gathering activities to try and demonstrate that lifting the IMD exclusion would be the correct thing to do from a public policy perspective. And we also continue to work on the legislative end of it, working with legislators like Congressman Murphy, who has a bill out there that would eliminate the IMD exclusion.

So we are working on a number of fronts. I think lifting the IMD exclusion would be a game changer. I think the continued modifications to the parity law and the parity rules are helpful. But the sort of end goal would be the lifting of the IMD exclusion.

Okay, one more. You mentioned good broad-based performance across most of your markets. But is there anywhere that you see really still has an upside, maybe on a relative basis, some markets that are underperforming, but still have upside?

And also I think you've got a new hospital, at least in the works, in Vegas? Could you give us a comment there? Thanks.

Sure. Look, I think what you are seeing, and we talked about this for years, and I think during the several years of the recession, beginning in 2009 for us as a Company, I think as an industry and extending well through 2013, we had the sort of multiyear pressure from the recession from uncompensated care, et cetera, which put a burden on our volumes. Our volumes were rather muted during that period. And our uncompensated care levels grew throughout that period.

And beginning in 2014, with the benefits of the Affordable Care Act providing insurance to millions of people who didn't have it before, as well as the improving economy allowing people to go back to work and get reinsured, all that's been helpful in our markets. I think because the decline was a multiyear decline, we always anticipated that the recovery would be a multiyear recovery. We are certainly seeing that.

We're in, I would suggest, either the second or the third year of a recovery in Las Vegas and the second year of recovery in a number of our other markets. So while I'm not sure that we feel like we can sustain these Q1 levels of growth, I think we are comfortable that, again, the core sort of recovery that is taking place is something that should last for a number of years.

Thank you.

Your next question will come from the line of Whit Mayo with Robert Baird.

Hey, thanks. I know this exercise can be a little dangerous and you can cut it a few different ways. But looking back historically, you have earned roughly 30% of your full year --

Can you speak up, please?

Can you hear me?

Yes, go ahead.

Sorry, just saying looking back historically, you guys have earned 30% of acute-care EBITDA in the first quarter on some modest site performance for the rest of the year, I think I can easily get near the high end of the range. Is it fair to maybe think about, given the outperformance in the first quarter, that you could be tracking closer to the high end than maybe the midpoint at this time?

Sure, I think, although you describe it as dangerous, if you do the math, I think unless you know there's a real change in the operating landscape or an unanticipated hurdles in either of the core businesses, we should be comfortably moving towards the high end of our existing range. I think, again, just for all the reasons that we cited before, we just felt it was not terribly prudent to tinker with the range, either the high end or the low end at this point.

We will take a closer look and a more measured look at it at the end of the second quarter. But certainly, I think if you do the math, it is not at all unreasonable to make the observation that we are headed for the higher end of the range.

It seems appropriate. And maybe just on cost trends, for a second, is there anything new that you are paying attention to in either segment right now? Any increase in registry costs with the volume that you're seeing come through the acute-care portfolio? And you've leveraged supplies maybe a little bit more than I would have thought, given the strength in the surgical performance in the quarter, and especially pharma has gotten a lot of attention lately. So I guess I'm just trying to wrap my head around the cost trends of what you are seeing and what initiatives you have underway?

Look, I think, again, as a Company and as an industry, we really did a significant amount of belt tightening, and kind of real structural reviews of our cost structure during those years of the recession when our revenues were really challenged. I think that left us in a very good position, beginning in 2014 when the trends, the revenue trends reversed themselves and revenue growth began anew and earnestly. And as a consequence, we have seen these pretty robust expansion of margins, particularly on the acute side of the business.

I think from a cost perspective, you cited the things that we are certainly concerned about. As volumes grow, there is pressure on wages. We see that in higher overtime and higher use of temporary nurses. We see it to some degree in pressures and in terms of placing doctors. We see quite a bit of pressure, frankly, on the behavioral side in finding an adequate number of psychiatrists in all of our facilities and that has put some pressure on use of locums physicians and that sort of thing.

But as I think we step back and look at it, I don't know that there is anything on sort of the cost landscape that we would describe or think about as a huge discrete threat. Rather it is always the challenge that as the business grows you want to make sure that you remain efficient and I think our operators have been doing that for the last year and a half or so. They've been doing a very good job of that.

Okay, might sneak one quick one in, and just looking for an update on Cygnet and the updated performance of that asset? Thanks.

Sure, the behavioral company that we bought in the UK at the end of September was running at very healthy occupancy levels, probably close to 80 % when we bought them. We didn't really believe there was a huge amount of upside opportunity on the existing business. But we are happy to say that, even on the core business, occupancy rates have risen in the six months we have owned them and are getting close to 90 %. And that obviously is generating better-than-expected results for that business.

And at the same time, we announced a small acquisition in our first six months of ownership, where we've started a development project in our first six months of ownership and we continue to look at a whole series of other opportunities, both sort of large and small. So we couldn't, frankly, be more pleased with that platform in the six months that we have owned it than we are.

Thanks a lot.

Your next question will come from the line of Joshua Ransom with Barclays.

Hi, thanks, and good morning. First question just on what we are seeing in terms of institutional providers and health plan collaborations, and whether that means sort of capitation or even all the way down to provider-sponsored health plans. I'm just curious what your perspectives, if you guys have any pilots going on in any of your -- I'm thinking more of the 24 acute-care hospitals? What your thoughts are on the future of that?

Josh, we certainly share the view that over the long term the reimbursement, or payment landscape in acute care will change from a fee-for-service, the traditional fee-for-service reimbursement to some sort of fee-for-value reimbursement that will include things like bundle payments or accountable care organizations, and ultimately get to the end of the continuum, which is the capitation model and the sort of pure risk model that I think you are referencing. I think we believe that, that process is definitely an evolutionary process. It is one that will take multiple years.

Honestly, the vast majority of our reimbursement remains fee-for-service reimbursement. Although in some cases, like in Medicare, there are quality components and elements of that. But it still largely remains fee-for-service reimbursement.

What we are doing are a number of things, both in terms of our relationship with our physicians, and really trying to integrate with our physicians, particularly on the information technology side, to prepare for that move to kind of more of a risk-shifting environment with bundled payments and capitation, et cetera. We've talked I think at some length over the last few quarters about some of the initiatives surrounding the purchase in the middle of last year of a health insurance company in Nevada to better prepare us again for that risk-taking to allow us in certain selected markets and with certain selected products to go out there and have a provider-sponsored product in certain of our markets.

We are trying to move at just the right pace in our markets. Not trying to get ahead of the curve, but also absolutely ensuring that we are nowhere behind the curve in terms of these changes that we know are coming in certainly at least the acute-care space.

So, Steve, is that pace being driven more by the payers then and you're sort of reacting to or trying to accommodate those changes as opposed to this being a UHS-driven? I'm just trying to think, do you think ultimately this is good or bad?

I don't know that we would have a value judgment about it. I think what we would say is it is inevitable. I think that payers, and I think public policymakers have determined that the real -- ultimately the real way to control costs in the healthcare space is by a shift of risk from the consumer and the employer and the payer to -- excuse me, from the employer and the payer to the consumer and the provider.

So I think we are going there, and it is not necessarily, I think, on the surface a good or a bad thing. I think it's a good thing if you can react nimbly and flexibly to the changes, and I think we are prepared to do that. If you can be the one to have and put together a large network in our markets, and deliver high-quality, low-cost care, efficient care in the markets, then I think it will be a good thing. And I think we believe we are well-positioned to do that.

Okay, and shifting topics. One last one for me. Just on the behavioral health hospitals, just a thing about the M&A pipeline? We haven't seen a ton of activity. I'm thinking more domestically, so forgetting about the UK. Any updates on thoughts and maybe juxtaposing the commentary around lack of buybacks in the first quarter? How we should think about the psych hospital and M&A pipeline?

Look, I think that the behavioral business is characterized at the moment by a lot of strong results, certainly our results are reflective of the underlying strength in this business. So as a result, I think most of the larger -- and we are far and away the largest, but most of the largest larger consolidated providers are right now in growth mode as opposed to in a sale mode or in a divestiture mode. So we are competing for assets with a number of other providers. I do think that there still are a lot of other providers out there to be acquired.

Also, we have talked a number of times about the opportunity for the 50% of beds or so, or half of the days or admissions in the behavioral business that are currently serviced within acute-care hospitals, so that's behavioral beds within acute-care hospitals. Some of the growth for instance, of beds that I mentioned in my opening remarks are beds at acute-care hospitals, nonaffiliated acute-care hospitals that we have opened in connection with newly sort of formed partnerships with acute-care hospitals. We still think that is a significant opportunity in the future.

To be fair, those opportunities are relatively bite-size. We will get 30 beds at a time, or 50 or 70 beds at a time. We are not going to get thousands and thousands of beds at a single stroke, but the ultimate opportunity, I think, is enormous. And as far and away the largest provider of freestanding behavioral services in the country, I think we are very well-positioned to take advantage of that.

Perfect, thank you.

Your next question will come from the line of Darren Lehrich with Deutsche Bank.

Hi, Dana Nuntin in for Darren. Just a follow-up on an earlier question in the behavioral segment, particularly in the UK. Can you provide some more color on bed additions and development there? And how you might be working with NHS on getting approvals and finding opportunities to expand beds there?

I think the opportunity in the UK broadly is sort of a twofold opportunity. One is that the overall demand for private psychiatric beds is going to continue to grow as the national health service continues a trend towards outsourcing more of that business and deciding that they are going to spend their capital on investments other than behavioral investments. And I think leave a lot of the new incremental capital to be invested in the behavioral industry to the private sector.

At the same time, the market, much like it is here in the US, remains fragmented. And as a consequence, there are M&A opportunities and we are pursuing those. And also doing all of the same things we are doing in the US which I think you alluded to in your question. We are running, as I said, in response to a previous question at very high occupancy rates, so we are looking at adding beds to our existing facilities, just as we are here in the US. We're looking at building greenfield de novo projects and we will continue to do all those things.

Okay great, thank you.

Your next question will come from the line of Chris Rigg with Susquehanna Financial.

I wanted to keep going with the M&A theme here for another minute. I know you guys have talked about in the past the potential for an appetite for sort of larger nonprofit deals. I guess I would love to get your view. We are seeing very strong results from the publicly traded chains.

Are the results we're seeing you from you guys an illusion to what's going on amongst the sort of nonpublic guys? Or do you think the dynamic has changed materially because of the ACA? And that is a setback to sort of nearer-term, larger nonprofit deals? Thanks.

Chris, I'm not sure I'm the foremost expert on the subject. But I think if you look at the not-for-profit financial data that is out there in any sort of consolidated way, I think that probably the best data comes from the rating agencies. And I think that their data suggests that the not-for-profit results, financial results, have not improved at the same rate over the last year or year and a half as the for-profit results have. So I think you still find a number of not-for-profit acute hospitals that find themselves financially challenged in a variety of ways.

I think also, going back to Josh Raskin's question, I think a lot of not-for-profit hospitals look at the landscape of changing reimbursement and the challenges that presents, and the need to be in a large network and find that they may not be able to check all the boxes. And I think they are looking for either partners or they are looking for some sort of sale arrangement that allows them to be better positioned to move forward in the future.

So we are talking with a number of not-for-profits about those sorts of opportunities. I think those sorts of opportunities are going to be there in the next few years. It's difficult to predict how and at what rate they will develop. All we can do is respond to them as they develop. But we are certainly ready to do so and we certainly have the financial flexibility to do so.

Okay, great, I will leave it there. Thank you.

(Operator Instructions) We have a question in queue from the line of Ana Gupte with Leerink Partners.

Good morning, thank you for taking the question. Steve, I think you said a little bit about Las Vegas, and I apologize if I've missed any more color. But as you are looking at the various geographies, particularly in your acute-care business, Medicaid expanding states, non-Medicaid expanding states, and then Vegas, which is, as you said, the third year of economic recovery; Texas, which has had a recovery, but is going to a bit of a state of layoffs and so on. How is the payer-mix to the extent to your visibility deferring from one core market versus another?

I think the trends have been directionally the same over the last year and a half. And that is, we certainly have seen a decline in uninsured patients, and an increase in insured patients, mostly in Medicaid and commercial-exchange patients. The percentages, and the magnitude of that change differs a little bit from market to market.

It is a little challenging, as I suggested at the outset of the call, to discreetly identify to what degree those changes, those payer-mix changes are being driven by the ACA, and to what degree they are being driven by economic improvement or other factors. But I think our view is, as I said in an earlier response, that those trends, the ACA implementation will continue this year and probably for at least one more year.

I think the economic improvement will likely continue. There are individual market efforts which I think are also driving some of this improvement, and I think have been very successful. I think in our minds those results will be sustainable as well.

Do you have any real-time visibility into Texas just on recognizing your exposure to the oil-heavy economies is a bit more limited than your peers about working Americans in Texas that might want to use more care, do more surgeries or whatever, because they are fearful of layoffs? Is any of that visible at all in the first quarter?

I think it is worth noting that while we are in a number of markets in Texas, we are really not in any markets that are heavily dependent on the oil and gas industry. And I don't think we are, therefore, directly impacted by any of the softness in that sector of the economy. To be fair, while we continue to watch it closely, I do not think we are seeing any pressure on either volumes or payer-mix currently in our markets in Texas.

You know, frankly, I think one of our broader concerns is that if there really is a squeeze on the Texas economy, and it gets sort of felt and impacted at the state budget level, we are a big Medicaid provider in Texas, both in terms of traditional Medicaid reimbursement as well as some of the special programs like disproportionate share and UPL. That is the sort of thing that we keep a close eye on. But to be fair, we are not really seeing any impact from a softer Texas economy in all our markets, as of this moment.

Thanks. My final one. On the other OpEx that showed some deterioration, is that a transient spike and might get better?

A few of the items that I noted below, or excuse me, noted previously in terms of some of the cost pressures, things like temporary -- some of our temporary costs, et cetera, are recorded on that line. But I think for the most part, that line should remain as a percentage of revenue, at least fairly static.

Got it, thank you so much, Steve.

Your next question will come from the line of Gary Lieberman with Wells Fargo.

Good morning, thank you for taking my question. Two cash flow statement questions. In the release you said you had repurchased $5.6 million worth of shares and in the cash-flow statement it looks like $29 million.

Yes, so the difference, I think, is stock-based compensation, Gary, that's the reconciling item.

Okay. And there's an item for a sale leaseback of real property of about $12.5 million.

Yes, so we have two freestanding EDs in Texas that we sold to Universal Health Realty income trust and leased back in the quarter.

Okay. And then maybe just a final question on the behavioral business, the pricing looked particularly strong. Is that a domestic function? Is that being impacted by the UK business at all?

I think it probably is more impacted by the dynamic that I was talking about before, which is the continued shift of beds from residential to acute. So what I was talking about cosmetically, that will make our length of stay look lower, but it will also clearly drive up our revenue per day, and I think you are seeing that element in our strong pricing.

Okay, great. Thank you very much.

Your next question will come from the line of John Ransom with Raymond James.

Hi, good morning. This is just a nit, but your provider-tax programs, how much of that is Texas and how much of that are other states?

We have virtually no provider tax reimbursement in Texas. We do have that upper payment limit program, but it is not really a provider tax program. And I believe, John, that those upper-payment limit reimbursement amounts are all disclosed in our SEC filings.

But you also have provider-tax programs as well?

We do in some other states like California and other states. Again I think all those amounts are very sort of disclosed in a fair amount of detail in the SEC filings.

Okay, thank you.

There are no further questions at this time.

Okay, we thank everybody for their time and look forward to speaking with everyone again next quarter.

This does conclude today's conference call. You may now disconnect.