Universal Health Services, Inc. 2021 Form 10-K Summary
Business context and reporting period
UHS owns and operates acute-care hospitals, outpatient facilities, behavioral health facilities and related businesses across the United States, the United Kingdom and Puerto Rico. As of February 24, 2022, it operated 363 inpatient facilities and 40 outpatient and other facilities. The filing covers the fiscal year ended December 31, 2021, with comparisons primarily to fiscal 2020. It does not provide a complete standalone fourth-quarter income statement; fourth-quarter information is disclosed only for selected items.
Acute care, outpatient and commercial health-insurance activities represented 56% of consolidated net revenue in 2021, while behavioral health activities and commercial health insurance represented 44%. The U.K. behavioral health business generated approximately $688 million of revenue in 2021.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenue | $12.642 billion | $11.559 billion | +9.4% |
| Income from operations | $1.363 billion | $1.358 billion | +0.3% |
| Operating margin | 10.8% | 11.8% | Down 1.0 percentage point |
| Income before income taxes | $1.293 billion | $1.252 billion | +3.3% |
| Net income attributable to UHS | $992 million | $944 million | +5.0% |
| Diluted EPS | $11.82 | $10.99 | +7.6% |
| Net cash from operating activities | $884 million | $2.360 billion | Down $1.476 billion |
| Capital expenditures | $856 million | $731 million | +17.0% |
| Total debt, net of financing costs | $4.190 billion | $3.856 billion | +8.7% |
| Cash and cash equivalents | $115 million | $1.224 billion | Down $1.109 billion |
Net income margin attributable to UHS was approximately 7.8% in 2021 versus 8.2% in 2020. The effective tax rate decreased to 23.6% from 23.9%. Accounts receivable were $1.747 billion, and days sales outstanding improved to 50 days from 55 days.
Acute-care same-facility revenue increased 11.6% to $6.964 billion, while same-facility income before taxes increased 6.0% to $737 million. Acute-care admissions increased 6.4%, patient days increased 7.3%, and available-bed occupancy increased to 67% from 63%. Behavioral-health same-facility revenue increased 5.4% to $5.395 billion, while same-facility income before taxes increased 1.0% to $1.055 billion. Behavioral-health occupancy was approximately 71% in both years.
Material changes versus the prior comparable period
- Revenue growth reflected a $1.00 billion increase from same-facility acute-care and behavioral-health operations, plus approximately $80 million of other net increases.
- 2020 revenue included approximately $413 million of CARES Act and other governmental grant revenue. Excluding that amount, 2021 revenue growth and segment profitability were substantially stronger than the reported year-over-year comparisons.
- UHS recorded approximately $20 million of COVID-related governmental reimbursements in 2021, compared with approximately $413 million of grant revenue in 2020. It returned approximately $189 million of additional CARES Act funds during 2021 and fully repaid $695 million of Medicare accelerated payments.
- Operating cash flow declined primarily because of the $695 million repayment, the remittance of deferred payroll taxes and the absence of the significant government-related cash inflows received in 2020.
- Interest expense declined to $84 million from $106 million, primarily because the average cost of borrowings declined to approximately 2.1% from 2.8%.
- Labor and other operating costs increased faster than revenue, contributing to the consolidated operating-margin decline. UHS recorded a $52 million pre-tax increase in self-insured professional and general liability reserves, compared with $25 million in 2020.
- UHS resumed share repurchases in 2021 and repurchased approximately 8.41 million shares for $1.201 billion. It also resumed quarterly dividends of $0.20 per share, paying $0.80 per share for the year.
- UHS issued $700 million of 1.65% senior secured notes due 2026 and $500 million of 2.65% senior secured notes due 2032, redeemed $400 million of 5.00% notes, refinanced its credit facilities and terminated its tranche B term loan.
Liquidity, debt and capital resources
At December 31, 2021, UHS had $4.2 billion of debt at carrying and fair value, equal to approximately 41% of total capitalization. The company had $343 million outstanding under its revolving credit facility and approximately $854 million of available capacity, net of letters of credit. The $1.689 billion tranche A term loan matures in 2026, and senior secured notes totaled approximately $2.0 billion.
UHS reported compliance with its debt covenants and stated that operating cash flows, cash, available commitments and capital-market access should provide sufficient resources for the next twelve months. Contractual cash obligations totaled approximately $5.962 billion, including $4.190 billion of debt, $643 million of estimated future debt interest and $448 million of operating leases.
Management expects 2022 capital expenditures of approximately $950 million to $1.1 billion, funded through internally generated cash and additional financing if needed. A new 170-bed Northern Nevada Sierra Medical Center in Reno was expected to open in spring 2022.
Guidance, outlook, commentary and risks
- Management expects COVID-19 developments, including Delta and Omicron variants, staffing shortages, wage inflation, supply constraints and changes in patient volumes, to materially affect 2022 financial performance, but does not quantify the expected effect.
- UHS expects an aggregate net benefit of approximately $391 million in 2022 from various state Medicaid supplemental-payment programs, compared with $430 million in 2021. This estimate depends on governmental approvals, funding transfers and program terms outside UHS’s control.
- Medicaid supplemental payments remain important: 2021 provider-tax programs generated $641 million of revenue, offset by $211 million of provider taxes, for a $430 million net benefit. Texas DSRIP funding was eliminated for federal fiscal 2022, subject to limited carryover projects.
- The company faces reimbursement risk from Medicare, Medicaid and commercial payers, including future Medicaid DSH reductions, utilization controls, claim denials, price transparency rules and the No Surprises Act.
- Staffing shortages required higher-cost temporary labor and premium wages and could force facilities to limit services if adequate staffing cannot be maintained.
- UHS recorded a $14 million pre-tax impairment charge for discontinued components of a clinical and financial information-technology application. It also benefited from approximately $43 million to $45 million related to cyber-insurance proceeds and collection of revenue reserved after the 2020 cyberattack.
- Professional and general liability reserves increased to $349 million at year-end 2021 from $264 million. Total self-insured general/professional liability and workers’ compensation reserves were approximately $464 million.
- UHS carries approximately $4.0 billion of goodwill, creating potential impairment exposure if operating performance or market conditions deteriorate.
- Pending and potential litigation, governmental audits, False Claims Act matters, Medicaid payment disputes, medical-malpractice claims and regulatory investigations could result in repayment obligations, penalties or additional reserve requirements. The filing states that potential losses in excess of recorded amounts generally cannot be estimated.
- The company remains exposed to cybersecurity incidents, natural disasters, climate-related losses, foreign exchange movements, LIBOR transition risk and concentrated operations in Texas, Nevada and California.
Most important facts for investors to verify
- Reconcile reported 2021 growth with the approximately $413 million of unusual government grant revenue included in 2020.
- Assess whether acute-care volume recovery and behavioral-health pricing can offset labor inflation, temporary staffing costs and lower operating margins.
- Verify cash generation after the repayment of Medicare accelerated payments and the planned $950 million to $1.1 billion of 2022 capital expenditures.
- Review debt maturities, floating-rate exposure, refinancing needs and the $854 million of unused revolver capacity.
- Monitor renewals, approvals and audit outcomes for Medicaid supplemental, DSH, UC/UPL and other state payment programs.
- Evaluate the adequacy of professional-liability reserves and the status of pending legal, regulatory and Medicaid repayment matters.
- Confirm the financial impact of the 2020 cyberattack, including any additional insurance proceeds, and assess ongoing cybersecurity controls.
- Review the related-party asset exchange and lease arrangements with Universal Health Realty Income Trust, including the $82.4 million financing liability and future rent obligations.