Universal Health Services, Inc. — 2020 Form 10-K Summary
Business context and reporting period
UHS owns and operates acute care hospitals, outpatient facilities and behavioral health facilities in the United States, United Kingdom, Puerto Rico and Washington, D.C. As of February 25, 2021, it operated 360 inpatient facilities and 39 outpatient or other facilities. The filing covers the fiscal year ended December 31, 2020; fourth-quarter results are included in the annual disclosures.
Acute care, outpatient and commercial health-insurer activities represented 55% of 2020 consolidated net revenues, while behavioral health and commercial health-insurer activities represented 45%. COVID-19 materially affected patient volumes, staffing costs, operations and financial results.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net revenues | $11.559 billion | $11.378 billion | +1.6% |
| Income from operations | $1.358 billion | $1.216 billion | +11.7% |
| Income before income taxes | $1.252 billion | $1.066 billion | +17.4% |
| Net income attributable to UHS | $943.953 million | $814.854 million | +15.8% |
| Net margin | 8.2% | 7.2% | +1.0 percentage point |
| Diluted EPS | $10.99 | $9.13 | +20.4% |
| Cash from operating activities | $2.360 billion | $1.438 billion | +$922 million |
| Capital expenditures, net | $731 million | $634 million | +$97 million |
| Interest expense, net | $106 million | $163 million | -$56 million |
At December 31, 2020, cash and cash equivalents were $1.224 billion, accounts receivable were $1.729 billion and total assets were $13.477 billion. Debt after financing costs was $3.856 billion, including $332 million classified as current, compared with $3.984 billion at year-end 2019. Debt represented approximately 38% of total capitalization, down from 42%.
UHS had $997 million of available capacity under its $1 billion revolving credit facility, net of letters of credit, and $225 million of available capacity under its accounts receivable securitization program. Management stated that available liquidity, operating cash flow and capital-market access should fund the next twelve months, including repayment or refinancing of the securitization program maturing in April 2021.
Material changes versus the prior comparable period
- Reported revenue growth included approximately $413 million of CARES Act and other governmental grant revenue, with approximately $309 million of favorable impact on net income attributable to UHS.
- Acute care same-facility revenue increased 3.0% including grants, but income before taxes declined 3.0%. Excluding approximately $316 million of acute-care grant revenue, same-facility revenue declined 2.2% and income before taxes declined 47%.
- Acute care admissions decreased 9.9%, adjusted admissions decreased 15.2%, and available-bed occupancy fell to 63% from 64%. Average length of stay increased to 5.1 days from 4.6 days.
- Behavioral-health same-facility revenue increased 0.6% including grants, while admissions declined 7.5%, adjusted admissions declined 8.0% and occupancy declined to 71% from 76%. Excluding approximately $97 million of grant revenue, behavioral-health same-facility revenue declined 1.3% and income before taxes declined 7%.
- Interest expense declined because average borrowings and borrowing costs fell. Average borrowings under principal debt facilities declined to approximately $3.7 billion from $4.0 billion, while the average cost declined to 2.8% from 4.0%.
- UHS issued $800 million of 2.65% senior secured notes due 2030 and redeemed its $700 million of 4.75% notes due 2022. It also repaid $175 million under the receivables securitization program.
- Operating cash flow benefited from $695 million of Medicare accelerated payments and $176 million from deferral of the employer’s share of Social Security taxes. These benefits are not fully representative of recurring cash generation.
- The company repurchased $196.6 million of stock under its repurchase program before suspending repurchases in April 2020. The program had $559.6 million remaining authorization at year-end.
Guidance, outlook, unusual items and risks
- UHS expects 2021 capital expenditures of approximately $850 million to $1.0 billion.
- Management estimated a 2021 net benefit of approximately $262 million from state Medicaid supplemental-payment programs, subject to state and federal approvals, hospital-district transfers and other conditions.
- The $695 million of Medicare accelerated payments must be repaid through future Medicare-revenue withholdings. UHS stated that it expected early repayment in March or April 2021.
- Additional CARES Act grants of $187 million were received in January 2021 and had no impact on 2020 results. Grant amounts may require adjustment or repayment if eligible expenses and losses, reporting requirements or other conditions are not satisfied.
- A September 2020 cyberattack temporarily disrupted U.S. information-technology systems. UHS estimated an unfavorable pre-tax impact of approximately $67 million in 2020, including lost patient activity, delayed billing and incremental labor and professional costs. The company believes commercial insurance may recover most of the ultimate impact, but provided no assurance regarding timing or amount.
- Self-insured professional and general liability reserves increased by $25 million and workers’ compensation reserves increased by $20 million during 2020. Total professional and general liability reserves were $264 million and workers’ compensation reserves were $105 million at year-end.
- UHS remains exposed to COVID-19 waves, labor shortages and wage inflation, reduced elective and behavioral-health volumes, payer denials, reimbursement changes, uninsured-patient collection risk, regulatory enforcement, Medicaid supplemental-payment changes, litigation, cyber threats and potential goodwill impairment. Goodwill totaled approximately $3.883 billion at year-end; no 2020 goodwill impairment was recorded.
- The company settled a Department of Justice investigation in July 2020 and entered into a corporate integrity agreement. The filing also describes pending shareholder, derivative, university-partnership and Medicaid DSH matters; potential losses beyond recorded amounts generally could not be estimated.
- Effective January 1, 2021, Marc D. Miller became CEO and President, while founder Alan B. Miller became Executive Chairman.
Most important facts for investors to verify
- Reconcile reported 2020 earnings and operating cash flow for the nonrecurring or potentially nonrecurring effects of Provider Relief Fund grants, Medicare accelerated payments and payroll-tax deferrals.
- Monitor the timing and liquidity impact of repayment of the $695 million Medicare accelerated-payment balance and refinancing or repayment of the April 2021 receivables securitization maturity.
- Assess whether acute-care and behavioral-health admissions, occupancy and margins recover after COVID-19 disruptions, particularly without grant support.
- Review cybersecurity insurance recoveries and any continuing operational, litigation, regulatory or data-security consequences of the September 2020 incident.
- Evaluate sustainability of Medicaid supplemental payments, including Texas, California and Nevada programs, and the future reduction or restructuring of DSH and DSRIP funding.
- Review the adequacy of professional liability, workers’ compensation, Medicaid DSH and other litigation reserves, including matters for which the filing states that excess exposure cannot be estimated.
- Track labor availability and compensation costs, payer reimbursement and denials, uncompensated care, goodwill impairment indicators and compliance with debt covenants.