KING OF PRUSSIA, Pa., Oct. 30, 2012 /PRNewswire/ --

Consolidated Results of Operations, As Reported – Three and nine-month periods ended September 30, 2012 and 2011:
Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $71.8 million, or $.73 per diluted share, during the third quarter of 2012 as compared to $85.1 million, or $.86 per diluted share, during the comparable quarter of 2011.  Net revenues increased 1% to $1.68 billion during the third quarter of 2012 as compared to $1.66 billion during the third quarter of 2011. 

Reported net income attributable to UHS was $308.0 million, or $3.15 per diluted share, during the first nine months of 2012 as compared to $302.9 million, or $3.06 per diluted share, during the comparable period of 2011.  Net revenues increased 2% to $5.20 billion during the first nine months of 2012 as compared to $5.10 billion during the comparable period of 2011. 

Consolidated Results of Operations, As Adjusted – Three and nine-month periods ended September 30, 2012 and 2011:
For the three-month period ended September 30, 2012, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Consolidated Statements of Income Information ("Supplemental Schedule"), was $88.6 million, or $.91 per diluted share. There were no such adjustments required to our reported net income attributable to UHS for the third quarter of 2011.    

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2012, was an aggregate net unfavorable after-tax impact of $16.8 million, or $.18 per diluted share, consisting of: (i) an after-tax charge of $18.1 million ($29.2 million pre-tax), or $.19 per diluted share, resulting from the write-off of deferred financing costs related to the portion of our Term Loan B credit facility that was extinguished during the third quarter of 2012, and; (ii) a favorable after-tax impact of approximately $1.3 million, or $.01 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of electronic health records ("EHR") applications at our acute care hospitals (as discussed below in Accounting for HITECH Act incentive income and EHR expenses). 

For the nine-month period ended September 30, 2012, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, was $308.4 million, or $3.15 per diluted share. There were no such adjustments required to our reported net income attributable to UHS for the first nine months of 2011.    

As reflected on the Supplemental Schedule, included in our reported results during the first nine months of 2012 was a net aggregate favorable after-tax impact of approximately $400,000 consisting of the following:

• an unfavorable after-tax charge of approximately $3.6 million recorded in connection with the implementation of EHR applications as discussed below in Accounting for HITECH Act incentive income and EHR expenses;
• a favorable after-tax impact of $18.8 million resulting from an aggregate cash payment of approximately $36 million received by us in connection an agreement entered into with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services (referred to collectively as "HHS").  After reductions for estimated related expenses and the portion attributable to third-party non-controlling ownership interests, this agreement, which was part of an industry-wide settlement with HHS related to litigation that was pending for several years contending that acute care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system during a number of prior years, favorably impacted our pre-tax consolidated financial results by $30.2 million during the first quarter of 2012;
• a favorable after-tax impact of $4.3 million recorded during the first quarter of 2012 representing the 2011 portion of the net Medicaid supplemental reimbursements earned pursuant to the Oklahoma Supplemental Hospital Offset Payment Program ("SHOPP");
• an aggregate unfavorable after-tax impact of $5.1 million recorded during the first quarter of 2012 resulting from: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($2.4 million unfavorable after-tax impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($2.7 million unfavorable after-tax impact);
• a net favorable after-tax impact of $3.4 million consisting primarily of the 2011 portion of net Medicaid supplemental revenues recorded during the second quarter of 2012, and;
• an unfavorable after-tax charge of $18.1 million resulting from the above-mentioned write-off of deferred financing costs related to the portion of our Term Loan B credit facility that was extinguished during the third quarter of 2012.

Acute Care Services – Three and nine-month periods ended September 30, 2012 and 2011:
During the third quarter of 2012, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) decreased 1.7% and adjusted patient days decreased 1.0%, as compared to the third quarter of 2011. Net revenues at these facilities decreased 0.4% during the third quarter of 2012 as compared to the comparable quarter of the prior year. At these facilities, net revenue per adjusted admission increased 1.3% while net revenue per adjusted patient day increased 0.6% during the third quarter of 2012 as compared to the comparable quarter of the prior year. On a same facility basis, the operating margin at our acute care hospitals decreased to 13.4% during the third quarter of 2012 as compared to 14.8% during the third quarter of 2011. We define operating margin as net revenues less salaries, wages and benefits, other operating expenses and supplies expense (excluding the impact of the items mentioned above and excluding the EHR impact, as indicated on the Supplemental Schedule).

During the first nine months of 2012, at our acute care hospitals on a same facility basis, adjusted admissions decreased 0.3% and adjusted patient days increased 0.3%, as compared to the comparable nine-month period of 2011. Net revenues at these facilities decreased 0.5% during the first nine months of 2012 as compared to the comparable period of 2011.  At these facilities, net revenue per adjusted admission decreased 0.2% while net revenue per adjusted patient day decreased 0.7% during the first nine months of 2012, as compared to the comparable period of 2011. On a same facility basis, the operating margin at our acute care hospitals decreased to 16.2% during the first nine months of 2012, as compared to 17.8% during the comparable nine-month period of 2011.

We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. Our acute care hospitals provided charity care and uninsured discounts, based on charges at established rates, amounting to $259 million and $246 million during the three-month periods ended September 30, 2012 and 2011, respectively, and $840 million and $708 million during the nine-month periods ended September 30, 2012 and 2011, respectively.

Behavioral Health Care Services – Three and nine-month periods ended September 30, 2012 and 2011:
During the third quarter of 2012, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 2.6% while adjusted patient days increased 0.7%, as compared to the third quarter of 2011. Net revenues at these facilities increased 3.4% during the third quarter of 2012, as compared to the comparable quarter in 2011. At these facilities, net revenue per adjusted admission increased 0.7% while net revenue per adjusted patient day increased 2.6% during the third quarter of 2012 over the comparable quarter in 2011. The operating margin at our behavioral health care facilities owned during both periods increased to 27.8% during the third quarter of 2012, as compared to 26.5% during the third quarter of 2011. 

During the first nine months of 2012, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 5.0% while adjusted patient days increased 1.2%, as compared to the comparable period of 2011. Net revenues at these facilities increased 4.2% during the first nine months of 2012, as compared to the comparable period of 2011. At these facilities, net revenue per adjusted admission decreased 0.7% while net revenue per adjusted patient day increased 2.9% during the first nine months of 2012 over the comparable period of 2011. The operating margin at our behavioral health care facilities owned during both periods increased to 27.8% during the first nine months of 2012, as compared to 26.7% during the comparable period of 2011. 

Accounting for HITECH Act incentive income and EHR expenses:
The health information technology provisions of the American Recovery and Reinvestment Act (referred to as the "HITECH Act") established criteria related to the "meaningful use" of electronic health records ("EHR") for acute care hospitals and established requirements for the Medicare and Medicaid EHR payment incentive programs.    

During 2011, we began implementing EHR applications at certain of our acute care hospitals and will continue to do so, on a hospital-by-hospital basis, until completion which is scheduled to occur by the end of June, 2013. As of September 30, 2012, EHR applications have been implemented at eleven of our acute care hospitals, the majority of which occurred during the second and third quarters of 2012.  Our acute care hospitals will be eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, assuming they meet the "meaningful use" criteria.  Eight hospitals met the "meaningful use" criteria during the first nine months of 2012 and one additional hospital may qualify by the end of 2012.

As reflected on the Supplemental Schedule, our consolidated results of operations for the three-month period ended September 30, 2012 includes the favorable after-tax impact of approximately $1.3 million, or $.01 per diluted share, recorded in connection with the implementation of EHR applications. This favorable impact, which on a pre-tax basis amounted to $2.2 million, net of $1.1 million attributable to third-party, non-controlling ownership interests, consists of $10.6 million of EHR incentive income offset by $2.8 million of salaries, wages, benefits and other operating expenses and $4.5 million of depreciation and amortization expense.  The EHR incentive income recorded during the third quarter of 2012 consists of state Medicaid EHR incentive payments attributable to seven acute care hospitals that met the "meaningful use" criteria during the quarter. 

As reflected on the Supplemental Schedule, our consolidated results of operations for the nine-month period ended September 30, 2012 includes an after-tax charge of approximately $3.6 million, or $.04 per diluted share, recorded in connection with the implementation of EHR applications. This charge, which on a pre-tax basis amounted to $5.9 million, net of $800,000 attributable to third-party, non-controlling ownership interests, consists of $12.5 million of EHR incentive income offset by $11.1 million of salaries, wages, benefits and other operating expenses and $8.1 million of depreciation and amortization expense. 

Revised 2012 Full Year Guidance:
The operating trends and financial results experienced by our behavioral health facilities met our expectations during the first nine months of 2012.  However, against the backdrop of a continued sluggish economic recovery, the operating trends and financial results experienced by our acute care hospitals were below our expectations for the third quarter of 2012 and those trends are expected to continue during the fourth quarter of this year.  Based upon our consolidated financial results experienced during the first nine months of 2012, and most notably the results experienced by our acute care hospitals during the third quarter of 2012, our revised estimated range of adjusted net income attributable to UHS, for the year ended December 31, 2012 is $4.00 to $4.10 per diluted share. This revised guidance, which excludes the favorable EHR impact mentioned above and the impact of the other items reflected on the Supplemental Schedule for the nine months ended September 30, 2012, represents a decrease of approximately 6% from the previously provided range of $4.25 to $4.35 per diluted share.    

This guidance range also excludes the impact of future items, if applicable, that are nonrecurring or non-operational in nature including items such as, but not limited to, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits and other material amounts that may be reflected in our financial statements that relate to prior periods. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures.

The operating pressures that we continue to experience in many of our acute care markets has increased the volatility of the financial results of our acute care hospitals making estimation of future results more challenging.  However, we continue to actively and aggressively respond to these challenges through strategic initiatives and operational enhancements such as physician recruitment and integration and implementation of expense controls and other operating efficiencies.             

Conference call information:
We will hold a conference call for investors and analysts at 9:00 a.m. Eastern Time on October 31, 2012. The dial-in number is 1-877-648-7971. 

A live broadcast of the conference call will be available on our website at www.uhsinc.com.  A replay of the call will follow shortly after conclusion of the live call and will be available for one full year.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:
Universal Health Services, Inc. ("UHS") is one of the nation's largest hospital companies, operating acute care and behavioral health hospitals and ambulatory centers nationwide and in Puerto Rico and the U.S. Virgin Islands.  It acts as the advisor to Universal Health Realty Income Trust, a real estate investment trust (NYSE:UHT).  For additional information on the Company, visit our web site: http://www.uhsinc.com.

This press release contains forward-looking statements based on current management expectations.  Numerous factors, including those disclosed herein, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A-Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2011 and in Item 2-Forward-Looking Statements and Risk Factors in our Form 10-Q for the quarterly period ended June 30, 2012), may cause the results to differ materially from those anticipated in the forward-looking statements.  Many of the factors that will determine our future results are beyond our capability to control or predict.  These statements are subject to risks and uncertainties and therefore actual results may differ materially.  Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof.  We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

During the first quarter of 2012, we adopted the Financial Accounting Standards Board's Accounting Standards Update No. 2011-07, "Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities," which required health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). As a result, the provision for doubtful accounts for our acute care and behavioral health care facilities is reflected as a deduction for net revenues in the accompanying consolidated statements of income for the three and nine-month periods ended September 30, 2012 and 2011. The adoption of this standard had no impact on our financial position or results of operations.

As mentioned above, our acute care hospitals may qualify for EHR incentive payments upon implementation of an EHR application assuming they meet the "meaningful use" criteria. However, there can be no assurance that we (our acute care hospitals) will ultimately qualify for these incentive payments and, should we qualify, we are unable to quantify the amount of incentive payments we may receive since the amounts are dependent upon various factors including the implementation timing at each hospital. Should we qualify for incentive payments, there may be timing differences in the recognition of the incentive income and expenses recorded in connection with the implementation of the EHR application which may cause material period-to-period changes in our future results of operations. Hospitals that do not qualify as a meaningful user of EHR by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year. Although we believe that our acute care hospitals will be in compliance with the EHR standards by 2015, there can be no assurance that all of our facilities will be in compliance and therefore not subject to the penalty provision of the HITECH Act.

We believe that operating income, operating margin, adjusted net income attributable to UHS, adjusted net income attributable to UHS per diluted share and earnings before interest, taxes, depreciation and amortization ("EBITDA"), which are non-GAAP financial measures ("GAAP" is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. In addition, we believe that, when applicable, comparing and discussing our financial results based on these measures, as calculated, is helpful to our investors since it neutralizes the effect in each year of items that are nonrecurring or non-operational in nature including items such as, but not limited to, costs related to extinguishment of debt, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods.  To obtain a complete understanding of our financial performance these measures should be examined in connection with net income, determined in accordance with GAAP, as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2011 and Report on Form 10-Q for the quarterly period ended June 30, 2012. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability.  Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies.  Investors are encouraged to use GAAP measures when evaluating our financial performance.         

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