Universal Health Services Bets on Hospital Recovery as Medicaid Payments Fall in 2027

Key Points

• UHS expects hospital improvements to help offset 2027 payment declines: Three struggling facilities generated about $80 million to $100 million in losses through Q3, and the company expects to recover a meaningful portion in 2027. However, $175 million to $200 million in Medicaid supplemental payments received in 2026 will not recur.
• Volumes improved, but fewer exchange patients increased uncompensated care: Third-quarter adjusted admissions rose 4.9% and ER visits grew 4.6%, while the estimated 2026 impact from declining exchange enrollment increased to $85 million.
• UHS sees growth and cash for buybacks ahead: The Talkspace acquisition is expected to accelerate outpatient behavioral health growth after mid-2027, while lower capital spending could free up a couple of hundred million dollars in cash flow for share repurchases.

Universal Health Services NYSE: UHS expects improving performance at three struggling hospitals to help offset a significant decline in nonrecurring Medicaid supplemental payments in 2027, Chief Financial Officer Steve Filton said at an investor conference.

The hospital operator is also counting on its August acquisition of Talkspace to accelerate outpatient behavioral health growth and expects lower capital spending to support continued share repurchases.

Filton said volumes recovered as 2026 progressed after a soft first quarter, and the company was pleased with third-quarter volumes in both its acute care and behavioral health segments. The biggest unexpected challenge, he said, was underperformance at two newer hospitals and a San Antonio behavioral health facility that lost its Medicare certification.

Hospital Recovery and Medicaid Payments

The three facilities generated approximately $80 million to $100 million in losses through the third quarter, Filton said. He expects a meaningful portion of those losses to be recovered in 2027, though he did not provide a specific forecast.

Cedar Hill in Washington, D.C., and Alan B. Miller Medical Center in South Florida continue to improve, he said. At the Florida hospital, which opened in early summer, volumes have increased and losses have declined each month.

The San Antonio behavioral facility remains open with a small number of patients while it pursues recertification. Filton said the company hopes to regain certification sometime in 2027, but the timing remains uncertain. He said the facility generated approximately $25 million to $30 million in 2025.

Darren Lehrich, vice president of investor relations, said reaching break-even at the three hospitals would recover the $80 million to $100 million loss level, with potential for further growth beyond 2027.

Against that potential improvement, Filton identified $175 million to $200 million in out-of-period Directed Payment Program Medicaid supplemental payments received in 2026 that will not recur in 2027. A Florida program covering 2026 and 2027 could provide an offset, he said, but it has not been approved and the company has not recognized payments from it.

Filton also expects an approximately $15 million exchange-related headwind in 2027 based on the pace of the 2026 decline. He said the company will assess any additional impact when it issues guidance at the end of February, after reviewing more enrollment data.

Volumes and Insurance Mix

Third-quarter adjusted admissions rose 4.9%, while emergency room visits increased 4.6%. Filton said strong emergency visits, supported in part by the company’s 37 freestanding emergency departments, were a major contributor to admissions growth. The opening of 177 acute care beds across three facilities in the second quarter also helped, he said.

Filton attributed softer surgical volumes primarily to a continuing shift of certain procedures from hospitals to alternative settings, including surgery centers and physician offices. He said the company’s exchange patients tend to use emergency services rather than elective procedures, so it does not believe their decline was the main driver of surgical softness.

The decline in exchange patients translated almost one-for-one into higher uncompensated or uninsured volumes, Filton said. That differed from the company’s expectation that some patients would obtain other commercial coverage. UHS increased its estimated 2026 impact from the exchange decline to $85 million from $75 million after the second quarter.

Behavioral Health and Capital Deployment

In behavioral health, Filton said staffing growth has become more closely aligned with patient volume after investments in recruitment and retention. Outpatient visits rose 3% in the third quarter, Lehrich said.

Filton expects Talkspace to be modestly accretive through the middle of 2027 and to help accelerate outpatient growth thereafter. He said virtual services could improve access to follow-up care for discharged behavioral health patients who live far from a facility or need more flexible appointment times.

Filton said share repurchases would at least continue at their current pace. Capital spending is expected to decline measurably beginning in 2027 as major new hospital projects are completed, potentially freeing a couple of hundred million dollars in additional cash flow that would likely go toward buybacks. The company could choose to accelerate repurchases further, he said.

About Universal Health Services (NYSE:UHS)

Universal Health Services, Inc. NYSE: UHS is a healthcare company that owns and operates hospitals and other healthcare facilities. Its services span acute care, behavioral healthcare and outpatient treatment. The company's facilities provide services such as inpatient and outpatient medical care, emergency services, psychiatric treatment, substance-use-disorder care and rehabilitation. UHS serves communities across the United States and also has operations in the United Kingdom and Puerto Rico.

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