Universal Health Services, Inc. (UHS) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Q3 2026 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Darren Lehrich, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Universal Health Services Third Quarter 2026 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will offer some remarks about the quarter, and then we'll open up to Q&A. During today's conference call, we 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. We recommend the 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, 2025, and in our Form 10-Q for the quarter ended June 30, 2026. In addition, we may reference measures during today's call, such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in yesterday's press release and under our supplemental materials on our website. With that, let me now turn it over to Marc for some introductory remarks.

Thank you, Darren. Good morning, and thank you for joining today's call. I will begin with our key takeaways from the quarter, performance relative to our expectations, the principal operating drivers and progress on our strategic priorities. Before Steve reviews the detailed financial results and our outlook. Overall, underlying performance in the third quarter reflected sequential improvement in several areas. Acute care demand remained favorable. Behavioral health volumes demonstrated an increase relative to recent quarters and labor trends continue to moderate. Expense management remained disciplined overall. Health insurance exchange trends were consistent with our expectations. Steve will provide the reported financial results and segment metrics in his remarks. Third quarter results included certain items that were not reflected in the outlook we provided with our second quarter results in July. These items included the benefit from the expansion of existing Medicaid supplemental programs in several states, partially offset by other nonrecurring litigation and transaction costs, which Steve will take you through in a moment. Against that backdrop, I want to highlight 3 operating and strategic priorities: expanding acute care capacity and outpatient access points, integrating Talkspace, and advancing the recertification process at Laurel Ridge Treatment Center in Texas. First, our recent investments in acute care inpatient capacity helped us meet favorable demand in our markets the additional 177 beds added during the second quarter are expected to continue ramping through year-end. We also expanded our outpatient portfolio by opening one freestanding emergency department in the third quarter and another FED that recently opened during the fourth quarter. In addition, our ambulatory development pipeline is expected to add several outpatient access points over the coming quarters. The key takeaway is that these investments are performing well, broadening access and supporting growth. We expect their contribution to build over time as the new capacity matures. Second, in behavioral health, we completed the Talkspace acquisition on August 17 and began executing the integration plan. We intend to discuss anticipated synergies in greater detail when we provide 2027 guidance in February. For the balance of 2026, we are taking a phased approach centered on 3 integration work streams. The first, deploying a technology platform and tools that enable smoother transitions of care and greater continuity of outpatient care for UHS patients. Number two, establishing referral flow processes to Talkspace from UHS behavioral health and acute care facilities for both individual therapy and medication management services. And three, developing more flexible market-based outpatient offerings, initially emphasizing a virtual intensive outpatient program, or IOP, offering designed to address strong demand in this area. We expect these initiatives to support the acquisition's long-term benefits over the next 12 to 24 months. Our priorities are to expand access to outpatient mental health services and strengthen our outpatient growth profile. The key takeaway is that our integration is underway, and the expected benefits will develop in phases as technology, new referral pathways and service offerings are enhanced through our integration efforts. And we'll provide further updates as the integration progresses and the rollout expands across our operations. Third, at Laurel Ridge, our San Antonio team continues to work productively with regulatory authorities and the local community towards recertification, which we currently expect during 2027. The facility's third quarter financial impact was consistent with the assumptions in our updated July outlook. In closing, I want to thank the UHS team for its continued dedication to our mission to provide quality care. Our strategy remains consistent, invest in attractive markets, expand access to care, operate efficiently and create long-term value for patients, employees and shareholders. We remain mindful of execution requirements and the ever-evolving operating environment, and we believe the strength of our portfolio, the experience of our management team and underlying demand in our markets continue to position us well over the long term. With that, I will turn the call over to Steve for additional detail on the quarter.

Thanks, Marc. I will organize my remarks in 4 parts. Reported results in unusual items, segment performance, cash flow and capital allocation and our 2026 outlook. Starting with reported results, the company reported adjusted EPS of $5.22 for the third quarter of 2026, representing a decline of 8% year-over-year. Third quarter adjusted EBITDA less NCI was $625 million as compared to $671 million in the third quarter of 2025. The net out-of-period DPP headwind in the quarter was $37 million when considering amounts recognized for the Washington D.C. program approved in the third quarter of 2025, netted against out-of-period amounts recognized in this year's third quarter. To distinguish reported results from underlying performance in the third quarter of 2026, 3 specific items not contemplated in our annual adjusted EBITDA less NCI guidance provided in July produced a net favorable impact of $12 million. These items were $47 million of supplemental Medicaid benefit, not included in our July forecast, $26 million of additional professional and general liability reserves primarily associated with the tentative settlement of a litigation matter related to our Cumberland facility in Virginia and $8.5 million of transaction-related costs associated with the Talkspace acquisition. Excluding these items, adjusted EBITDA less NCI was below our internal expectations despite modest sequential improvement. The shortfall primarily reflected a slower-than-expected ramp-up at our de novo hospitals and softer-than-expected surgical trends. Turning to segment performance. On a same-facility basis, adjusted admissions in our acute care hospitals increased 4.9% compared with the third quarter of 2025. Volume performance was broad-based geographically and also benefited from capacity additions at 3 hospitals during the second quarter of 2026. Same-facility acute care emergency department visits increased 4.6%, while same-facility surgeries decreased 0.7% compared with the third quarter of 2025. Inpatient and outpatient surgical cases declined at similar levels in the quarter. Inpatient medical admissions significantly outpaced surgical admissions, which negatively skewed pricing trends in the quarter. By service line, we experienced strength in cardiology, neurology and urology similar to recent quarters. By payer class, adjusted admissions growth for Medicare and Managed Medicare was above the acute care segment average. Volume growth for Medicaid, managed Medicaid and managed care, excluding exchanges, was positive in the quarter, although below the segment average. On a same-facility basis, net revenue in our acute care segment during the third quarter of 2026, increased 4.7%. Excluding the impact of our health plan, same-facility acute care net revenue increased 3.1%. Acute care same-facility revenue per adjusted admission decreased by 1.7% during the third quarter of 2026 on a reported basis and was slightly positive when excluding the net headwind from out-of-period Medicaid supplemental benefits and the shift in exchange to uninsured volumes. We estimate underlying acute care rate growth was approximately 3% and consistent with recent quarters, after adjusting for these factors and normalizing for the higher inpatient medical versus surgical mix. Operating expenses continued to be well managed across labor, supply and other expense categories. Same-facility acute care salaries, wages and benefits expense per adjusted admission increased 2.1% and supply expense for adjusted admission decreased 2.3% over last year third quarter. Other operating expenses increased primarily due to our health plan, which experienced revenue growth of approximately 25% in the third quarter. Same-facility acute care segment EBITDA declined 4.5% in the third quarter of 2026. Excluding the out-of-period supplemental program benefit from both periods, third quarter same-facility Acute Care segment EBITDA increased 2.9%. In our acute care segment, the net out-of-period headwind related to supplemental payments was $29 million comprised of $26 million in the third quarter of 2026 from expanded funding under existing programs, primarily in Washington, D.C. and California compared with $55 million of out-of-period amounts in the third quarter of 2025 related to the Washington D.C. program approved last year. For the third quarter of 2026, we estimate that health insurance exchange trends had an impact of slightly less than $25 million which was consistent with the updated outlook provided in July. Exchange volumes declined 17% from the third quarter of 2025, accompanied by a similar increase in the number of self-pay volumes. At Palm Beach Gardens, our acute care de novo hospital remains in the early stages of ramping volumes across multiple service lines. Start-up losses improved each month during the third quarter. While the ramp at this facility remains gradual, the progression supports our expectation for continued improvement as we enter Florida seasonally busier winter period. In Washington, D.C., Cedar Hill Regional Medical Center operating losses were similar on a sequential basis, excluding supplemental payments. We continue to support the build-out of primary care and specialty physician practices in the community around the hospital and in our MOB. Because these practices remain at varying stages of developing their patient bases within the community, we now expect the hospital to reach operational breakeven in the first half of 2027 compared with our prior expectations of the fourth quarter of 2026. Taken together, Palm Beach Gardens and Cedar Hill are progressing but their pace of maturation remains an important factor in the timing of margin improvement for the Acute Care segment. Turning to behavioral health. Third quarter same-facility net revenue increased 4.0% supported by a 2.1% increase in same facility revenue per adjusted patient day and a 2.1% increase in same-facility adjusted patient days. Volumes improved modestly compared with recent quarters, reflecting steady demand and greater emphasis on the continuum of outpatient levels of care. Included in our total behavioral health segment results are Talkspace and an acquisition we completed in our U.K. operations in July, offset by start-up losses associated with 2 de novo projects and ongoing operating losses at Laurel Ridge while we work towards recertification. Given the mid-quarter closing, Talkspace's contribution to third quarter earnings was immaterial. In our behavioral health segment, the net out-of-period headwind related to supplemental payments was approximately $8 million in the third quarter of 2026, due primarily to the new Washington D.C. program benefit in the third quarter of 2025. For the third quarter of 2026, behavioral health segment, same-facility salaries, wages and benefits per adjusted patient day increased 3.6% over the prior year, improving further on a sequential basis due to continued moderation in head count growth. Turning to cash flow and capital allocation. Third quarter cash generated from operating activities was $637 million compared with $381 million during the same period last year. During the third quarter of 2026, we spent $214 million on capital expenditures, and we anticipate capital expenditures to be slightly below $1 billion for the full year of 2026. The as several large acute care de novo and expansion projects are now completed, we expect capital expenditures to moderate towards $800 million beyond 2026. During the third quarter of 2026, we acquired $1.35 million of our own shares at a total cost of $242 million, bringing year-to-date share repurchases to a total of $690 million. As of September 30, 2026, we had $735 million repurchase authorization available pursuant to our stock buyback program, and we expect to remain active with share repurchase for the foreseeable future. From a balance sheet perspective, we ended the quarter with cash of $169 million, total debt of $5.7 billion, an average of 2.17x. Total debt reflects the August refinancing of our September 2026 debt maturity and incremental borrowings associated with the Talkspace acquisition. As of September 30, 2026, we had approximately $1.2 billion of additional borrowing capacity available pursuant to our revolving credit facility. We remain committed to maintaining leverage within our target range of 2 to 3x. Finally, turning to our 2026 outlook. We are reiterating the financial and operating forecast ranges issued with our second quarter results in July. Based on year-to-date trends through the third quarter and the ongoing ramp of our acute care hospitals in Washington, D.C. and Palm Beach Gardens, Florida, we currently expect results to be towards the lower end of these ranges. The reiterated ranges reflect continued underlying operating improvement balanced against the pace of de novo facility ramp-ups and the other near-term variables discussed today. Operator, that concludes our prepared remarks and we'd be pleased to answer questions at this time.

[Operator Instructions] Our first question comes from the line of A.J. Rice of UBS.

Just -- I know it's early and to be talking about '27, but some of the companies are. So I'll ask it a view. At least how do you think about puts and takes for next year? I guess, specifically, I'm going to ask you on EPP headwinds, supplemental payment headwinds next year given some out-of-period recognition this year. and early thoughts on incremental public exchange headwind, if any.

Yes. So I would just remind everybody, A.J., that consistent with prior years, we plan to issue our full comprehensive 2027 guidance in February when we report our fourth quarter results. We feel good about the core elements of our 2026 growth algorithm guidance in both segments, which we went through last quarter. Outside of that, we can point to a few items, a couple of which you mentioned, in terms of material headwinds and tailwinds as we begin to think about 2027. The biggest swing factors, I think, in 2027, relate to improvements at facilities that are incurring operating losses during 2026, particularly the Laurel Ridge San Antonio facility that we talked about and the 2 acute care de novos that we mentioned in our prepared remarks. Cumulatively, these facilities are expected to contribute operating losses of $80 million to $100 million in 2026, and we believe there is potential to recover at least a meaningful portion of those losses in 2027 as we anticipate making further operational progress at the de novo facilities over the next several quarters and regaining certification at the San Antonio facility. As it relates to San Antonio, I would just note, we're making progress towards recertification and remain confident that we'll achieve that in 2027, giving us a path to rebuild census in a dilert manner. On the headwind side, and I think you mentioned a couple of these things, the biggest swing factors relate to regulatory changes that continue to play out in the operating environment, particularly the impact from the exchanges the potential impact of Medicaid work requirements and the initial impact of reduction to Medicaid supplemental funding. We also had a material amount of prior year DPP benefit in calendar year '26 that will not repeat in 2027. As it relates to Medicaid supplemental payments, we estimate the 2027 headwind will be approximately $175 million to $200 million. This primarily includes prior year amounts that we recorded in '26 for DPP programs in Florida, Nevada, io, California and Washington, D.C. as well as approximately $10 million of impact during the fourth quarter 2027 from the initial provider tax portion of the OB3 funding cuts. As it relates to the exchanges, annualizing the second half 2026 run rate would create a $15 million headwind in 2027. Further changes in exchange enrollment could increase that number and we'll have greater insight into that following the open enrollment period. As it relates to Medicaid work requirements, it's difficult to provide an estimate on the potential impact because the implementation timing may lag up to 6 months in certain states. More importantly, the state specific regulatory guidance related to the medical frailty exceptions remains a key open item. Our baseline assumption is that the impact of Medicaid work requirements will be primarily concentrated in Medicaid expansion states and that a vast majority of behavioral health patients and a meaningful portion of our acute care patients could be exempt from work requirements because their diagnoses meet the medical frailty exemption. As investors develop estimates on work requirements, it's worth noting from a volume perspective, Medicaid volumes and expansion states represented approximately 15% of our total acute care segment adjusted admissions and 30% of total behavioral health segment patient days. Broadly, I think as most investors know, Medicaid revenue per unit of volume is lower than other payers. So as you do those calculations, you should keep those in mind.

That's very helpful. Maybe just a follow-up. You've had very strong volumes. Obviously, it's been a shift. It looks like to medical from surgical. I wondered if you could drill down just and talk a little bit about service lines, what's been strong on the medical side? And are you attributing the softness in surgery mainly to public exchange disenrollment or economy or something else?

Yes. I think from our perspective, A.J., the trend towards a slightly weaker surgical mix is an acceleration of existing trends that we've seen for some time. And that is the continued shift of procedures, both in and outpatient procedures out of the hospital in and outpatient services and into alternative settings, whether they are ASCs or physician offices, and you really see this in particular in certain service lines. So GI, as an example, and we've seen just an accelerated shift of procedures within an outpatient into alternative settings and out of the hospital. A number of orthopedic procedures as well. We mentioned in our prepared remarks some of the service lines that have been performing fairly robustly, that those included cardiology, neurology and urology. But yes, I think, again, in our minds, what we're just seeing is this accelerated shift of procedures into these alternative settings.

Our next question comes from the line of Ann Hynes of Mizuho.

Just the 2 acute facilities that are not ramping as you thought? What's driving that slower ramp? Is there anything structural or challenges that you face. I've been covering the company for a long time, and I don't remember a time where like the new acute care hospitals are ramping below expectations. So if you can just go into each market, and what's driving the loss versus your expectations? That would be great.

Yes. So I'll address Cedar Hill first. Cedar Hill in Washington, D.C. opened in April of 2025. And I think as we've been commenting consistently since that opening, it opened with a busy emergency room activity and emergency room activity has remained busy since its opening. But what has lagged has been a busier surgical and procedural schedule. And I think the reason for that primarily is a lack of physician infrastructure in that part of the Washington, D.C. market for years, and this is for those of you who are familiar with Washington, D.C. and Ward 7 and 8, there was really a lack of quality health care and nations were leaving Ward 7, 8 to get their health care elsewhere in the city. And as a consequence, doctors really were not locating in Ward 7 and 8, doctor offices were not. And as we indicated in our prepared remarks, we've addressed that by working with a number of different physicians and physician groups to establish practices in Ward 7 and 8 -- within Ward 78 in the MOB adjacent to our hospital, et cetera. But those practices are relocating and they're developing, but they're in different stages of development. And that takes some time. And I think that's been the major issue in terms of the timing of the development of Cedar Hill. Structurally, I think we believe that all the things that we thought about what would make this hospital successful are still there and will do so just taking somewhat longer. The other nuance comment that I'll make, and I think I made it last quarter as well as it relates to Cedar Hill is that the arrangement we had with the district in entering the Cedar Hill partnership with the district was that they would build and essentially finance the construction of Cedar Hill. So the absolute amounts of earnings, the absolute margins that we're going to have to achieve at Cedar Hill to get to our sort of target rates of return will be less than in those hospitals where we built and invested the hundreds of millions of dollars to build the hospital. As far as the facility in Palm Beach Gardens goes, I think that, honestly, one of the biggest challenges we had at its opening was that we opened in the beginning of the summer which is a difficult time to open, as you might imagine, in South Florida. It was not our original intent. We had originally planned to open earlier and take advantage of the busy season in Florida, but construction delays sort of made that impossible. So I think by opening in the summertime, we got off to a bit of a slower start, but expect the facility. And I think, again, in our prepared comments, we indicated the facility's getting better. Volumes are increasing every month. and we expect that to accelerate as the busy season sort of ramps up in Florida over the next several months. I'll reiterate the same comment. No structurally, I think everything believed about the potential success of that hospital is still consistent with our original views, just taking a little bit longer to ramp up than we originally anticipated.

Our next question comes from the line of Justin Lake of Wolfe Research.

Just a couple of numbers questions here. Steve, maybe you can break down the $80 million to $100 million of losses between those 3 facilities. And Laurel Ridge in particular, what were the operating profits there when it was open, so we can get what it could recover to? And maybe Marc can give any time line he thinks within 2027 when you're thinking that might that might come back online?

Yes. I mean we're confident that we're going to be back online sooner than later, but we don't have an exact date in 2027. We're still working with all the regulatory agencies. Things are going well. That will be back to where we were, we expect in 2027, but I can't give you an exact date.

And as far as the numbers go, Justin, when we first announced the loss of certification at Laurel Ridge, we disclosed that last year the pretax income at that facility was in the $20 million, $25 million range. We've talked about incurring since it has lost it's certification, but has continued to treat a small number of patients that we expect it will lose $5 million or $10 million a quarter each quarter that we remain open without certification. We've talked about Cedar Hill over the last several quarters, losing roughly $10 million a month. And as far as the Palm Beach Gardens Hospital, you can pretty much get that from looking at the difference between our same-store acute results and our full acute care results, but we lost about $15 million in this quarter, expect to improve a little bit in Q4 and then continue to improve gradually from there.

Our next question comes from the line of Matthew Gillmor of KeyBanc.

You called out labor as a positive factor in the quarter. I was hoping you could elaborate on what you're seeing in terms of wage growth or turnover or use of contract labor.

Yes. So I think a little bit different story in the 2 segments. I think in the behavioral segment, we talked over the course of several quarters that we had sort of invested in -- I'm going to describe it as outsized account growth. because we've discussed, I think, for quite some time that in some of our behavioral facilities and markets, we were -- our volume growth was muted because of a constraint in staffing, not enough nurses or therapists or the nonprofessional techs that are important to care in the behavioral segment. But we accomplished that, I think head count growth has continued to decelerate. It decelerated in the third quarter. I think it rose by about 1.5%. And I think going forward, head count growth in the behavioral segment will largely be aligned with volume growth. So that's been a benefit and an improvement in the Behavioral Health segment. I think in the acute segment, as your question sort of alluded to, our -- we've seen a fairly significant reduction in temporary and traveling labor I think that has risen in the most recent quarter by 3%. So it is well controlled. And wage inflation has certainly come down from its heights during the pandemic to something in the 3%, 3.5% range in both segments.

Got it. And then if I could follow up on the Talkspace acquisition. It sounds like you'll share more on the fourth quarter call about the integration and synergy opportunity. I wanted to see if you'd be willing to discuss will there be synergies that you think you'd be able pull through during the 2027 period? Or is that a longer-term priority?

So what we said originally, Matt, when we disclosed the Talkspace acquisition is that our expectation in the first 12 months of ownership, which would be into the third quarter of next year, was that the transaction would be slightly accretive. There's a very small amount of overhead and cost savings sort of duplicative cost savings as we combine 2 public companies. But the vast majority of synergies are revenue synergies. And the opportunity that combining the lower acuity population -- patient population that Talkspace has and the higher acuity patient population that UHS has really creates this robust continuum of care that really doesn't exist anywhere else in the behavioral space. And that's the opportunity. As far as the timing of it, I think we'll begin to realize that, and we said this in our prepared remarks in the first 12 to 24 months of ownership. So beginning in the back half of next year. And as we, I think, noted in our remarks, I think we'll be more specific about that and how much of that we've included in our guidance when we when we present guidance in February. But as Marc indicated in his remarks, we're certainly beginning to focus on those revenue synergies and create all the changes in policies and procedures and infrastructure and technology that we'll need to execute on those synergies next year.

Our next question comes from the line of Stephen Baxter of Wells Fargo.

I wanted to ask about the same-store acute revenue per adjusted issue in the quarter. How should we think about what that figure would be if we were to exclude all change in year-over-year Medicaid supplemental, I guess not just the out-of-period components. I guess how did that compare to your expectations? And how much of a pressure is the surgical decline putting on those metrics?

Yes. So again, in the remarks, I think we called out 3 items that I think are putting pressure on that revenue per adjusted admission metric in the quarter. And I think you tick through them. One is the impact of the exchanges, while that's playing out, I think, consistent with our expectations, it's certainly a drag compared to last year. Then there's the out-of-period DPP which we talked about and then the MedSurg mix pressure, which we talked about. We think the MedSurg mix pressure probably reduces the growth in revenue per adjusted admission by about 100 basis points. We think if we adjust for all 3 of those items revenue per admission would have been up in the 3% range, which is within the range that we've talked about as the sustainable going forward range for pricing.

Okay. When you look at the improvement in acute volumes that you saw in the quarter, is there any meaningful difference in either like geographic strength or different payer strengths you want to call out?

I think it's pretty broad-based geographically. We talked a little bit about payer mix in our remarks. I think Medicare is growing faster than the divisional average, Medicaid and commercial is growing a little bit -- are both positive but growing a little bit slower than the divisional average. And we've seen an increase in self-pay or on compensated care largely sort of a one-for-one swap in the decline for exchanges. I think the only other geographic note I would make and it's probably more a fourth quarter note is that last year, we had a pretty soft fourth quarter in the Vegas market. They had a very light flu season in a year in which almost everybody else had a pretty acute flu season. So I think we're thinking about that as a bit of a tailwind for us in the fourth quarter. But otherwise, the strength in acute volumes has been pretty broad geographically.

Our next question comes from the line of Kevin Fischbeck of BOA.

I want to go back to your answer about the surgical volume coming in a little bit lower than what you guys were thinking about and kind of attributing that to an acceleration of recent trends. What would you attribute that acceleration to though? Is there something specific? Is it the IPO? Or is it something else. I'm just trying to figure out how long this acceleration might last and would be better to understand what's causing it.

So first, Kevin, I would say I don't think it's the inpatient-only dynamic. When we looked at the procedures covered by the inpatient-only regs, I think we concluded that most of our procedures that fall into that those categories were procedures that had more than a 2 midnight stay and appeared to us to be more acute than would allow them to really be transferred or evolved into outpatient procedures. Yes, I don't know that I have a great explanation for exactly why we -- and I think the industry in general has seen this acceleration in certain procedures to outpatient. But I'll describe one of the challenges we see, and I'll use GI as an example, is that as more and more GI procedures are being done outside of the hospital and largely in physician offices and in ASCs. We have found it difficult even to get GIs to cover our emergency rooms. We either can't get them to do it at all or the expense of doing it and the cost of doing it is really sort of outsized. And so as a consequence, in some of our facilities, even our emergency room visits that are GI-related are being diverted to someplace else because we just don't have the coverage. So I think there's a bit of a sort of compounding effect that as more and more of these procedures, elective procedures move into outpatient settings in some of these areas. And again, I think GI sort of stands out for us. even the emergency procedures that would have traditionally come to our emergency rooms are being diverted elsewhere.

Okay. Great. And then, I guess, one of the -- I guess, the tailwinds that you mentioned in 2027, you just said the long-term growth algorithm. Can you just remind us that -- I know that like this year, you're looking for 4.5% to 6.5% on the acute and 3% to 5% on behavioral. Is that what you're talking about? Or are you talking about something a little bit different.

No. I think in last quarter, we sort of laid out our growth algorithms for the 2 segments in acute care. We're talking about 1.5% to 2.5% adjusted admission growth. for the year, I think we're averaging slightly above that, I think 2.6% for the year and then 2% to 3% pricing growth. As I mentioned in my previous response, we believe you sort of adjust for all these exogenous factors, we're running at around that 3% in the quarter, so at the low end of that range. On the behavioral side, we modified our growth algorithm, our adjusted patient day growth algorithm to 1% to 2% last quarter. And I think we're running for the year in the 1.7% range, so kind of towards the higher end of that range. and then 2% to 3% pricing in behavioral, and I think we run within that range in behavioral as well.

Our next question comes from the line of Craig Hettenbach of Morgan Stanley.

Just following up on Talkspace and understanding it's recently closed. But if you can just give some context of how that business is performing, kind of growth rates you expect. And then as a follow-up on that, you mentioned kind of the unique offering across Mental Health, how are you thinking about that in terms of implications of payer relationships on a longer-term basis as this strategy unfolds.

So this is Marc. As we're integrating Talkspace, I mean one of the big things when we talk about the continuum Talkspace was acquiring patients in a distinct way, having nothing to do with patients coming from other behavioral health settings, primarily. That opportunity now exists for us to send patients, refer patients over to Talkspace who are already in our ecosystem, whether in our outpatient things or in our inpatient settings. Conversely, we have an opportunity now, and we're just starting to see this where there are patients that are in that Talkspace ecosystem that if they need further care, a higher level of care, they're getting directly referred now to us within our own system here. So those opportunities didn't exist on either end previously. They exist now, and we're just starting to see some of that come to fruition. I can't give you exact numbers yet, but we feel like we're off to a good start. The Talkspace folks have been very encouraged by the way that this has been set up thus far. Again, we're only into this for a few months. But the teams are working very well together. So we're very optimistic going forward. that this is going to make a real difference for us and for their business.