Good morning and thank you for standing by. Welcome to the First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Steve Filton, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, and good morning. Marc Miller is joining us this morning. We welcome you to this review of Universal Health Services results for the first Quarter ended March 31, 2023. During the conference call, we’ll 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, I recommend a 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, 2022. We’d like to highlight just a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $2.28 for the first quarter of 2023. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $2.34 for the quarter ended March 31st, 2023. During the first quarter, our behavioral health hospitals produced strong results. The decline in COVID activity allowed our behavioral hospitals to continue to reduce their labor vacancies, resulting in a reduction of the capped bed capacity and a 4.7% year-over-year increase in adjusted patient days. Combined with a healthy 5% increase in net revenue per adjusted patient day, overall revenues grew by almost 10% over the prior year quarter. And with that level of revenue growth, same-store behavioral EBITDA margins increased from 20% to almost 23%. Our acute hospitals experienced strong demand for their services with adjusted admissions increasing 10.5% year-over-year. For a variety of reasons, revenue growth was more muted at 3.5%. As a percentage of total admissions,…

Thanks Steve, and good morning. In our year-end conference call, we said we envisioned 2023 as the year of continued transition into a post-pandemic world. We anticipated that volumes in both segments and acuity in our acute business would continue their recovery trajectory and gradually begin to resemble the patterns we experienced before the pandemic. The comparison to last year's first quarter for our acute hospitals, which were experiencing the significant surge in COVID patients with the Omicron variant is particularly challenging, but many of those COVID related headwinds will become much less of a factor as the year progresses. We expect it to be able to reduce premium pay by about one-third in 2023 from 2022 levels, as we continue to increase hiring rates and reduce turnover. And while the decline in premium pay has leveled off for the time being, we continue to make progress on overall wage pressures. In our Acute segment, we highlighted the upward pressure of on physician expense, which tended to run at a rate of about 6% of revenues pre-pandemic, but is budgeted to run and actually is closer to 7.5% in 2023. Overall, we were pleased with our first quarter results, which were largely in line with our internal expectations, with our behavioral results somewhat ahead and our acute results slightly behind. We are pleased to answer questions at this time.

Thank you. [Operator Instructions] We have a question from Jason Cassorla with Citi. Please proceed.

Great. I guess, first, wanted to ask about your acute volume trajectory. I guess, obviously, a solid starts a year, but curious if you believe this was broad-based underlying demand, or anything else beyond an easier comp? And I guess given performance in the quarter, how you're thinking about the sustainability of the momentum and volume growth for the remainder of 2023.

Sure, Jason. Look, I think we've made the point for some time that we felt that as COVID volumes continue to decline and sort of continue at a kind of a lower, we'll call it endemic level, that the non-COVID volumes would begin to recover. I think that recovery quite frankly has been a bit slower than we anticipated. But clearly, taking into account what our public hospital, acute care hospital peers have said as well in the first quarter, I think there seems to be a broad-based recovery across the space. And I think our expectations is that we are going to begin to see acute care volumes track at their sort of pre-pandemic patterns with volume growth in the low to mid single digits and sort of pricing growth at a similar level. So, ultimately, and particularly I think once we get beyond the first quarter with that difficult COVID comparison, we'll begin to see an acute care business model that resembles something a lot closer to our pre-pandemic experience.

Okay. Got it. Thanks. And just as a follow-up, I wanted to ask about the favorable behavioral revenue per patient day trend of 5% in the quarter. I guess any color on how we should think about the growth in that stat for the remainder of 2023, just given the improvements you're seeing on labor scarcity, better volume throughput than anything else. Any help there, that would be great. Thanks.

Yeah. Again, so we've talked about this I think on a number of prior calls, I think prior to the pandemic revenue per adjusted day in the behavioral division tended to increase, so about 2% to 3% annually during the pandemic. I think, we've seen that number jump to 5% or 6% in a number of quarters. And we've attributed in many cases to a more aggressive stance on our part as we renegotiated contracts with some of our lowest payers, with the idea that in an environment of capacity constraint, an environment where we were turning patients away because of a lack of adequate staffing, it gave us more leverage to take a more aggressive stance with our payers. And again, I think you saw that in the 5% revenue per day -- per adjusted day increase in first quarter. Obviously, I think the sort of the crux of your question is as we continue to hire more people and those capacity constraints are eased some, does it change the dynamic with the payers? And I think the honest answer is to a degree, but I'll also say just broadly, I think across the space, the behavioral space, we have a view that demand across the space exceeds the supply of beds in many geographies and in many instances. And so, I think we're going to still have leverage with the payers in many of our geographies. If they want a place to have their patients treated, they're going to have to pay, at a minimum market rates to providers and to us. But we also did say, I think in -- when we talked about our 2023 guidance in our last call that we were projecting in our guidance that that revenue per day growth would moderate some. So, if we see some moderation, it is certainly something that's been anticipated in our guidance. But right now, it's a pretty strong environment in terms of our negotiations with payers.

Great. Thank you.

Thank you. One moment for our next question, please. And it comes from the line of Josh Raskin with Nephron Research. Please proceed.

Hi. Good morning. This is actually Marco on for Josh. I appreciate you taking the question. Based on your commentary, it appears that capacity is opening back up in the Behavioral segment, as staffing levels improve. And you also just spoke to demand outstripping supply in a number of geographies. So with that, do you think we're at a point now where we should expect more development on the behavioral side or even acquisitions of assets there? Thanks.

Yeah. I think it's a reasonable question. Obviously during the pandemic and during the significant capacity constraints we had and the issues we had in hiring sufficient clinicians, especially nurses to treat our patients, we did put on hold some of our development activities, building new capacity at existing facilities or building de novo facilities, although we certainly continued with some. But I think your question is right. I mean, we just had a meeting recently in which we reviewed a whole chunk of facilities that are running at an excess of 80% occupancy on the behavioral side to consider, I think the exact point of your question whether it merited study of building more capacity in those facilities. So, I think you're right, this is a bit of a compounding kind of dynamic. As we're able to hire more people and fill more of our permanent vacancies, I think we'll be able to treat more patients. And as we're able to treat more patients, we may need to increase capacity in some of our facilities in some of our de novo projects. So, I think that's certainly a possibility over the next several years.

Great. Thanks. And then just on the acute care side, I know you gave some detail on the contract labor trends in the quarter. But I was wondering your thoughts on whether rates are now back to levels where it makes sense to just continue utilizing temporary labor as means of increasing capacity. And do you think there'll be enough sustained demand on the acute side to support that? Thanks.

Yeah. I mean, so, the traditional, I think, approach to temporary labor in the acute business for us, and I think largely for our peers always was that when there were temporary surges in volumes, which there often are, COVID activity aside, it always made sense to solve those sort of temporary demands on your staffing with the use of temporary and traveling nurses, et cetera. What became really sort of a disrupting kind of factor during the COVID surges was that the price or the cost of that temporary labor rose to two and three, and I think sometimes four times what traditional rates have been. I think as we see those numbers come down, and we certainly have seen them come down quite a bit, although I don't think we're at pre-pandemic levels. I think we're going to get back to that sort of traditional approach that when we need temporary labor, we'll go to these outside agencies for it. But it'll be on a less frequent basis, et cetera. And I will say that there were times during the pandemic where the cost of temporary labor got so expensive that we just refused to use it if it got above a certain level. And again, I think we're largely past that point. And like many other things that I've referenced on the call, I think that as we progress in 2023 and we go beyond that, we're going to see that temporary labor supply/demand dynamic and pricing and inflationary dynamic return to much more of a pre-pandemic sort of level than what we have seen in the last few years.

Great. Thanks very much.

Thank you. One moment for our next question, please. All right. And it comes from the line of Andrew Mok with UBS. Please proceed.

Thanks. Can you help us understand the sequential improvement in the acute business in the context of lower acuity trends seen in the fourth quarter? Did underlying acuity actually improve, or were volume so strong such that it masked some of the continued acuity headwinds that you're seeing? Thanks.

Yeah. So, I think the sequential improvement reflects some of the normal seasonal patterns. I think, in any normal year, our first quarter is our busiest year on the acute side. And there's generally a pretty significant step up from the fourth quarter and some of the reduced activity during the holidays and the fourth quarter, et cetera. So, I think you did that. Absolutely, see some of that. I also think you just continue to see a return of normal patterns, patients who had delayed in deferred procedures during the pandemic, beginning to schedule those and at least get into the pipeline for some of those more elective and scheduled procedures, et cetera. So, I think you saw that dynamic. So, I think the acute care performance clearly, in my mind, was more favorable when you look at it from a sequential basis. When you looked at it from a year-over-year basis to the first quarter of last year when we had the Omicron surge, when we had the very high acuity, the comparisons that I think were much more challenging. You had the COVID reimbursement in the first quarter of last year. But to your point, the fourth quarter improvement over -- for the acute division was encouraging to us. And I think sort of reinforces our view that we've created an appropriate sort of guidance trajectory in 2023 with the acute care performance improving as the year goes on.

Got it. And related to that, hoping you can provide an update on the Las Vegas market with respect to the Desert Springs Hospital you closed down in the new Reno hospital. How's that tracking against expectations? Thanks.

Yeah. I mean, so those are two very different dynamics. As I think we discussed in our last call, the Desert Springs dynamic, it's really related to the new hospital we're building in West Henderson, which is sort of between our existing Henderson hospital and our existing Desert Springs Hospital. As I think physicians and patients and employees, all came to the realization that ultimately West Henderson would be replacing Desert's function in the market. They began to make other decisions and move to other hospitals, very often our own hospitals elsewhere in the market. And so we made the decision to close Desert as an acute care hospital, but we still operate a freestanding emergency department on the site. As I mentioned in my -- in our prepared remarks that those shutdown costs and severance costs, et cetera, created about a $10 million headwind in the first quarter compared to last year. Essentially I think after that, as the year progresses, Desert Springs will have much less of an impact. And I think we're very much looking forward to the positive impact that West Henderson will have when it opens in either the spring or the middle of 2024. In Reno, our new hospital had a bit of a drag compared to last year. But certainly not at the level of 2022 when it was $7 million or $8 million drag per quarter on average. And we think, again, that will improve over the year. And as I think we indicated in our guidance, we're expecting about a $30 million favorable tailwind in 2023 from the Reno hospital. Broadly, I would just say, and I think this is consistent with what our peers have said, we've seen our Texas and Florida markets recover, and this is, I think particularly from an acute care perspective, recover from the pandemic dynamics faster than our other markets around the country, including in our case, Nevada and California. There's been a shift in population to places like Florida and Texas. I think those economies tended to recover more quickly from the shutdown. They didn't shutdown as completely or as quickly as some other markets around the country. So, again, I think our experience in those markets is consistent with what, at least a couple of our peers have talked about as well.

Great. Thanks for the color.

Thank you. One moment for our next question, please. All right. And it comes from the line of Stephen Baxter with Wells Fargo. Please proceed.

Hi. Thanks for taking the question. This is Nick on for Steve. I was hoping you could talk a little bit about how your Q1 results impact you’re thinking for full year guidance, particularly in light of some of the margin favorability you saw in behavioral in the quarter. Thank you.

Yeah. So, as is our practice, we didn't address guidance in our press release, which means that we're maintaining our existing guidance. I will say that -- and because we don't give quarterly guidance, I will say that our internal forecast for the quarter were somewhat ahead of the consensus estimates, although our actual results were ahead of both consensus and our internal forecast. In term -- I know that a couple of our peers raised their guidance in the first quarter. As you all know, I've been at UHS for more than three decades. I don't recall that we've ever changed our guidance after the first quarter, for better or for worse. Obviously, in this case it would've been for better had there been any change. But generally, we were pleased with the first quarter results. I think as Marc's comments on the call indicated, and -- but I will also make the point that unlike other years, the earnings trajectory that we're expecting in 2023 is that earnings will continue to improve as the year progresses. And so, we feel very comfortable with our full year earnings. We're very pleased with the first quarter results. But certainly it didn't feel from a either a -- sort of historical practice perspective or any other that, there was any need to change the guidance after the first quarter results.

Does I answer your question, sir?

Yes. Thank you.

My pleasure. One moment for our next question, please. All right. And it comes from the line of Ann Hynes with Mizuho Group. Please proceed.

Hi. Good morning. Could you talk about nursing trends maybe in each segment? Which segment do you think is be covering faster than the other? And I know you said turnover improved, but can you give us some stats? Maybe what turnover was at the height of the pandemic? What it was before the pandemic, and what it's trailing now? Thanks.

Sure, Ann. And so, I think turnover, particularly in nursing, across the U.S. pre-pandemic tended to average in the low 30% range. I think most of our hospitals tended to do a little bit better than that, but obviously nursing turnover is and has been a significant, I think, challenge for the hospital industry for many years. During the pandemic, I think those percentages often doubled and in some cases, maybe even tripled. Again, not just for UHS and not just for acute or behavioral, but I think for hospitals across the country, I think it was particularly challenging for sub-acute providers like behavioral hospitals or nursing homes or home health agencies or any long-term care businesses who were losing clinicians to these incredibly sort of high priced opportunities to make these really premium amounts in acute care, COVID settings during the pandemic. I think what we said all along was that as COVID volumes diminished and reduced to sort of the levels that we saw in Q1 of this year, that many nurses would sort of return to their original or if you will, their sort of home base occupations or work sites. And I think we've seen that. I think we've seen a sort of a faster and quicker benefit to that on the acute -- on the -- excuse me -- on the behavioral side, where we've been able to fill more of our permanent vacancies. And as a consequence, we've been able to admit more patients. And again, the -- that 10% same-store revenue growth that we saw in the first quarter, I think is a -- very concrete reflection of our progress that we're making. I think on the acute side, we're making progress. We've, obviously, reduced our premium pay by almost half from where it was a year ago. I think a number of our peers have quoted, we have tended to talk about the wage issues in acute care by quoting our premium pay numbers. And that includes both things like overtime and shift differential that we pay to our own employees as well as contract labor. But when you just isolate the contract labor numbers as a percentage of overall salaries and wages, I think we're in that 5% to 6% range, which I think is right where our peers are maybe even a little bit lower than that. So, we've clearly made progress on the acute care side as well. And I think that -- while it's -- the acute care recovery has been a little bit slower, I think it positions the acute care business well for the rest of the year as acuity returns, as surgical volumes improve, the fact that we've been able to reduce premium pay so much from a year ago bodes well for what we'll be able to accomplish in the upcoming quarters as well.

Great. And just on the inpatient side, inpatient trends, admissions improve sequentially, can you just describe what delta, like what do you think is coming back versus what was not in 2022?

Yeah. I think it tends to be across the board. We have seen emergency room volume increase and that always has sort of a cascading impact on our admissions. We've seen our schedules in elective and surgical procedures increase. And I think the one dampening sort of impact of that is that -- which again I mentioned in my prepared remarks, is that even though overall surgical volumes are clearly increasing and even inpatient volumes are increasing on an absolute basis, there's definitely a shift to more procedures being done on an outpatient basis. I would highlight, I think, particularly, again, I don't think this is unique to UHS, but particularly in the orthopedic service line, we've seen a pretty dramatic shift in the last couple years from inpatient to outpatient procedures. But just broadly, I think we're seeing the volumes in almost all of our service lines improve.

Great. Thanks.

Thank you. And one moment for our next question, please. And it comes from the line of Justin Lake with Wolfe Research. Please proceed.

Hey, guys. This is Austin on for Justin. I appreciate the question. Steve, sticking on that like scheduled elective mix that you just described. I know that was a little bit of a focal point in 2Q, 3Q and through back half of last year. You noted some improvement there, but wondering if you can kind of quantify where that's maybe tracking versus the pre-pandemic level? And is that shift to outpatient, maybe shifting that run rate going forward? Thanks.

So, again, I mean, I think in my prepared remarks, I talked about year-over-year surgical growth, total surgical growth as around 10%, higher on the outpatient side, maybe 14% lower on the inpatient side, maybe 4% something like that. I think those -- that level of growth is reflective of some amount of catch up of deferred procedures, et cetera. I mean, that would be a pretty difficult pace to continue sort of indefinitely. But again, I mean, I think we've argued for some time now that as COVID volumes declined, there would be some kind of pent-up demand and surgical volumes at a minimum would return to their pre-pandemic levels. I think we're at a point right now where we we're recapturing some of the volume that we lost during the height of the pandemic. But it feels like absent another COVID surge, which nobody seems to be anticipating at the moment, there ought to be a relatively steady and sustainable growth in surgical volumes. Although, I suspect that they'll continue to be more skewed to outpatient rather than inpatient.

Great. Thanks. And then maybe just as a quick follow-up. Commercial contracting cycle kind of in focus, I'm just wondering if there's any update there and if you're still seeing some favorability on that front. Thanks.

Yeah. I mean, I think, as we indicated and have indicated I think since -- probably the back half of 2022 when inflation began to have a clear impact on obviously our business, but on the rest of the world, we've been negotiating managed care increases that, I think, in general, are somewhere in a 150, 175 basis point range higher than what they were pre-pandemic. That will continue quite frankly for number of periods, as contracts come up for renewal. But yeah, I mean, I think, as we are renegotiating commercial contracts in particular, we're getting some relief. I think, we would still argue it's not necessarily full relief for the inflationary pressures we've been under. But it's certainly been helpful to our results. And more clearly on the behavioral side, you can see that number in our revenue per day. It's not as easy to see it on the acute side in our revenue per mission because you've got the sort of acuity factor working the other way. But again, I think, those comparisons are going to become a lot clearer as we get past the first quarter when the COVID comparisons to the prior year are going to be much more equal and not nearly as outta whack.

Great. Thanks for the color, guys.

Thank you. One moment for our next question, please. And it comes from Kevin Fishbeck with Bank of America. Please go ahead.

Hi. Good morning. Thank you. This is Joanna Gajuk filling in for Kevin today. Thanks for taking the question. So, I guess, first just follow-up on the behavioral business. So, the volumes pretty strong there. We just talk about that acute, but any color there in terms of the regions or business lines, or is it kind of across the board, just kind additional color on the site volume strength?

Not really, Joanne. I mean, again, this is a subject that we've discussed at great length in calls during the pandemic. We have argued throughout that the biggest constraint on our volume growth in behavioral was our staffing and the inability to hire a sufficient number of clinicians, which was mainly nurses, but also things like other professionals, like therapists and psychologists and psychiatrists even. But also even some non-professional folks, the mental health technicians who are a critical part of our patient care planning in our behavioral hospitals. And what we continue to say is that as we -- as the COVID volumes declined, we'd be able to hire more people and fill more of those permanent vacancies. Our net hires have been increasing for well over a year now, pretty consistently. And I think you saw our behavioral volumes improve in the back half of 2022. Obviously, they continued to improve in the first quarter very robustly. But the early signs is those trends are continuing into Q2. I think we hit our highest behavioral census number within the last week that we've seen in a couple years. So, we're very bullish about our ability to again continue to fill those vacancies and increase our ability to treat more patients. But it's very much across the board. From a geography perspective, from a service line perspective, it's -- to be perfectly honest, that 10% same-store revenue growth really couldn't be anything, but pretty comprehensive because there's not a single geography or a single service line that could drive that level of improvement.

And would you say that with the strength, because you made -- it sound like things were talking better, but in segment by sounds like maybe margins. So, any change to kind your view for the year for this segment, or it's kind of in the ballpark?

Yeah. I mean, again, I'll just echo the comments made by Marc in his remark, now, we -- I think when we created our 2023 guidance, we envisioned that 2023 would be a year of transition out of sort of the pandemic environment and into a post-pandemic world in which we'd have much greater success in -- filling our labor vacancies. There wouldn't be as much labor supply/demand disruption. Certainly that's the way the first quarter played out, particularly very strongly on the behavioral side. That's the way our guidance plays out for the year. We're feeling very good about how the year has started out, and anticipate that most of these trends will continue as the year goes on.

Great. Thank you. And the last question on Behavioral segment. When it comes to the redeterminations, so states are starting this process now, many of them delaying it, but I guess, we've been talking about this quite a bit. So, can you talk about how you think this will play out for behavioral business specifically? Do you assume anything in your guidance? Or is it more 2024, if at all? And then also, I guess, any comments on how this could impact the acute care business? Thank you.

Yeah. So, look, I think the truth, Joanne, is that nobody really has a very sort of clear and precise view of how redeterminations are going to affect, and by the way, either the behavioral or the acute business, as your question indicates, it depends a lot on the pace at which the states go through the redetermination process. And that's not clear. It certainly depends on the pace at which folks who lose their Medicaid coverage can qualify for commercial exchange products. Number one, how quickly they can do so. Number two, what percentage of them can do so. So, there've been all sorts of guesstimate by all sorts of people about how this will play out. Some of them are quite frankly, substantively very positive for the hospital industry. Some are somewhat negative. I think broadly what we did in our 2023 guidance is, think about redeterminations as being sort of modestly negative for both segments. But to be fair, that was largely a guesstimate, but I think that has been included in our pricing assumptions for 2023. So, we'll see how it plays out. We're certainly ready from an operational perspective at our hospitals to do everything that we can do to make sure that patients who lose their Medicaid coverage, do everything possible to requalify for commercial exchanges or any other coverage that might be available in a particular market. So, we're prepared at that sort of ground level to deal with redeterminations, but I think that's something that we as an industry are going to have to wait and see how that develops and plays out over the next couple of quarters.

Thank you for this color. I appreciate.

Thank you. One moment for our next question, please. All right. And it comes from the line of Steven Valiquette with Barclays. Please proceed.

Great. Thanks. Good morning. Not to get too granular on labor, but our monthly labor tracker showed the company had better momentum later in the quarter in February and March, especially on filling nurse job vacancies in both segments. So, I would think that would also bode well for volumes in the second quarter. So, I'm not asking you to comment on monthly trends, obviously, but just curious if you're able just to comment on the momentum for the company exiting the quarter on the labor front, and whether that also to give a positive bias for volume trends in the second quarter as well. Thanks.

Yeah. Look, just broadly, Steve, I would say, we concur with the idea that things improve broadly, both from a labor perspective, volume perspective as the quarter went on. And again, as I think I've noted a number of times in my comments on the call already, that's the way our 2023 guidance is built. I think traditional seasonality would not suggest necessarily that things would continue to get better historically from the first quarter forward. But we thought 2023 trajectory would be different. And it seems to be playing out that way. It played out that way in Q1 and certainly early in Q2 that that seems to be the trend. So, we're encouraged by that, that the assumptions that we made in our 2023 guidance seem to be at least early in the year playing out in the way that we expected.

Okay. Got it. Okay. Thanks.

One moment for our next question, please. All right. And it comes from the line of Pito Chickering with Deutsche Bank. Please proceed.

Hey. Good morning, guys. Thanks for taking my questions. A follow up to both Ann and Joanna’s question here. Can you combined both the new hires and the turnover to quantify with a net hires was specifically in behavioral now compared in the first quarter versus the fourth quarter? And then how many behavioral beds are you still unable to staff at this point if any, and kind of how does that track throughout the year?

Yeah. So, Pito, I don't have the net hire detail in front of me. What I do know, and what, again, I've said I think on a number of occasions is our net hires on the behavioral side in particular have been positive, definitely since the end of the first quarter of last year. And I think that's been pretty consistent and probably accelerating as time has progressed. And again, I think that's pretty consistent with our expectations. And I think we expect it will continue to be the case. How many beds we have capped, et cetera. It's kind of an interesting thing. We don't really give that number in a precise way because it really sort of varies the way each facility thinks about it. I think they generally sort of describe a bed or a unit as kind of capture closed if it has traditionally been open, but has to be temporarily closed because of a lack of sufficient staffing. I will say this, I mean, we continue to -- and that again, we've made this comment before, this is not anything terribly new. We continue to turn away significant numbers of patients, because there's either not an available bed or not an available staff member, staff members to treat that patient. So, we continue to believe that as we make progress and continue to hire people in the behavioral space, that the demand will be there. It's not like we're hiring people to chase demand. We believe that we're hiring people to meet the demand that's already out there and has been demonstrated to us through the incoming inbound inquiry process whether that's people calling our 800 numbers or people inquiring about treatment online. As we measure that incoming call volume, there's still a significant amount of unmet demand that we believe -- as we addressed earlier the call, we can meet through potentially expanding bed capacity, but also through continuing to expand our net hires.

Okay. Great. And then a follow-up question here. As you think about sort of margin expansion in behavioral, so over the next sort of 12 to 24 months, how much is this coming from sort of getting those beds filled up and sort of getting the fixed costs leveraged there? How much is it coming from the spread of pricing running in the mid single digits versus wage inflation running in the sort of 3% range?

Yeah. I'm sorry. I'm not sure I fully understand the question. I mean, obviously, if you look at our 10% revenue growth in the first quarter was split pretty evenly between price and volume. Honestly, I think there's more upside on the volume side as kind of I think responded to an earlier question. I think we may see that price or revenue per adjusted day moderate a little bit as the year goes on, and some of the capacity constraints are eased. But I think the volume growth for the foreseeable future, I think you pegged the timeframe as 12 or 24 months should continue. And quite frankly, not really inconsistent with what our volume growth patterns were in behavioral pre-pandemic. Obviously, those volume patterns were significantly muted during the pandemic because of the labor supply and demand disruption that we saw. But as we continue over the next couple of years, I think that we're very confident that that volume growth in the mid single digits is a very sustainable sort of number.

Okay. Great. Thanks so much, guys. Nice quarter.

Thank you. One moment for our next question. [Operator Instructions] And our question comes from Jamie Perse with Goldman Sachs. Please proceed.

Hey, thank you. Good morning. So, Steve, you previously guided to about 1% to 2% revenue per adjusted admission in 2023. You also said that was kind of one of the more aggressive assumptions in your thinking for 2023. So, getting through the tough 1Q comp, and I'm just curious how revenue per adjusted admission played out versus your expectations and how to think about that metric for the rest of the year for the Acute segment?

Yeah. So, again, I mean, I think our comments were straightforward in saying that our acute performance in the first quarter was slightly below our own expectations. And I think it was mostly on the pricing side, because obviously it was hard not to be pleased with the volumes in the quarter. And I think our expense control was pretty strong. So, now again, I think as we said that first quarter comparison we know was always going to be difficult for -- on a pricing basis for the acute business because of that acuity drop. I think we'll get a better view of this as the year progresses because the -- again, the COVID comparison is not going to be nearly as important and we'll get to see what the -- I'll call it sort of true pricing dynamic looks like, what the inpatient to outpatient shift means, et cetera. Again, I think, we were sort of slightly behind expectations in Q1, but certainly don't -- in any way feel like that doesn't mean we can't get to our full year expectations on the acute side.

Okay. Thanks for that. And then, just on contracting tactics with commercial payers. You previously mentioned there were some contracts where you're potentially willing to walk away if payers didn't kind of meet you halfway. I'm curious how some of those types of negotiations have played out since. Are payers becoming more receptive to meeting providers at better rates? Have you actually walked away from contracts? Just any update there on the behavioral side in particular.

Yeah. So, again, I mean, to I think a large degree the proof is in the pudding, we had 5% revenue per adjusted day growth in our behavioral revenue in the quarter. That certainly is well above historical averages, which I think tended to be in the maybe 2%, 2.5% range, more like what we have been seeing during the pandemic. Again, because I think that with capacity constraints and with our large market share in many of our geographies, with payers are unwilling to kind of in your terms, meet us halfway, pay a reasonable rate and essentially go out of network with us, I think their choices and their options to have their patients treated in other settings in -- at least in some geographies is severely limited. So, I think we've been pretty successful. Again, at the end of the day that revenue per adjusted day, I think, is the evidence of that. And it plays out. You sort of are asking how it plays out. A lot of times we will give notice of termination and the contract never terminates and we will reach a negotiated settlement on rates. Other times, we will actually walk away and the contract will terminate. And sometimes that's a permanent thing and sometimes the payer comes back and even after the termination we'll settle. So, it doesn't play out the same way every time. But again, my sense is broadly in the behavioral space, there's not a lot of excess capacity around the country and payers, while they certainly are always going to be aggressive, are going to, I think, find themselves having to be reasonable if they really want to make sure that there is a place for their subscribers to be adequately treated. And so, I think, on the behavioral side that strong leverage position is going to continue with us for some time.

And I just want to piggyback on this point, because we have just decided a little bit more forcefully now that, that we're just going to push this issue. We need to be paid fairly for the work that we're doing. Our expenses are up, and some of the payers don't meet us halfway all the time. And we've been clearly explaining to them that that's not going to be adequate going forward. But in addition to that, we're having a lot of different discussions with payers, I'd say in the last six to 12 months, that we've not had before. And it goes to a lot of what Steve is saying, their needs are growing on the behavioral side, we are the largest provider in the United States, in behavioral. So, the leverage is shifting a little bit. And we're trying to work with them to show them how it is more conducive for them to pay us a little bit more, but have their patients serviced in a much better way than to try and continue to nickel and dine and ultimately, that's not going to satisfy their needs. So, those discussions are, I would say, escalating. And they're different discussions and I think that we're going to have more positive results from the types of conversations that we're having now.

Thanks for all the color.

Thank you. And at this time, I would like to turn the conference back to Steve Filton for closing remarks. End of Q&A:

Okay. Thank you. We'd like to thank everybody for their time this morning and look forward to speaking again next quarter.

And this concludes today's conference call. Thank you for participating, and you may now disconnect.