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Universal Health Services sets reserve for fraud settlement

UHS has reserved $22 million for a potential settlement with the federal government of civil fraud allegations at some of it psychiatric facilities. The King of Prussia company also disclosed in 2015 that it was under criminal investigation.

Universal Health Services corporate headquarters in King of Prussia.
Universal Health Services corporate headquarters in King of Prussia.

Universal Health Services Inc., which disclosed three years ago that it is under criminal investigation by the U.S. Department of Justice, said Wednesday in its annual report that it had reserved $22 million for the potential settlement of an even longer-running civil False Claims Act investigation of billing practices at about 30 of its psychiatric facilities.

The King of Prussia company, which is among the nation's largest operators of acute-care hospitals and its largest owner of psychiatric hospitals, said the amount was based on initial discussions with the Department of Justice. "However, changes in the reserve may be required in future periods as discussions continue and additional information becomes available," the company warned.

During a Thursday conference call with analysts on the company's 2017 financial results and expectations for this year, Steve Filton, UHS's chief financial officer, did not discuss the reserve, but at a Leerink Partners investment conference last month, Filton said the company believes "strongly, quite frankly, in the position that we've taken all along, which is that there really is very little, if any, inappropriate behavior on the company's part," even as he acknowledged that UHS would have to write a check to the government.

Asked by Leerink analyst Ana A. Gupte if the talks were likely to lead to a compliance agreement that would force the company to change how it operates psychiatric facilities, Filton said he did not think so.

"We have identified individual patients that might have been treated differently where a different judgment could have been made. But nothing that I would suggest is pervasive or sort of recurring in a way systematic that we would really make wholesale changes to our policies and procedures," he said, according to a Bloomberg transcript of the event.

It is not clear what government investigators are focused on, but multiple whistle blowers have alleged, among other things, that UHS used improperly licensed personnel to provide services and then billed the government. That would amount to a False Claims Act violation.

UHS shares closed up 1.59 percent, or $1.82, to $116.02 on the New York Stock Exchange on Thursday.

In the Philadelphia region, UHS owns Brooke Glen Behavioral Hospital in Fort Washington; Fairmount Behavioral Health System and Friends Hospital, both in Philadelphia; the Horsham Clinic in Ambler; KeyStone Center in Wallingford; and Hampton Behavioral Health Center in Westampton, according to its annual report.

It controls 776 of the 1,254 inpatient psychiatric beds in Southeastern Pennsylvania.

Friends Hospital, on Roosevelt Boulevard, is the only local facility listed as under investigation in UHS's annual report. The 219-bed facility, which UHS acquired in 2010 when it bought Psychiatric Solutions Inc. for $2 billion, received U.S. Department of Justice subpoenas in 2010 and 2011, covering periods before UHS ownership.

Despite the regulatory cloud over its psychiatric operations, UHS added 471 new behavioral health beds last year and plans to add between 500 and 700 beds this year, including 126 beds at Lancaster Behavioral Health Hospital, a joint venture with the University of Pennsylvania Health System's Lancaster General Health.

UHS's behavioral health operations had $810 million in profits before taxes last year on $4.9 billion in net revenue, while its acute-care hospitals had $459 million in profits before taxes on $5.5 billion in revenue.