Steve Filton - CFO Alan Miller - CEO.

Justin Lake - JPMorgan Whit Mayo - Robert Baird Darren Lehrich - Deutsche Bank Collin Lang - FBR Jason Gurda - KeyBanc Capital Markets Josh Raskin - Barclays Kevin Fischbeck - Bank of America Merrill Lynch Ralph Giacobbe - Credit Suisse A.J.

Rice - UBS Gary Taylor - Citi John Ransom - Raymond James Gary Lieberman - Wells Fargo Anthony He - RBC Capital Market Chris Rigg - Susquehanna.

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services First Quarter 2014 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. I would now like to turn the call over to Mr. Steve Filton, Chief Financial Officer. Please go ahead, sir..

Thank you. Good morning. This is Steve Filton. Alan Miller, our CEO, is also joining us this morning. Welcome to this review of Universal Health Services results for the first quarter ended March 31, 2014.

During this conference call, Alan and I 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 risk and uncertainties inherent in these forward looking statement I 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, 2013.

We would 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 recorded net income attributable to UHS per diluted share of $1.38 for the quarter.

After adjusting each quarters reported results for the items disclosed on the supplemental schedule included with last night’s earnings release, adjusted net income attributable to UHS increased 11% to $1.36 per diluted share during the first quarter of 2014 as compared to $1.22 per diluted share during the first quarter of last year.

On a same facility basis in our acute care division revenues increased 5.8% during the first quarter of 2014. The increase resulted primarily from a 6.3% increase in revenue per adjusted admission.

The revenue increase was due in part to strengthening surgical volumes, additionally payer mix improved in the quarter with less uninsured patients and more Medicaid and commercial insurance patients.

On a same facility basis, operating margins for our acute care hospitals increased to 19.8% during the first quarter of 2014, up 16% during the first quarter of 2013. On a same facility basis revenues in our behavioral health division increased 3.7% during the first quarter of 2014.

Adjusted admissions to our behavioral health facilities owned for more than a year increased 2.3% and adjusted patient days were relatively flat during the quarter. Revenue per adjusted patient day rose 2.1% during the first quarter of 2014 over the comparable prior year quarter.

On a same facility basis, operating margins for our behavioral health division decreased to 27.9% during the quarter ended March 31, 2014 as compared to 28.5% during the comparable prior year quarter. The decline is largely attributable to continued length of stay pressures and a reduction in the number of military patients.

Our cash provided by operating activities increased 9% to approximately $195 million during the first quarter of 2014 as compared to $178 million in the first quarter of 2013. Our accounts receivable days outstanding increased slightly to 57 days during the first quarter of 2014 from 56 days during the comparable 2013 quarter.

Our ratio of debt to total capitalization decreased to 48.6% at March 31, 2014 as compared to 56.4% at March 31, 2013. We spent $92 million on capital expenditures during the first quarter of 2014. We’re pleased to answer your questions at this time. And in the interest of fairness I ask that everybody limit themselves to one question..

Your first question comes from Justin Lake from JPMorgan. Your line is open..

Good morning. My question is on reform obviously your great payer mix in the quarter can you give us a little more color on what you saw in terms of the benefit to reform maybe in state that expanded versus that expand commercial mix et cetera? Thank you..

Sure. So I think that I sided in my prepared remarks I think factors that really contributed to the strength in acute care revenues one is the increased surgical volume and I don’t think that’s necessarily reform related it’s probably more related to the improving economy and hospitals gaining traction in that regard.

As far as the payer mix goes as I suggested in my opening remarks we saw slight reduction maybe a 2% or 3% reduction in our uninsured volumes in the quarter and an increase of a comparable maybe slightly lower amount in our Medicaid admissions our Medicaid volumes and maybe a slightly larger increase in our commercial insurance volumes.

We saw those trends probably more pronounced in the states that have opted into Medicaid expansion which in our case from an acute care perspective are California and Nevada and Washington DC.

We saw in a state like Nevada more definitely more than impact from the Medicaid expansion the State of Nevada has been pretty open about the fact that they’ve had a very robust expansion process, California which just had a more robust commercial exchange expansion process we definitely saw the impacts of that and saw more release would cover California in that location.

The difficulty is it’s difficult particularly on based on one quarter’s worth of data to take our payer mix changes and isolate them and identify them as specifically related to reforms. So we saw improved payer mix quite frankly in states that are not participating in Medicaid expansion.

We saw some payer mix changes that we believe are unrelated to payer mix; they’re more related to the recruitment of new physicians or opening of new service lines or a contract in the market that has gone to a narrower network that we’re benefitting from. So all those kinds of things also at play and it’s difficult for us to isolate any one change.

We certainly feel like there was a benefit from reform in the quarter but difficult to quantify with precision..

Your next question comes from Whit Mayo from Robert Baird. Your line is open..

I guess just to clarify on the 2% to 3% decline in you paid volumes. Steve are you saying that in terms -- that’s in terms of a percentage of your total volumes? Are you saying that on an absolute basis yourself pay volumes declined 2% to 3%..

So I think it’s the ladder, so our self pay volumes declined and in this case I am using patient days as a volume measure we saw a bit of a spike in our self pay length to stay in the quarter.

So our mission is actually and self pay mission has actually declined a little bit more and I am not quite sure how you can really explain what would drive the increase in the length to stay in a particular quarter. But the 2% to 3% decline is a decline in our self pay patient days on an absolute basis..

Got it.

And how do you classify your Medicaid pending? Does that fall under Medicaid or does it fall under you pay receivables?.

Medicaid pending we categorize as Medicaid and not surprisingly given the expansion activity in the quarter we definitely saw spike in Medicaid pending and that was included in the 1% or 2% increase in Medicaid overall.

So we included counts in Medicaid pending but we reserved for those or we only account for the revenue on our historical portion that we are able to successfully qualify from Medicaid..

Got it. And I guess to make a note around that the state processes, I guess adjudicating those plans.

Have there been any issues that you think could have a potential future impact?.

No, I think the only thing I would say is that some states I think Nevada notably I think because of the flood of new Medicaid applications have been measurably behind in processing application and processing payments.

I don’t think the state believes and what we believe that will ultimately impact in the long-term, anything it won’t impact cash it won’t impact our ability to take those patients et cetera. But I think there is some administrative backlog there..

Got it. And my last one just on kind of the uncompensated bad debt trends. There is some confusion of what the right readers your compensating care as a percentage of growth was down slightly, bad debt down meaningfully, the bad debt plus charity up a little.

So I guess can you just spend maybe a minute flushing out some of those moving pieces and what the right read is from your perspective?.

Sure, so as I think we always do, I think we encouraged people to look at the uncompensated care expense in total that is the cumulative total of bad debt charity care and uninsured discount.

And as we disclosed in our press release as a percentage of gross revenue that is down slightly in the quarter that trend is clearly over the last several years been an upward and a fairly measureable upward trends and the fact that it is slightly down I think I Q1 is the meaningful take away in the quarter.

As you suggest there is a pretty big shift between that debt and charity and our insurance for the quarter is always I think that as far less meaningful. Our hospitals are sort of frequently changing their policies to sort of fit their local needs in terms of how much of uninsured discount they give.

In this particular case in the first quarter we increased our uninsured discounts at most of our hospitals and that resulted in just more dollar shifting out of bad debt and into uninsured discount but again I would suggest to people that the real meaningful movement is the total..

Your next question comes from Darren Lehrich from Deutsche Bank. Your line is open..

I wanted to ask about the behavioral margins, Steve you mentioned a couple of things. We continue to see the length of state pressure, so I can understand that.

You mentioned a reduction in military patients; I’d be curious just to get a little bit more commentary on what you think is driving the margins and if you can maybe also comment as to whether there was any weather impact at all in the behavioral business or anything else.

So we ought to be thinking about from a margin standpoint as we listed the rest of the year. Thanks..

Sure. So I appreciate, actually you’re mentioning the weather down, I should have mentioned it myself. We didn’t really had any weather impact for the most part in our acute care hospitals because of our geography is we tend to be in market, other than Washington D.C. that really don’t experience much severe winter weather.

But behavioral geographic footprint is different, we’re in the upper mid west, we’re in the North East and even in places in the South and places like Atlanta we clearly experience some bad weather in the quarter, probably resulted in a couple of million dollars lower earnings in the quarter, which I think as the years goes on, we should ultimately recover from.

As you suggest the length of stay issue has been, one that has -- it's been a continuing one, pretty much uninterrupted for the last few years. We’ve seen so a little bit of improvement in Q4, maybe little bit of stabilization.

But that, the trend seems to -- and as we discussed we have largely assumed that that trend would continue in our guidance for 2014. And then lastly, we reference as we did in our year-end call.

Some amount of reduction in the business from, as the military -- and even though that’s a relatively small part of our overall business probably less than 10% in all division.

If we seen a immeasurable decline it is fairly profitable business, that’s just a function I believe, the federal budgetary pressures obviously in the last year, we’ve had sequestration, we have the government shut down, I think military basis have felt that pinch unlike other insures and other employers if you will, they’ve look for a way to put their employees their soldiers in the lowest cost setting that they can.

I think that means trying to keep them out of hospitals or at least trying to keep them on the base hospitals.

I think that’s a delicate balance these are flocks that are often, as we all know from just reading the newspaper in need of fairly significant care and I think even there are some early signs in Q2 that pendulum maybe swinging the other way. If not improving that trend at least stabilizing it, so we’ll continue to track that..

Okay. That’s great. If I could, just want to follow-up on one team with Alan.

As I relates to PIW Alan, you reference GW in the release, I’m just hoping you can help us think about, how are seeing that hospital setting and whether it will be fairly rated with GW and looks like there are prestigious hospital, so can you just comment on few there? Thanks..

We are excited about it. And it’s been a very fine hospital for a number of years and they were independent. And now they selected us and we closed yesterday and they will be working closely with GW. Interestingly, the Medical Director of GW is a physiatrist, which is unusual, a very fine guy and knows the hospital well.

And we are very excited about, that we’re working together..

Great. Okay. Thank you..

Just as a quick note and to add onto that, GW has always had, has had for some time that we use in patient physiatrist unit. So obviously, adding behavioral debt into the market is complementary to a service they already had, so my plan would be to try and make sure that the hospitals are synergistic with each other in terms of a service..

Your next question comes from Collin Lang from FBR. Your line is open..

Hi, good morning. Steve just on the future side given a very strong performance we saw this quarter.

Are there any changes to your underlying assumptions or revenue in EBITDA growth as a balance of the year or is it too early to call the positive trends that we saw in Q1, two trend?.

It’s a very good question Collin, and wondered we struggled with in preparation for the release in the call.

I think it’s always tough to make a call on long term trend based on one quarter’s results, most flocks remember 2012 in the -- first quarter 2012 we reported really kind of a banged up first quarter with very strong payer mix and you had a hard time quite frankly explaining at the time and even in with respect cut out time explaining it.

And as the year went on the payer mix had moderated and we kind of return to more normalize results. Obviously the big difference in 2014 as we have the presence of the affordable care act as I mentioned earlier though however it’s been difficult that sort of tease out the precise impact of that.

So the bottom line to answer your question is, we’re not prepared to really change any of our forecast, change in any of our trends, we’re certainly not prepared to change our overall guidance for the year. But we’ve been pleased with the strength of our acute care revenues in Q1.

And we’ll certainly continue to track and try it as fast as we can pass out what the drivers of that improvement is and we obviously we can sustain it as the year goes on..

Your next question comes from Jason Gurda from KeyBanc. Your line is open..

Good morning. Thanks.

Steve how long does it take to get a Medicaid get approval on patient on Medicaid is going to get paid for?.

I think in the normal course Jason that’s probably one or two months of us and as I said in a couple of states it’s probably going to extend it for the moment..

And then so you’re using a sort of Medicaid conversion rate in order to estimate sort of what happened in March..

Correct. And that’s something we’ve always done. So for each hospital we track our historical experience or our historical success rate in converting Medicaid pending patients to Medicaid and that’s what we use to book our contractual.

So if we have a historical two thirds conversion rate then for two thirds of the patients in Medicaid pending we assume we’re going to pay the Medicaid rate and for the remaining one third we assume we’re not going to get paid anything. And we changed those assumptions as our actual experience changes..

Okay.

And then lastly you have the potential for new behavioral role coming out shortly, and expectations or new expectations on that?.

Our expectation is that there will not be any major surprises in the new behavioral rule I think it’s entirely possible now that the industry is six years into the full implementation of the perspective payments system that there will be tweaks to the rule and changes in how core morbidities and that sort of thing are treated.

But I think that our expectation is that our base rate will not be materially impacted by any of those changes..

Your next question comes from Josh Raskin from Barclays. Your line is open..

Thanks. Steve just following up on sort of the Medicaid process I’m curious what percentage of your sort of uninsured volumes those that show up at your hospital as uninsured.

What percentage of those did you assume in the first quarter were now Medicaid eligible and how did that change relative to 2013?.

I’m not exactly sure on answering your question but I’ll do my best.

I think as we talked about in our year end call and as we thought about guidance that our assumptions for 2014 were that something like 7% or 8% of our uninsured volumes would be uninsured and then we made further assumptions about I think the most of those would become insured through Medicaid and others through lesser number through commercial exchanges and I think we ramp that a bit as the year went on.

But I am not sure I have that the exact assumptions for Q1 or just in front of me..

So I guess what I’m getting at Steve is that it sounds like your process is still conservative in the sense that you’re not assuming any change in the conversion rate the number of people that you think are Medicaid eligible that actually get signed up.

But I am just curious are you assuming is there a risk that you’re assuming more of these people Medicaid eligible and therefore may be even that conversion rate might even go down in the future because it turns out that you were being more you were assuming that more people would be eligible for Medicaid now.

Is that possible?.

So I think that your point and I have this question from others which I think is really premised on the idea that present of eligibility is likely to change sort of the conversation rate I am not sure we’re convinced with that.

But if you’re convinced of that that presented eligibility will mean a much greater percentage of patients who quality from Medicaid then I think you could argue that we’re being conservative using our historical percentages.

I do think there is a little bit of offset to that in that as where accounting for our commercial exchange patients we obviously don’t have any experience yet as to this whole idea of how many of them have actually paid premiums et cetera. So if somebody presents an insurance card to us we’re able to verify that insurance.

There may be a payment risk there that we’re not accounting for as well. So I think in our own minds those two risks to some degree offset each other..

Got you, that was actually my next question and my second question was just on the exchanges. What happens when someone doesn’t pay their premium they get the card they show up at your hospital they receive service the health plan may even pay that.

But what happens in a situation where the health plan hasn’t paid that claim yet and it turns out that that individual actually never paid their premium who is on the hook there?.

Yes, and so this is one of those questions that I think we are so early in the process does not to really have any experience to be able to answer but my gut is that either the insurance company will not pay the claim until the premium is paid or if they have paid they will make an effort to recoup that payment..

Right, so on your exchange base numbers that have been showing up with exchange insurance.

Are you booking 100% of those revenues?.

Yes..

You are, okay..

I mean, and the reason for that for the most part is we really don’t have access to that payment information. So again when we verify the insurance I think the insurance company is verifying that there is insurance they’re not giving us payment information.

Sometime in the future we may do this much like we do Medicaid pending and if there is sort of a historical percentage of people who ultimately really don’t qualify we may alter our procedures to try and take that into account. But at the moment it’s been too early for us to do that..

Yeah the market assumption sounds like 15% or so who are not paying their premiums, so I didn’t know if you were just sort of thinking, let’s take a haircut..

The part of that is because I think as the first part of your question I think we solved it on the Medicaid pending side we might have some cushions to offset there..

Your next question comes from Kevin Fischbeck from Bank of America Merrill Lynch. Your line is open..

Just a question for you around those exchange assumptions. I think you kind if said 7% or 9% reduction on sort, I think that the enrollment numbers seem to have all come in above everyone’s expectations. I guess two questions then.

First is, how do you think about that range? You feel better at the high end of the range because of all this or the leasing not to kind of move up here and form assumptions. And secondly I think we can see in payer mix and pricing and acute care margins, some benefits reform how much I guess is unclear.

But it’s not as clear what happens on the side, you kind of had some benefit built in at the high end of your range from maybe slight season benefit. Is there any indications in that side of the business we’re seeing something? Just wanted your perspective on this too..

Sure, so as far as the exchanges assumptions go Kevin just to be clear we talk about the experience being better than what most people assume. To be fair about it I mean we gave our guidance two months ago. We were using pretty recent data when we made those assumptions and put our guidance.

So I think we were using I forget the exact number, but something close to the 8 million newly insured numbers that the government has been working with. So I think our assumptions were relatively up to date when we made them two months ago and therefore I don’t think they’re terribly out of date in that regard today.

And like I said I think that we will feel much more comfortable certainly a quarter or two down the road another quarter or two down the road before we start to modify those assumptions one way or the other just given a lot of the uncertainty if it still exists.

On the behavioral side as our guidance sort of implied, I think that at the low end of the guidance there was sort of a presumption that there would be no impact from the ACA on behavior.

And that was really premised on the idea that from a Medicaid perspective and the idea that most of the benefit or most of the impact in 2014 would be for Medicaid that the behavioral hospitals would not enjoy that benefit because of the IMD exclusion.

And then I think the further assumption was that for some of the commercial exchange products the nature of sort of the high deductible benefit design in those products would limit the benefit that we might get on the behavioral side as well.

So that’s why we saw or we presume that there would be no benefit to the behavioral hospitals in the low end of our guidance. And in the first quarter I would say that we really didn’t see any impact.

Now again if you assume that one of the challenges is the high deductable nature of the plan in theory that might ease some as the year goes on and those deductibles get exhausted but we’ll see. But I think the bottom line was we would say that there was no visible impact from reform on behavioral in Q1..

That’s interesting I guess. You should have told me that you were expecting 8 million people back in February, at the time it was 4 million and it’s really looking 5.5 to 6 and their estimate down to 6. So I am surprised that we thought it was going to be as high as it was..

Kevin as we used, all we did to do our assumptions was we used the data that HHS had published and I thought it already by February had reflected 7 million people. But whatever reflected is what we use..

Your next question comes from Ralph Giacobbe from Credit Suisse. Your line is open..

Steve just struggling little bit still to understand why the charity would go up so much? I think the last several quarters we’ve seen bad debt actually pop in one of the sort of rationale around that was that you guys went to operators and sort of had them maybe more aggressively but maybe go after payments as oppose to just sort of writing them off right up front.

And now we sort of get into reform. And I would think that a lot of even that just the charity care would go away particularly in Medicaid expansion states.

So am I missing anything in terms of the thought process around that?.

No, two things Ralph. I mean one is I think just the new ones but from a process perspective I think we’re trying to allow our hospitals to do what they think is best as oppose to the other way around. And you’re right; they have tweaked this number of times.

So we have gone in the last few years, we have moved along and continuing in some quarters or in some periods increasing or making the charity care policy more liberal which I think is what we did in Q1 of this year, which just has the effect of shifting some of those unpaid dollars into charity care versus that debt and then in some cases we’ve made the charity policy more rigorous which is simply have the opposite effect which I think is what you saw in ’13 of shifting dollars into that debt.

I appreciate the fact that it’s confusing but at the end of the day all you’re doing is taking uncollected dollars based on gross billings and allocating them among these three buckets.

Effectively based on sort of this idea of why a patient hasn’t paid I’ve always viewed that as a fairly stimulus sort of distinction and at the end of the day I am only concerned with what we really are billing (Ph) paid which is why I think they are always focused on our actual cash revenue as opposed to the deductions from gross revenue.

But I appreciate the fact that it’s confusing because the accounting powers that they still insist on showing that bad debt on the face of the income statement and nothing anybody cares what I think but the way to solve this problem is simply to take the bad debt off the face of the income statement..

What was charge master increased to?.

I don’t have that in front on me Ralph but I am guessing it was probably 6% to 8%..

Okay, that’s helpful. And if I could just sneak one more in can you talk a little bit more about the acuity mix in the quarter the drivers of that maybe any stats around who much surgery was up and maybe the categories where you’re seeing that strength? Thanks..

Yes so I think our inpatient surgeries were up like 1% in the quarter and our outpatient surgeries were up 5%.

I think if you compare that to where we were a year ago we were down 5% for both in and outpatient so it’s a pretty significant swing don’t necessarily have the service line analysis in front of me but my recollection was that strength was kind of and across the board sort of strength across all specialties and quite frankly across most of the hospital portfolio as well so it wasn’t limited even to certain specialties or even to certain geographies..

Your next question comes from A.J. Rice from UBS. Your line is open..

Hi everybody I think I might just to ask first real quick about the capital deployment obviously you’ve done a couple one off behavioral deals lately not anything on the acute care side.

Can you just comment on what you’re seeing out there, what you’re greatest positions are and so forth?.

I think as we’ve said before A.J. we have the sense that most hospitals for profit, not for profit really reevaluating their going forward strategies kind of taking stock et cetera and I think they’re making all kinds of decisions about how they should position themselves or could position themselves for the future.

I think some of those processes are resulting in hospitals who have chosen to look for a partner or to sell out right et cetera we’ve been involved in some of those processes.

And we continue to be very interested in any hospital that is looking to change their strategy in any form whether that’s looking to take on a partner or looking to sell out right et cetera and we continue to be interested in those opportunities I think a lot of those opportunities as we’ve discussed over the last few years have been focused more on the rural end of the continuum and I think that not surprisingly therefore the rural hospital companies have been more active but I think we believe that going forward the universe of the hospitals that are considering those kinds of changes is expanding to include larger hospitals in larger markets..

Okay, and maybe just follow-ups as we’re now seems to be doing one question plus a follow up specifically on Temecula Valley obviously that opened in the fourth quarter.

Is that still a drag for you in the first quarter or is it breakeven it’s a contributing and second can you just comment does that have any impact on the metrics that we should be aware of when we think about your same store volume trends for example?.

So clearly A.J. I would not make a good grade school teacher since no one listens to my instructions. But as far as Temecula goes Temecula is and this is that how we anticipate is still a drag in the first quarter and I think we expect that it would be dilutive in the first half of the year and then accretive in the second half.

I will say that the overall California market has been fairly strong I kind of alluded to this in some earlier comments I do think they’re benefiting again from the two trends both from increased surgical trends but also from in their case improved payer mix and specifically I think improved commercial payer mix.

Obviously California has probably had the most successful state exchange implementation and I think we’ve seen some benefit from that..

Do you need to [indiscernible] your admissions in non-clinical basis in this quarter?.

I think it’s a payer mix issue again I mean I think those exchange patients are replacing what patients who are previously uninsured?.

Right. No, I guess I am asking about Temecula Valley is that somehow the press that your same store….

I think there is a bit of cannibalization here A.J. but again I think that’s clearly been included in our guidance..

Your next question comes from Gary Taylor from Citi. Your line is open..

Good morning Steve. Couple of questions on the same store I just want to go back to yourself paid decline on the patient days and you said, admissions were actually down more than 2% to 3%.

Would you care to actually give us that number?.

Yeah so I think self pay admissions were down 7% or 8% Gary and then I think the length of stay was up sort of 5%, 6% which that makes the patient days down 2% or 3%..

So would it be fair to think about probably double-digit decline in expansion states versus probably much less in Texas?.

Definitely more pronounced, that’s probably right but I don’t have the data in front of me..

Last question, on behavioral you called out -- you said 2 million to 3 million I guess EBITDA of EBIT you were talking about impact from the weather potentially.

Does that imply roughly like 1% top line or 1% adjusted patient day impact am I kind of in the ballpark of what you’re thinking?.

So you have obviously done the math, I am trying to do it in my head. I think that’s right, that sounds right..

I was just thinking what kind of, your average margin on there and take it up to the revenue line and divide it.

So that’s what it comes out to around 1%, so there weren’t any other assumptions about significantly different operating leverage or anything as you guys came up with that, doesn’t sound like?.

No..

Your next question comes from John Ransom from Raymond James. Your line is open..

I just wanted to try to recap to make sure I’ve got it.

Are you saying essentially that it was almost a one-for-one swap lower, fewer on ensured days and increased Medicaid? So in other words very little impact from the exchanges so far?.

Well and I think that’s part of the challenge John is that we saw an increase in commercial lives which I did say earlier in the call. It’s not clear to us in every case what that’s attributable to. So in a place like California it’s sort of easier to see where that’s attributable to the exchange process in California.

But we saw some payer mix improvement in Texas which by the way I meant. So we’re just making the assumption that obviously there is nothing or little to do with the exchange impact, especially in the markets that we’re in, because we just don’t sense that there is not a lot of exchange activity.

So we think in those cases it’s recruiting newly recruiting physicians or new contracts that we have or other dynamics.

But again this is the sort of ongoing challenge I have mentioned a few times in the quarter I think it’s difficult to take everyone of these metrics on payer mix and attribute a very specific part to reform to the economy and then other dynamics to play..

If a patient comes in with an exchange plan, do you even know that it is an exchange or it’s just another commercial plan to you?.

Again I think that in some cases the answer is yes, but I think it’s a little too early in the process for us to know with great confidence how accurate we’re about that. I think as time goes on I do believe we will get better data..

(Operator Instructions). Your next question comes from Paula Torch from Avondale Partners. Your line is open..

Was curious what are the learnings as you have increased physician employment in acquisitions. Are they generating the returns you have hoped for? How should we think about the growth there and maybe what types of physicians would you prefer to employ versus outsource and maybe you could give us some of the percentages outsource versus employee..

Generally I think when you’re talking about outsourced physicians, I think you’re talking about hospital base physicians, ER doctors, radiologists, pathologists et cetera. I don’t have the exact percentage I mean the vast majority of our ER physicians are outsourced as far as our other house based physicians. It’s really a market by market decision.

As far as your actual admitting physicians, as we’ve discussed in our calls I mean it varies by market how many of those and what percentage of those are employed? We employ both primary care physicians and specialists. Although I think our emphasis tends to be on primary care physicians.

And in terms of lessons learned, I mean I think all hospitals would generally have the same observations.

We like to or the advantage of implying physicians is to integrate them into the hospital and to hopefully have them associated more exclusively with your facility and the challenge is that once physicians are on a salary as oppose to working on their own.

The historical I think tendency has been for them to lose some of the incentives and to be less productive. And I think that’s the delicate balance that all hospitals try and work through as they employ physicians..

Your next question comes from Gary Lieberman from Wells Fargo. Your line is open..

I guess the comments regarding the impact of reform versus the economy.

When you think about the impact of the economy, what or maybe some metrics or some of the things you have seen in your market would leave you to believe that there is more or some impact from the economy?.

Well, I think the main Gary, as I said at the outset and we talked about couple of time. The increase surgical volume, to me that -- if it’s related to either the ACA or the economy, which seem to be much more logically related to ACA since highly possible it’s related, excuse me to the economy.

It’s entirely cost was related to other things as well, again recruiting a new positions, new contracts et cetera, but I don’t know that anybody was really predicting that the ACA will drive more surgical volumes.

So to add to that, the best example I can give, the acute care revenue strengthens the quarter that I think clearly didn’t have much to do with that.

The other piece is, as a result of more people going back to work but just saying in the market like Las Vegas, I think that we would expect to improve payer mix just from that trend from lower unemployment more people going back to work and getting insurance from their employer.

And again in those cases it’s been difficult for us to tease out whose got insurance as a result going back to work and who’s got insurance as a result of a commercial exchange probably..

And then maybe you should follow-up on that, as you look out towards your 2015 negotiations or manage to your contracts are you seeing any impact from the exchanges in terms of mange share looking for more now and that works or anything like that?.

I think it’s still pretty early when you talk about negotiating 2015 our benefit plan design and rates, et cetera.

So I would say the answer to your question is now, although I think that’s an expectation that we have that as we get into the late summer and early fall and those negotiations are taking place more and earn it, that those kinds of conversations will become more frequent..

Your next question comes from Anthony He from RBC Capital Market. Your line is open..

Thanks.

Just curious to see if you have any update on the AR build up, I believe it was Illinois and Texas?.

So our Illinois receivables are actually down I think about $10 million in the quarter, so that’s a good development. We get a $25 million payment on our Texas UPL receivable in the quarter, although I think the receivable also have been filled up some as well. Obviously the Temecula opening and the fact, with our new payer et cetera.

New debts contributed on to the receivable build up as well..

Okay.

And then any update on the, the plan psych bed expansions for the year?.

No. I mean again, I think we talked in the call, in the UN call and you know gave a psych bed target for the year which was in the 600 range. And I think we believe we’re still tracking to that number..

Can you give a number that you made there in the first quarter or is it….

We do not have first quarter number in front of me, Anton..

Your next question Chris Rigg from Susquehanna. Your line is open..

Good morning. Thanks for taking my question. Just the clarification, so what, it assumed in the guidance for the year and you’re dropping in sort of mission versus the 2% to 3% you saw in the first quarter.

You’re assuming 79% drop?.

That was what was in our guidance..

Okay. The first quarter was -- obviously very strong and you barely saw any benefit relative to what’s you’re looking for the year, correct..

And mostly because of the increase in line to stay in our uninsured volumes, Chris, and the answer to your question earlier, I think with actual drop in uninsured mission was pretty close to what we have guided to..

Okay. Got it. Thanks a lot..

I have no further question. Thank you. I turn the call back over to presenters for closing remarks..

We would like to thank everybody for their time. And look forward to speaking with them next quarter. Thank you..

Thank you everyone. This concludes today’s conference call. You may now disconnect..