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United Health Services Inc. Q1 2008 Earnings Call Transcript

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2008-04-25 11:29:07.0

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Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Christine Arnold of Morgan Stanley. Christine your line is open.

Steve Filton

Next.

Operator

Your next question comes from Adam Feinstein of Lehman Brothers.

Adam Feinstein - Lehman Brothers

Okay and I am actually here. So, great quarter looks phenomenal. Just a couple of questions here, Alan and Steve. Just may be if you could just talk a little bit about the operating leverage. I mean clearly a big benefit to margins from better pricing, Steve you mentioned better job of managing registry costs and malpractice. But clearly the operating leverage is very impressive here. Just wanted to get some more thoughts there, and was just curious if you can quantify just the improvement in our registry and I've a couple of follow up questions?

Steve Filton

Okay well, I mean again I think its does start with the same store revenues. Obviously we had same store revenue growth of 7% on the Acute side and 9% on the behavioral side Adam. And frankly I think with those kinds of same store revenue growths, we would anticipate that leverage is available? operating leverage is available to us, and I think our operators deserve a lot of credit in the first quarter for making that happen.

We announced that adjustment to our malpractice reserves back in, I think, the second quarter of 2007 and said we'd have an ongoing benefit from that and clearly that has been the case. Our malpractice expense in the first quarter was $4 million or $5 million lower than it was in last year's first quarter. Our registry expense was about $3 million lower than it was in last year's first quarter, which is pretty I think impressive given the fact that I think other providers have decided sort of the unexpected severity, the flu season as a reason why their registry cost has increasing now.

A good portion of that decline in fairness is due to the Las Vegas market, where we were experiencing some significant registry cost last year as a result of the kind of lingering result of the strike we had in December of '06, and we had some registry commitments that extended into the first quarter of '07. So there is a positive comparison there.

But even in hospitals that didn't have great revenue performance like McAllen where we lost as we discussed on previous calls, significant amount of OB business. That facility did a good job of adjusting their cost downward, and as a result raising their margins even on lower revenues. And in facilities like Texoma which we acquired in the first quarter of '07, we've made some of the operating improvement that we anticipated making when we did the acquisition, and that's reflected in our expanded margins as well.

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