Universal Health Services Q3 2026: EPS fell 10.9% to $5.22 as costs outgrew 5.3% sales growth

Universal Health Services (UHS) runs acute-care hospitals and one of the largest networks of psychiatric (behavioral health) hospitals in the US. In the third quarter of 2026, net revenues rose 5.3% to $4.733 billion, but net income attributable to UHS fell 17.2% to $308.7 million and diluted EPS fell 10.9% to $5.22. The year-ago quarter had more one-time help, but pre-tax income was still down about 8% after setting those items aside. Costs grew faster than revenue in both segments, and interest expense rose 46% after UHS borrowed to buy Talkspace and repurchase stock. This report is based on the October 27 earnings release; the full 10-Q, with management's discussion of the results, is not yet filed.

The numbers

Adjusted EBITDA net of NCI is UHS's measure of earnings before interest, tax, depreciation and amortization, excluding the share of profit owned by minority partners and other (income) expense.

For the first nine months, revenue rose 7.7% to $13.867 billion and diluted EPS rose 4.9% to $16.86. Nine-month net income attributable to UHS fell 2.6% to $1.016 billion, so the EPS gain came from the lower share count.

Acute care: more patients, less revenue per patient

UHS's same-facility acute hospitals (those it operated in both periods) treated more patients this quarter. Adjusted admissions rose 4.9%. "Adjusted" means outpatient visits are converted into equivalent inpatient stays. Revenue per adjusted admission fell 1.7%, however, so same-facility acute revenue grew only 4.7%, to $2.611 billion. Some of that decline reflects the comparison: the year-ago quarter included $90 million of reimbursements from a Washington, D.C. Medicaid program that covered a full twelve months (October 2024 to September 2025).

Costs grew faster than revenue. Same-facility acute salaries, wages and benefits rose 7.3%, from 39.1% to 40.0% of revenue. Other operating expenses rose 7.4%. Same-facility acute pre-tax income fell 5.3% to $302.1 million, and its pre-tax margin fell to 11.6% from 12.8%. Across all acute hospitals, including those acquired or opened in the past year, income from operations fell 8.3% to $275.1 million.

Behavioral health: volumes recovered, margins did not

Same-facility behavioral adjusted admissions rose 2.5% and revenue per adjusted admission rose 1.7%. Same-facility behavioral revenue grew 4.0% to $1.857 billion. Labor costs grew faster: salaries, wages and benefits rose 5.7%, from 54.6% to 55.6% of revenue. Same-facility behavioral income from operations fell 3.7% to $332.0 million, a 17.9% margin compared with 19.3%.

Across all behavioral facilities, results were weaker. Income from operations fell 10.3% to $311.4 million, and the margin fell to 15.8% from 18.7%. Other operating expenses rose to 23.4% of revenue from 21.0%. The "all facilities" figures include businesses acquired or opened in the last twelve months, such as Talkspace, the virtual behavioral health company UHS bought in August 2026. The release does not break out Talkspace's revenue or profit, so its exact effect cannot be measured yet. The quarter also includes a $26 million increase in malpractice and liability reserves. UHS says this relates mainly to its tentative August settlement of the Cumberland Hospital lawsuits. UHS's same-facility figures exclude reserves for lawsuits and settlements, which helps explain the gap between the two sets of numbers.

What the headline numbers hide

• The comparison is harsher than the business. Q3 2026 included a net favorable $21 million pre-tax: $47 million of higher Medicaid supplemental payments (mainly D.C. and California) minus the $26 million reserve increase. Q3 2025 included a net favorable $55 million plus a $13.1 million unrealized gain on equity securities. Excluding these items, pre-tax income was about $393 million, compared with about $429 million a year earlier. That is a decline of roughly 8%, not the reported 16.7%. The business is still earning less, but by about half as much as the headline suggests.
• Interest and depreciation are growing faster than revenue. Net interest expense rose $17.8 million, or 46%. Depreciation and amortization rose 12.8%. Debt reached $5.707 billion, up from $4.691 billion a year earlier, after $1.003 billion of acquisitions in the first nine months (Talkspace among them) and $729.9 million of share repurchases. Debt is now 2.07 times trailing EBITDA, up from 1.83 times. Goodwill increased by $747 million since December.
• Buybacks are limiting the EPS decline. The diluted share count fell 7.1%. UHS repurchased 1.35 million shares for $242.1 million in the quarter, at an average price of about $179 per share. Without the lower share count, EPS would have fallen about as much as net income did (-17%). Dividends paid were $36.6 million for the first nine months; the release gives only a nine-month figure.
• Cash conversion is strong. Q3 operating cash flow was $636.6 million, about twice net income of $313.3 million. Nine-month operating cash flow rose 14.9% to $1.481 billion. Receivables do not look stretched: days sales outstanding (how long patients and insurers take to pay) was 55, the same as a year earlier.
• No adjustments this quarter. UHS reported GAAP and adjusted EPS of $5.22 each. Last year's adjusted figure removed a $0.16 securities gain.

On balance, the quarter is understated. Larger one-time items in Q3 2025 make the year-over-year comparison look worse than the change in the business. Even so, underlying pre-tax income fell about 8%.

Did last time's read hold up?

Our Q2 2026 report named two things to watch in Q3. Both moved in UHS's favor:

• Behavioral same-facility admissions: these rose 2.5%, compared with +0.5% in Q2. Volume, not only pricing, drove the segment's revenue growth this quarter. Revenue per adjusted admission rose a smaller 1.7%.
• Acute "other operating expenses": these rose 7.4% on a same-facility basis (5.9% across all acute hospitals), compared with 15.9% growth in Q2.

Those improvements did not raise profit. Labor costs, interest expense and acquisitions pushed earnings down instead.

Takeaway: UHS's hospitals are busier, with acute admissions up 4.9% and behavioral admissions up 2.5%. But revenue per patient in acute care fell and wages grew faster than revenue in both segments, so same-facility operating profit fell in both. Debt-funded buybacks and the Talkspace purchase added $17.8 million of quarterly interest expense. The 7.1% lower share count limited the EPS decline to 10.9%.

Outlook

The release does not update UHS's 2026 forecast. It refers to the forecast disclosed on July 27, 2026 and says the $21 million net favorable items this quarter were not in it. As our Q2 report recorded, that forecast was adjusted EPS of $22.28–$23.65. With nine-month adjusted EPS at $16.83, the range implies $5.45–$6.82 for Q4. Q3's adjusted EPS of $5.22, which included $21 million of items outside the forecast, is below the bottom of that implied Q4 range. To reach the range, Q4 would need to beat Q3. Watch for whether management narrows or cuts the range on the October 28 call or in the 10-Q.

What to watch next quarter:

• Acute revenue per adjusted admission. Revenue per admission fell 1.7% this quarter while admissions rose 4.9%. Check whether this was a one-quarter effect of last year's D.C. payment or a sign of a weaker mix of patients and payers.
• Talkspace and interest expense. The 10-Q should show how much revenue and profit Talkspace added and what it cost. At $56 million a quarter, interest is now a meaningful drag on earnings.
• Medicaid policy. UHS's risk factors note that the July 2025 federal legislation limits provider taxes and adds Medicaid work requirements over the next several years. Supplemental Medicaid payments made up most of the one-time help in both this year's and last year's third quarter.