Universal Health sees merger activity steady

NEW YORK (Reuters) - Universal Health Services Inc. (UHS.N: Quote, Profile, Research, Stock Buzz) Chief Executive Officer Alan Miller on Tuesday said he sees acquisition activity in 2007 matching this year's rate, and he sees growth markets despite the rising tide of patients without health insurance.

"At the moment we have had a lot of opportunities in the psychiatric area -- we've made a number of acquisitions there. We continue to have prospects," Miller said at the Reuters Health Summit in New York.

King of Prussia, Pennsylvania-based Universal, which owns 21 acute-care hospitals and 45 psychiatric hospitals, made deals to acquire about four psychiatric hospitals in 2006.

Potential acquisition targets are more expensive on the acute-care side, but Universal is also actively looking, he said. He declined to name which markets he is pursuing.

General acute-care hospitals are struggling under rising levels of bad debt stemming from the increasing rolls of the uninsured in the U.S., now about 46.6 million, or about 16 percent of the U.S. population.

Unpaid medical bills equaled about 11 percent of total revenue in Universal's third quarter.

The company's psychiatric hospitals, however, are not hurt nearly as much as its acute-care hospitals by uninsured trends.

Operating margins at its psychiatric facilities are nearly 25 percent, compared with about 12 percent for its general hospitals.

The uninsured and medical debt problem is leading to historically low valuations in the hospital sector. That in turn has led to interest by private equity investors.  Continued...