Overview

Our principal business is owning and operating, through our subsidiaries, acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. As of September 30, 2009, we owned and/or operated or had under construction, 25 acute care hospitals (excluding 2 new replacement facilities currently being constructed) and 104 behavioral health centers located in 32 states, Washington, D.C. and Puerto Rico. As part of our ambulatory treatment centers division, we manage and/or own outright or in partnerships with physicians, 8 surgical hospitals and surgery and radiation oncology centers located in 5 states and Puerto Rico.

Net revenues from our acute care hospitals, surgical hospitals, surgery centers and radiation oncology centers accounted for 74% and 73% of our consolidated net revenues during the three-month periods ended September 30, 2009 and 2008, respectively, and 74% during each of the six-month periods ended September 30, 2009 and 2008. Net revenues from our behavioral health care facilities accounted for 25% of our consolidated net revenues during each of the three and nine-month periods ended September 30, 2009 and 2008. Approximately 1% and 2% of our consolidated net revenues during the three-month periods ended September 30, 2009 and 2008, respectively, and 1% during each of the nine-month periods ended September 30, 2009 and 2008 were recorded in connection with a construction management contract pursuant to the terms of which we built a newly constructed acute care hospital for an unrelated party that was completed during the fourth quarter of 2009.

Services provided by our hospitals include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and behavioral health services. We provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.

Forward-Looking Statements and Risk Factors

This Quarterly Report contains "forward-looking statements" that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of our goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as "may," "will," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "appears," "projects" and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or our good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Such factors include, among other things, the following:

• our ability to comply with the existing laws and government regulations, and/or changes in laws and government regulations;

• an increasing number of legislative initiatives have been introduced or proposed in recent years that would result in major changes in the health care delivery system on a national or state level and we cannot predict whether any of the proposals will be adopted and, if adopted, no assurances can be given that their implementation will not have a material adverse effect on our business, financial condition or results of operations (see Item 1A. Risk Factors-Health Care Reform for additional disclosure);

• possible unfavorable changes in the levels and terms of reimbursement for our charges by third party payors or government programs, including Medicare or Medicaid;

• an increase in the number of uninsured and self-pay patients treated at our acute care facilities that unfavorably impacts our ability to satisfactorily and timely collect our self-pay patient accounts;

• our ability to enter into managed care provider agreements on acceptable terms and the ability of our competitors to do the same, including contracts with United/Sierra Healthcare in Las Vegas, Nevada;

• the outcome of known and unknown litigation, government investigations, and liabilities and other claims asserted against us, including matters as disclosed in Item 1. Legal Proceedings;

• the potential unfavorable impact on our business of continued deterioration in national, regional and local economic and business conditions, including a continuation or worsening of unfavorable credit market conditions;

• competition from other healthcare providers, including physician owned facilities in certain markets, including McAllen/Edinburg, Texas, the site of one of our largest acute care facilities;

• technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for healthcare;

• demographic changes;

• our ability to successfully integrate and improve our recent acquisitions and the availability of suitable acquisitions and divestiture opportunities;

• a significant portion of our revenues is produced by a small number of our facilities;

• our ability to continue to obtain capital on acceptable terms, including borrowed funds, to fund the future growth of our business;

• some of our acute care facilities continue to experience decreasing inpatient admission trends;

• our financial statements reflect large amounts due from various commercial and private payors and there can be no assurance that failure of the payors to remit amounts due to us will not have a material adverse effect on our future results of operations;

• the ability to obtain adequate levels of general and professional liability insurance on current terms;

• changes in our business strategies or development plans;

• fluctuations in the value of our common stock, and;

• other factors referenced herein or in our other filings with the Securities and Exchange Commission.

During the third quarter of 2009, Southwest Healthcare System ("SWHCS"), which operates Rancho Springs Medical Center and Inland Valley Regional Medical Center in Riverside County, California, entered into an agreement with the Center for Medicare and Medicaid Services ("CMS"). The agreement required SWHCS to engage an independent quality monitor to assist SWHCS in meeting all CMS' conditions of participation. Further, the agreement provides that between the approximate dates of November 15, 2009 and January 15, 2010, CMS will conduct a full Medicare certification survey. While we believe that SWHCS has complied with all obligations under the agreement, there can be no assurance as to the outcome of such a survey or that the outcome would not have a material adverse effect on us.

Given these uncertainties, risks and assumptions, you are cautioned not to place undue reliance on such forward-looking statements. Our actual results and financial condition could differ materially from those expressed in, or implied by, the forward-looking statements.

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to publicly update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We consider our critical accounting policies to be those that require us to make significant judgments and estimates when we prepare our consolidated financial statements. For a summary of our significant accounting policies, please see Note 1 to the Consolidated Financial Statements as included in our Form 10-K for the year ended December 31, 2008.

Revenue recognition: We record revenues and related receivables for health care services at the time the services are provided. Medicare and Medicaid revenues represented 39% and 38% of our net patient revenues during the three-month periods ended September 30, 2009 and 2008, respectively, and 38% and 37% during the nine-month periods ended September 30, 2009 and 2008, respectively. Revenues from managed care entities, including health maintenance organizations and managed Medicare and Medicaid programs, accounted for 46% and 47% of our net patient revenues during the three-month periods ended September 30, 2009 and 2008, respectively, and 46% during each of the nine-month periods ended September 30, 2009 and 2008.

Provision for Doubtful Accounts: On a consolidated basis, we monitor our total self-pay receivables to ensure that the total allowance for doubtful accounts provides adequate coverage based on historical collection experience. Our accounts receivable are recorded net of allowance for doubtful accounts of $216 million at September 30, 2009 and $163 million at December 31, 2008.

Patients that express an inability to pay are reviewed for write-off as potential charity care. Our accounts receivable are recorded net of established charity care reserves of $86 million at September 30, 2009 and $85 million as of December 31, 2008.

Recent Accounting Pronouncements: For a summary of recent accounting pronouncements, please see Note 13 to the Consolidated Financial Statements, as included herein.

Results of Operations

The following table summarizes our results of operations and is used in the
discussion below for the three months ended September, 2009 and 2008 (dollar
amounts in thousands):



                                                Three months ended              Three months ended
                                                September 30, 2009              September 30, 2008
                                                               % of                             % of
                                                Amount       Revenues         Amount          Revenues
Net revenues                                  $ 1,295,109       100.0 %     $ 1,244,462          100.0 %
Operating charges:
Salaries, wages and benefits                      558,244        43.1 %         530,858           42.7 %
Other operating expenses                          253,792        19.6 %         269,299           21.6 %
Supplies expense                                  171,652        13.3 %         170,743           13.7 %
Provision for doubtful accounts                   141,086        10.9 %         125,003           10.0 %
Depreciation and amortization                      51,205         4.0 %          48,465            3.9 %
Lease and rental expense                           17,253         1.3 %          17,600            1.4 %

Subtotal operating expenses                     1,193,232        92.1 %       1,161,968           93.4 %

Income from continuing operations before
interest expense and income taxes                 101,877         7.9 %          82,494            6.6 %
Interest expense, net                              10,780         0.9 %          13,419            1.0 %

Income from continuing operations before
income taxes                                       91,097         7.0 %          69,075            5.6 %
Provision for income taxes                         32,043         2.4 %          22,536            1.9 %

Income from continuing operations                  59,054         4.6 %          46,539            3.7 %
Income from continuing operations
attributable to minority interests                  7,980         0.7 %           9,316            0.7 %

Income from continuing operations
attributable to UHS                                51,074         3.9 %          37,223            3.0 %
Loss from discontinued operations, net of
income taxes                                           -           -               (226 )          0.0 %

Net income attributable to UHS                $    51,074         3.9 %     $    36,997            3.0 %

Net revenues increased 4% or $51 million to $1.30 billion during the three-month period ended September 30, 2009 as compared to $1.24 billion during the comparable prior year quarter. This increase was due primarily to a $59 million or 5% increase in net revenues generated at acute care hospitals and behavioral health care facilities owned during both periods (which we refer to as "same facility"). Partially offsetting the increase in our same facility revenues was a $15 million decrease in revenues earned in connection with a construction management contract pursuant to the terms of which we built a newly constructed acute care hospital for an unrelated party that was completed during the fourth quarter of 2009.

Income from continuing operations before income taxes (before deduction for income attributable to minority interests) increased $22 million to $91 million during the three-month period ended September 30, 2009 as compared to $69 million during the comparable quarter of the prior year. Included in our income from continuing operations before income taxes during the third quarter of 2009, as compared to the comparable prior year quarter, was the following:

• an increase of $16 million at our acute care facilities as discussed below in Acute Care Hospital Services;

• an increase of $9 million at our behavioral health care facilities, as discussed below in Behavioral Health Services, and;

• a decrease of $3 million from other combined net unfavorable changes.

Net income attributable to UHS increased $14 million to $51 million during the three-month period ended September 30, 2009 as compared to $37 million during the comparable prior year quarter. The increase in net income attributable to UHS during the third quarter of 2009, as compared to the comparable prior year quarter, consisted of:

• the increase of $22 million in income from continuing operations before income taxes, as discussed above;

• a decrease of $9 million resulting from an increase in income tax expense due to the tax provision on the $22 million increase in income from continuing operations before income taxes, as discussed above, and;

• an increase of $1 million resulting from a decrease in income from continuing operations attributable to minority interests.

The following table summarizes our results of operations and is used in the discussion below for the nine months ended September 30, 2009 and 2008 (dollar amounts in thousands):

                                                 Nine months ended             Nine months ended
                                                September 30, 2009            September 30, 2008
                                                               % of                          % of
                                                Amount       Revenues         Amount       Revenues
Net revenues                                  $ 3,911,168       100.0 %     $ 3,785,015       100.0 %
Operating charges:
Salaries, wages and benefits                    1,641,491        42.0 %       1,600,514        42.3 %
Other operating expenses                          759,907        19.4 %         777,257        20.5 %
Supplies expense                                  522,030        13.3 %         524,246        13.9 %
Provision for doubtful accounts                   380,734         9.7 %         365,446         9.7 %
Depreciation and amortization                     153,424         3.9 %         142,544         3.8 %
Lease and rental expense                           51,912         1.3 %          53,021         1.4 %

Subtotal operating expenses                     3,509,498        89.7 %       3,463,028        91.5 %

Income from continuing operations before
interest expense and income taxes                 401,670        10.3 %         321,987         8.5 %
Interest expense, net                              35,297         0.9 %          40,147         1.1 %

Income from continuing operations before
income taxes                                      366,373         9.4 %         281,840         7.4 %
Provision for income taxes                        131,308         3.4 %          95,352         2.5 %

Income from continuing operations                 235,065         6.0 %         186,488         4.9 %
Income from continuing operations
attributable to minority interests                 35,557         0.9 %          34,022         0.9 %

Income from continuing operations
attributable to UHS                               199,508         5.1 %         152,466         4.0 %
Income from discontinued operations, net
of income taxes                                        -           -                434         0.0 %

Net income attributable to UHS                $   199,508         5.1 %     $   152,900         4.0 %

Net revenues increased 3% or $126 million to $3.91 billion during the nine-month period ended September 30, 2009 as compared to $3.79 billion during the comparable prior year period. The increase was attributable to:

• a $116 million or 3% increase in net revenues generated at acute care hospitals and behavioral health care facilities owned during both periods, and;

• $10 million of other combined net increases in revenues consisting primarily of the revenues earned at recently acquired or opened behavioral health care facilities.

Income from continuing operations before income taxes (before deduction for income attributable to minority interests) increased $84 million to $366 million during the nine-month period ended September 30, 2009 as compared to $282 million during the comparable prior year period. Included in our income from continuing operations before income taxes during the first nine-month period of 2009, as compared to the comparable prior year period, was the following:

• an increase of $48 million at our acute care facilities as discussed below in Acute Care Hospital Services (excluding the favorable impact of the reduction to our professional and general liability self-insurance reserves, as discussed below);

• an increase of $22 million at our behavioral health care facilities, as discussed below in Behavioral Health Services (excluding the favorable impact of the reduction to our professional and general liability self-insurance reserves, as discussed below);

• an increase of $23 million resulting from the reduction recorded during the second quarter of 2009 to our professional and general liability self-insurance reserves relating to years prior to 2009 (please see Note 5 to the Consolidated Financial Statements, as included herein);

• a decrease of $5 million in the income earned in connection with construction management contracts pursuant to the terms of which we built two newly constructed acute care hospitals for an unrelated party, and;

• a decrease of $4 million from other combined net unfavorable changes.

Net income attributable to UHS increased $47 million to $200 million during the nine-month period ended September 30, 2009 as compared to $153 million during the comparable prior year period. The increase in net income during the first nine months of 2009, as compared to the comparable prior year period, consisted of:

• the increase of $84 million in income from continuing operations before income taxes, as discussed above;

• a decrease of $36 million resulting from an increase in income tax expense consisting primarily of: (i) a $32 million increase due to the tax provision on the $84 million increase in income from continuing operations before income taxes, as discussed above, and; (ii) a $4 million increase due to an unfavorable discrete tax item recorded in connection with the settlement of the government's investigation of our South Texas Health System affiliates (please see Note 5 to the Consolidated Financial Statements, as included herein);

• a decrease of $2 million from an increase in income from continuing operations attributable to minority interests, and;

• an increase of $1 million from other combined net favorable changes.

Acute Care Hospital Services

Same Facility and All Acute Care Basis

We believe that providing our results on a "Same Facility" basis, which includes the operating results for facilities owned in both the current year and prior year periods, is helpful to our investors as a measure of our operating performance. Our "Same Facility" results also neutralize the effect of items that are nonrecurring or non-operational in nature including items such as, but not limited to, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods.

The following table summarizes the results of operations for our acute care facilities, on a same facility basis, and is used in the discussion below for the three and nine months ended September 30, 2009 and 2008 (dollar amounts in thousands):

                                           Three Months Ended                         Nine Months Ended
                                              September 30,                             September 30,
                                    2009        %       2008        %        2009         %        2008         %
Net revenues                      $ 947,267   100.0   $ 899,327   100.0   $ 2,859,559   100.0   $ 2,776,227   100.0

Salaries, wages and benefits        361,777    38.2     354,239    39.4     1,068,777    37.4     1,058,477    38.1
Other operating expenses            177,589    18.7     174,717    19.4       521,400    18.2       519,868    18.7
Supplies expense                    151,478    16.0     150,322    16.7       461,511    16.1       463,874    16.7
Provision for doubtful accounts     132,856    14.0     116,041    12.9       355,921    12.4       339,659    12.2
Depreciation and amortization        41,364     4.4      38,281     4.3       123,748     4.3       113,967     4.1
Lease and rental                     12,382     1.3      12,256     1.4        37,215     1.3        37,073     1.3

Subtotal operating expenses         877,446    92.6     845,856    94.1     2,568,572    89.8     2,532,918    91.2

Income from continuing
operations before interest
expense and income taxes             69,821     7.4      53,471     5.9       290,987    10.2       243,309     8.8
Interest expense, net                   593     0.1         967     0.1         2,686     0.1         2,870     0.1

Income from continuing
operations before income taxes
(before deducting income
attributable to minority
interests)                        $  69,228     7.3   $  52,504     5.8   $   288,301    10.1   $   240,439     8.7

The results of operations reflected above are before deduction for income from continuing operations attributable to minority interests which was $7.8 million and $9.7 million during the three-month periods ended September 30, 2009 and 2008, respectively, and $35.1 million and $34.4 million during the nine-month periods ended September 30, 2009 and 2008, respectively. After deducting income from continuing operations attributable to minority interests for each period from the income from continuing operations before income taxes, as reflected above, our acute care facilities generated pre-tax income from continuing operations of $61.4 million and $42.8 million during the three-month periods ended September 30, 2009 and 2008, respectively, and $253.2 million and $206.0 million during the nine-month periods ended September 30, 2009 and 2008, respectively.

During the three-month period ended September 30, 2009, as compared to the comparable prior year quarter, net revenues at our acute care hospitals increased $48 million or 5%. Our income from continuing operations before income taxes increased $17 million or 32% to $69 million or 7.3% of net revenues during the third quarter of 2009 as compared to $53 million or 5.8% of net revenues during the comparable prior year quarter.

During the nine-month period ended September 30, 2009, as compared to the comparable prior year period, net revenues at our acute care hospitals increased $83 million or 3%. Excluding the favorable impact of the below-mentioned reduction to our professional and general liability self-insurance reserves, our income from continuing operations before income taxes increased $48 million or 20% to

$288 million or 10.0% of net revenues during the first nine months of 2009 as compared to $240 million or 8.7% of net revenues during the comparable prior year period.

As mentioned above, our results for the nine-month period ended September 30, 2009 were favorably impacted by a $23 million reduction to our professional and general liability self-insurance reserves relating to years prior to 2009. Although approximately $20 million of the favorable impact applies to our acute care facilities, the favorable impact is not reflected in the acute care results shown on the table above since the reduction was related to years prior to 2009. After adjusting the above-reflected acute care results for the nine-month period ended September 30, 2009 for this item, our income from continuing operations before income taxes (before deduction for income attributable to minority interests) amounted to $309 million. There were no such adjustments applicable to the three-month period ended September 30, 2009 or the three and nine-month periods ended September 30, 2008. There were no other differences between "Same Facility" and "All Acute Care Basis" during the three and nine-month periods ended September 30, 2009 and 2008 as there were no acute care hospitals acquired or opened during the period of January 1, 2008 through September 30, 2009.

In addition to the increase in net revenues resulting from the factors mentioned . . .