UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF PENNSYLVANIA 

LLOYD FREED, Individually and On Behalf 

of All Others Similarly Situated, 

Plaintiff, 

vs. 

UNIVERSAL HEALTH SERVICES, INC., et 

al., 

Defendants. 

LISELOTTE KLEIN, Individually and On 

Behalf of All Others Similarly Situated, 

Plaintiff, 

vs. 

UNIVERSAL HEALTH SERVICES, INC., et 

al., 

Defendants. 

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Civ. Action No. 2:04-CV-01233-JP 

CLASS ACTION

Civ. Action No. 2:04-CV-01340-JP 

AMENDED CONSOLIDATED CLASS 

ACTION COMPLAINT FOR 

VIOLATION OF THE SECURITIES 

EXCHANGE ACT OF 1934 

JURY TRIAL DEMANDED

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 1 of 39
NATURE OF ACTION

1. This is a federal securities class action on behalf of all purchasers of the publicly 

traded securities of Universal Health Services, Inc. (“UHS” or the “Company”) between July 21, 

2003 and February 27, 2004 (the “Class Period”) seeking to pursue remedies under the Securities 

Exchange Act of 1934 (the “Exchange Act”). 

2. Defendant UHS owns and operates acute care hospitals, behavioral health centers, 

ambulatory surgery centers and radiation oncology centers. Throughout the Class Period, UHS 

materially understated its bad debt reserves thereby overstating its reported financial results. 

3. Prior to and during the Class Period, it was well known throughout the medical 

industry that health care costs were on a steady rise and that more and more individual patients were 

becoming responsible for a greater portion of their medical expenses as opposed to third-party 

payors. This trend towards self-pay – where individuals were responsible to pay hospitals for 

medical services – was leading to increasing levels of bad debt as the level of uninsured patients was 

rising. Uninsured patients are less likely to pay their debts and therefore expose the hospital to the 

increased risk of non-payment. 

4. While other companies in the hospital sector were increasing their bad debt reserves 

prior to and during the Class Period in recognition of this trend, UHS maintained its bad debt 

reserves significantly below that of its peers and consistently reported that its hospitals were not 

experiencing the same difficulties in collecting for services rendered that its competitors were. 

Furthermore, during the Class Period, UHS attributed its low bad debt levels, as compared to its 

peers, to its mix of business and superior management. 

5. In truth and fact, however, the amount of uncollectible receivables on UHS’s books 

was steadily increasing. Defendants knowingly or recklessly concealed UHS’s rising levels of bad 

debt by artificially maintaining or lowering UHS’s bad debt reserves thereby materially overstating 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 2 of 39
UHS’s financial results during the Class Period. Defendants’ manipulation of the doubtful or bad 

debt accounts falsely inflated UHS’s earnings, assets and stockholders’ equity earnings during the 

Class Period and made it appear that UHS was performing better than it actually was. 

6. During the Class Period, the price of UHS stock rose from $45.95 per share on July 

21, 2003 to $53.93 per share on February 27, 2004. While the stock was trading at these inflated 

levels, defendants Miller and Filton sold or otherwise disposed of their personally held UHS shares 

for proceeds of $6.6 million. 

7. Then, on March 1, 2004, before the markets opened, UHS shocked investors by 

withdrawing their guidance for 2004 and announcing that earnings per diluted share for the threemonth period ending March 31, 2004 could be as much as 25% lower than the $0.84 per diluted 

share recorded in the same period in the prior year. Subsequently, defendants attributed the decline 

in substantial part to a pronounced increase in bad debt from uninsured patients, UHS’s inability to 

compete effectively in two key markets in Nevada and Texas, erosion of UHS’s market share, and 

poor case management resulting in an increase in the length of patient stays beyond the period 

reimbursable by Medicaid or Medicare. The Company reported that bad debt in 2004 was likely to 

exceed the Company’s previously reported expectation of 9.5% of revenues. Finally, defendants 

admitted that the increase in the Company’s bad debt reserve for the fourth quarter was to “catch up” 

or “true-up” for under-reserving for bad debts during the fiscal year 2003. 

8. In response to these announcements, the price of UHS common stock fell $9.05, or 

17%, to $44.88 on heavy trading volume. 

JURISDICTION AND VENUE

9. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act 

(15 U.S.C. §78j(b) and §78t(a)) and Rule l0b-5 promulgated thereunder (17 C.F.R. §240.l0b-5). 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 3 of 39
10. This Court has jurisdiction of this action pursuant to 28 U.S.C. §§1331, 1337 and 

1367 and Section 27 of the Exchange Act (15 U.S.C. §78aa). 

11. Venue is properly laid in this District pursuant to Section 27 of the Exchange Act (15 

U.S.C. §78j(b) and §78t(a)) and Rule l0b-5 promulgated thereunder (17 C.F.R. §240. l0b-5). The 

acts and conduct complained of herein, including the preparation, issuance and dissemination of 

materially false and misleading information to the investing public, occurred in substantial part in 

this District, and UHS maintains its principal place of business in this District. In connection with 

the acts and conduct alleged in this Complaint, defendants, directly or indirectly, used the means and 

instrumentalities of interstate commerce, including the mails and telephonic communications and the 

facilities of the New York Stock Exchange (the “NYSE”). 

PARTIES

12. Lead Plaintiff National Asbestos Workers Pension Fund (“plaintiff”) purchased UHS 

securities, as set forth in the certification attached hereto and incorporated herein by reference. 

13. Defendant UHS is a Delaware corporation and maintains its principal executive 

offices at 367 South Gulph Road, King of Prussia, Pennsylvania. UHS owns and operates acute care 

hospitals, behavioral health centers, ambulatory surgery centers and radiation oncology centers. 

14. Defendant Alan B. Miller (“Miller”) was at all relevant times UHS’s President, Chief 

Executive Officer and Chairman of the Board. During the Class Period, Miller sold or otherwise 

disposed of 102,587 shares of his UHS stock for proceeds of over $5 million. 

15. Defendant Steve G. Filton (“Filton”) was at all relevant times UHS’s Chief Financial 

Officer. During the Class Period, Filton sold or otherwise disposed of 4,077 shares of his UHS stock 

for proceeds of $195,002. 

16. Defendants Miller and Filton are referred to collectively herein as the “Individual 

Defendants.” 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 4 of 39
17. By reason of their management positions, and/or membership on UHS’s Board of 

Directors, and their ability to make public statements in the name of UHS, the Individual Defendants 

were and are controlling persons, and had the power and influence to cause (and did cause) UHS to 

engage in the unlawful conduct complained of herein. 

18. Because of their Board memberships and/or executive and managerial positions with 

UHS, each of the Individual Defendants had access to the adverse non-public information about the 

business, finances, markets and present and future business prospects of UHS particularized herein 

via access to internal corporate documents, conversations or connections with corporate officers or 

employees, attendance at management and/or Board of Directors’ meetings and committees thereof 

and/or via reports and other information provided to them in connection therewith. 

19. Defendants had a duty to disseminate accurate and truthful information with respect 

to UHS’s operations and financial condition promptly, or to cause and direct that such information 

be disseminated, and to correct promptly any previously disseminated information that was 

misleading to the market. As a result of their failure to do so, the price of UHS securities was 

artificially inflated during the Class Period, damaging plaintiff and the Class. 

20. The Individual Defendants, because of their positions with UHS, controlled the 

contents of the quarterly and annual reports, press releases and presentations to securities analysts. 

Each Individual Defendant was provided with copies of the reports and press releases alleged herein 

to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent 

their issuance or cause them to be corrected. Because of their positions and access to material nonpublic information available to them but not the public, each of these defendants knew that the 

adverse facts specified herein had not been disclosed to and were being concealed from the public 

and that the positive representations which were being made were then false and misleading. As a 

result, each of the Individual Defendants is responsible for the accuracy of UHS’s corporate releases 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 5 of 39
detailed herein as “group-published” information and is therefore responsible and liable for the 

representations contained therein. 

21. Each of the defendants is liable as a primary violator in making false and misleading 

statements, and/or for participating in a fraudulent scheme and course of business that operated as a 

fraud or deceit on purchasers of UHS securities during the Class Period. All of the defendants had 

motives to pursue a fraudulent scheme in furtherance of their common goal, i.e., inflating the profits 

of UHS and the trading price of UHS securities by making false and misleading statements and 

concealing material adverse information. 

22. The fraudulent scheme and course of business was designed to and did: (1) deceive 

the investing public, including plaintiff and other class members; (ii) enable defendants to sell or 

otherwise dispose of thousands of shares of UHS stock at artificially inflated prices for proceeds of 

more than $6.6 million; (iii) cause plaintiff and other members of the Class to purchase UHS stock at 

inflated prices; and (iv) conceal and cover up the true financial condition of UHS. 

SUBSTANTIVE ALLEGATIONS

UHS and Its Business

23. Defendant UHS receives payments for services rendered from private-sector insurers, 

the federal government under the Medicare program, from state governments under their respective 

Medicaid programs and directly from uninsured patients. The payments are for services provided by 

UHS hospitals and their staffs and include general surgery, internal medicine, obstetrics, emergency 

room care, operating room care, radiology, oncology, diagnostic care, coronary care, pediatric 

services, pharmacy services, physiotherapy and laboratory procedures. Payments are also received 

for the hospital room and related services such as general nursing care, meals, maintenance and 

housekeeping. 

24. In 2001 and 2002, the hospital market sector began to experience a significant change 

in the mix of patients and the way they were paid. During this time, health insurance premiums, coCase 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 6 of 39
pay charges and deductibles steadily increased, which meant that increasing numbers of individuals 

were responsible for an increasing percentage of healthcare expenditures. In addition, the level of 

uninsured patients steadily increased according to a report by Susquehanna Financial Group, LLP 

published on December 10, 2003, entitled “Healthcare Services” (the “Susquehanna Report”). The 

burden of health care expenses was shifting from employers, private-sector insurers and the state and 

federal governments to individuals and there were serious implications of this shift for hospitals and 

employers such as those owned and operated by UHS and UHS’s competitors. In this regard, the 

report stated, in pertinent part, as follows: 

As a result of the unrelenting rise in healthcare costs, members of employeebased health plans are assuming a greater responsibility for their healthcare needs. 

According to a recent Towers Perrin study completed in October 2003, employers 

are facing healthcare cost increases of 12% in 2004, which makes the fifth 

consecutive year of double-digit increases. On a cumulative basis, employer 

healthcare costs have doubled since 1999. Growth in healthcare expenses has led to 

employees paying more out-of-pocket expenses for healthcare and this will continue 

into 2004. 

25. Many hospitals accounted for the shift toward increasing numbers of “self pay” 

patients by increasing their allowances for doubtful accounts. Uninsured “self pay” patients account 

for the lion’s share of hospital bad debt and, as the cost of health care shifted from the federal and 

state governments and private-sector insurers to individuals, many analysts predicted that the 

increasing self-pay mix would serve as a drag on 2004 earnings growth. According to the 

Susquehanna Report, many hospitals increased their bad debt expense in 2003 as a percentage of 

reported revenue by at least 150 basis points over the prior two years. 

UHS Materially Understated Its Bad Debt During The Class Period

26. During the same period that its competitors were increasing their bad debt reserves, 

UHS was lowering its bad debt reserves. Indeed, UHS’s debt allowance as a percentage of reported 

revenue decreased by 340 basis points, from 11.9% of revenue in June 2001 to approximately 8.5% 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 7 of 39
of revenue in 2003. During the Class Period, defendants repeatedly represented that UHS was not 

subject to the changing mix of payors and was not experiencing rising bad debt. 

27. Unbeknownst to investors, UHS was materially understating its bad debt and keeping 

its bad debt reserve artificially low, thereby overstating the Company’s financial results. 

28. This decrease reported by UHS, while other hospitals were experiencing increased 

bad debt expenses, was attributable, in material part, to UHS’s unique corporate policy during and 

before the Class Period of directing all its affiliated hospitals to never designate an account as bad 

debt if it was less than 180 days old. According to former UHS personnel employed in the business 

office of Lancaster Community Hospital (“LCH”), this corporate procedure, unbeknownst to 

investors, dictated that no accounts less than 180 days old were to be considered bad debt even if an 

account was known or anticipated to be uncollectible from the date service was provided. For 

instance, at LCH, when self-pay patients were admitted to a UHS hospital through the emergency 

room and could not or would not provide any address, phone number, personal physician contact 

information or any other information that would provide a means to pursue collection for the 

services rendered, and when a patient had no income, assets, Medicare coverage or another type of 

charity-care arrangement, such accounts were not automatically considered to be uncollectible, were 

not turned over to a collection agency, and an appropriate amount was not set aside in the bad debt 

reserves. This practice caused UHS to delay recognizing material amounts of bad debt during the 

Class Period. 

29. Moreover, according to a former business office employee at LCH, UHS’s practice 

was to bill Medicare and Medicaid for all services rendered and recognize all revenue at the time of 

service even if it was known or anticipated that a large portion of those claims would be denied. 

The time period for Medicare to reject the claim and for UHS to appeal the rejection to a final 

decision took several months. UHS routinely kept this revenue on its books the entire time, never 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 8 of 39
taking these amounts into consideration in its bad debt accounts unless and until all final appeals 

were lost. This practice also concealed the true level of bad debt at the Company.

30. Finally, Defendants were reckless in reducing UHS’s bad debt reserves during the 

Class Period as many of the Company’s hospitals were located in less economically stable markets 

which therefore exposed the Company to increased risk of non-payment. For example, LCH, 

situated in Lancaster, California began serving essentially as the county hospital in the fall of 2002 

when High Desert Hospital, previously the only county hospital in the entire area, closed its doors. 

According to a former UHS employee from the business office of LCH, it immediately began 

experiencing an influx of indigent patients seeking treatment through the emergency room. 

Likewise, Edinburg Regional Medical Center (“ERMC”) in Edinburg, Texas served as the county 

hospital before being purchased by UHS. A former ERMC director explained that ERMC inherited 

the large indigent patient population from the date of purchase. 

Materially False and Misleading Statements Issued During the Class Period

31. On July 21, 2003, UHS issued a news release over the PR Newswire in which it 

announced its financial results for the second quarter ended June 30, 2003. The Company stated 

with respect to earnings and operating margins: 

Universal Health Services, Inc. (NYSE: UHS) announced today that its net 

income and earnings per share (diluted) were $51.0 million and $.82 for the threemonth period ended June 30, 2003, and $103.7 million and $1.66 for the six-month 

period ended June 30, 2003, respectively. These results represent a 19% increase in 

earnings per share (diluted) both for the three-month and six-month periods ended 

June 30, 2003 over the comparable prior year periods. 

* * * 

Operating margins for the Company’s acute care hospitals located in the U.S. and 

Puerto Rico owned in both the three-month periods ended June 30, 2003 and June 30, 

2002, increased to 18.3% from 17.6%. Operating margins for the Company’s 

behavioral health hospitals owned in both periods increased to 23.8% during the 

second quarter of 2003 from 21.2% during the prior year quarter. The Company’s 

operating margin (as calculated on the attached schedules of Supplemental 

Consolidated Income Statement Information), increased to 16.7% in the three-month 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 9 of 39
period ended June 30, 2003 as compared to 16.0% in the same period of the prior 

year. 

32. On July 22, 2003, Defendants Miller and Filton participated in a conference call with 

analysts and investors to discuss second quarter earnings results. In response to a question regarding 

UHS’s bad debt expenses, defendant Filton responded: 

We actually think that our self-pay utilization as a percentage of overall utilization is 

pretty much pancake flat between 2003 and 2002 and have not seen significant 

changes. 

33. On August 13, 2003, UHS filed its quarterly report on Form l0-Q for the three months 

ended June 30, 2003. The 10-Q was signed and certified by defendants Miller and Filton. 

Defendants represented in the 2Q03 10-Q that operating income and operating margins were 

important measures of the Company’s performance, and that both had increased. In this regard, the 

Form l0-Q stated as follows: 

Management of the Company believes that operating income, which is a nonGAAP financial measure, is helpful to investors as a measure of the Company’s 

operating performance. The Company defines operating income as net revenues less 

salaries, wages & benefits, other operating expenses, supplies expense and provision 

for doubtful accounts. Since the source of financing for the purchase of property and 

equipment and other assets at each hospital varies, the Company believes that 

measuring operating performance before capital-related costs (such as depreciation 

and amortization, lease and rental and interest expense) provides a useful comparison 

of relative operating performance among its facilities. Operating income and 

operating margin (which is also a non-GAAP financial measure and computed by 

dividing operating income by net revenues) are used by management as analytical 

indicators for purposes of assessing the relative operating performance of the 

Company’s individual hospitals and operating segments, and the overall Company. 

In addition, the Company’s use of operating income and operating margin enables 

investors to compare the performance of the Company with that of others in the 

industry.... 

Operating income (defined as net revenues less salaries, wages & benefits, 

other operating expenses, supplies expense and provision for doubtful accounts) 

increased 16% to $151 million for the three month period ended June 30, 2003 

from $129 million in the comparable prior year quarter. Overall operating 

margins (defined as operating income divided by net revenues) were 16.7% and 

16.0% during the three month periods ended June 30, 2003 and 2002, respectively. 

Operating income increased 15% to $300 million for the six month period ended 

June 30, 2003 from $261 million in the comparable prior year period.

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 10 of 39
34. The statements referenced above in ¶¶31-33 were each materially false and 

misleading because: 

(a) Defendants had failed to properly write off uncollectible receivables 

throughout the Class Period, and materially overstated UHS’s financial results by maintaining 

known uncollectible accounts as assets on UHS’s balance sheet. In fact, UHS reported receivables 

from uninsured patients as assets even though these were essentially uncollectible on the day the 

patient left the hospital; 

(b) The Company’s allowance for doubtful accounts was insufficient given its bad 

debt exposure and, as a result, the Company’s reported operating income was artificially inflated; 

(c) The Company’s reported operating income was not a true measure of the 

Company’s operating performance because defendants failed to properly deduct from operating 

income the appropriate allowance for doubtful accounts; 

(d) UHS’s financial statements were not prepared in accordance with GAAP and 

were therefore materially false and misleading as detailed in ¶¶61-85; 

(e) UHS hospitals were losing better-paying patients to their competitors and the 

proportion of uninsured patients, who constitute a greater credit risk, was increasing; and 

(f) Due to poor case management certain UHS hospitals were unable to 

effectively manage their caseloads and, as a consequence, had experienced an increase in the number 

of Medicare patients who remained hospitalized at UHS facilities beyond the period reimbursable by 

Medicaid and Medicare and, therefore, the hospitals were not receiving full payments for the 

services provided. 

35. On October 20, 2003, UHS issued a news release over the PR Newswire in which it 

announced its financial results for the third quarter ended September 30, 2003. The release stated in 

relevant part: 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 11 of 39
Universal Health Services, Inc. (NYSE: UHS) announced today that its net 

income and earnings per share (diluted) were $47.4 million and $.76 for the threemonth period ended September 30, 2003, and $151.1 million and $2.42 for the ninemonth period ended September 30, 2003, respectively, after recording after tax, nonrecurring gains on sales of $4.4 million or $.07 per share (diluted) and an after tax 

charge for the cumulative effect of a change in accounting principle of $1.7 million 

or $.03 per share (diluted). Excluding the non-recurring gains and the cumulative 

change in accounting principle, earnings per share (diluted) for the three-month 

period ended September 30, 2003 were $.72, an 11% increase from the earnings 

recorded in the third quarter of 2002. 

* * * 

Operating margins for the Company’s acute care hospitals located in the U.S. 

and Puerto Rico owned in both the three-month periods ended September 30, 2003 

and September 30, 2002, increased to 17.0% from 16.7%. Operating margins for the 

Company’s behavioral health hospitals owned in both periods increased to 22.3% 

during the third quarter of 2003 from 19.2% during the prior-year quarter. 

36. The importance of the level of bad debt expenses to the financial health of UHS and 

its competitors was made clear by an October 13, 2003, J.P. Morgan Securities, Inc. report, which 

commented that “[w]e believe the most salient metric to watch in 3Q03 will be the magnitude of 

increases in bad debt ratios – particularly among companies operating in smaller/rural markets 

oversaturated with economically sensitive small employers and/or Medicaid beneficiaries, as they 

may find bad debt ratios increase in connection with: 1) a rising uninsured population and 2) lower 

collection rates from self-pay patients.” 

37. A week after the J.P. Morgan report referenced above, on October 21, 2003, 

Wachovia Securities published a report on UHS in which it commented on UHS’s low bad debt 

levels relative to its peers. The report stated in pertinent part: 

Bad debt remains low relative to peers because of business mix. Despite 

increasing bad debt throughout the hospital sector with higher employment, 

increasing copayments, and the rising number of uninsured, UHS’s Q3 2003 bad debt 

expense actually fell to 6.9% of revenue from 7.7% last year. On a consolidated 

basis, this is the lowest in our universe due to the company’s business mix, with the 

company’s non-acute bad debt ratio reducing the company average. Acute-care bad 

debt is 8.5-9.0% of revenue, French operations had no bad debt, and the behavioral 

health business has roughly 2.5% bad debt. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 12 of 39
38. During a conference call with analysts also held on October 21, 2003, Defendants 

suggested they had continued to maintain a lower bad debt percentage because they were not 

experiencing the same increase in providing service to uninsured patients as others in the industry. 

Filton specifically stated: 

We’re not seeing as some of the other companies have mentioned, a real 

increase in uninsured or at least uninsured after insurance patients or a difficulty in 

collecting from those patients. 

39. In reality, UHS hospitals had begun to experience increased numbers of self-pay 

patients as much as six months earlier. For example, the ERMC in Edinburg, Texas (a small, rural 

market which the October 13, 2003 J.P. Morgan report warned would experience increased bad debt 

ratios) internally recorded that bad debt was a concern in April 2003. 

40. On November 10, 2003, UHS filed its quarterly report on Form 10-Q for the three 

months ended September 30, 2003, signed by defendants Miller and Filton. With respect to the 

provision for doubtful accounts, defendants stated: 

Operating income increased 11% to $138 million for the three month period 

ended September 30, 2003 from $125 million in the comparable prior year quarter. 

Overall operating margins were 15.4% and 15.3% during the three month periods 

ended September 30, 2003 and 2002, respectively. The slight increase in the overall 

operating margin during the three month period ended September 30, 2003, as 

compared to the comparable prior year period, resulted from a decrease in the 

provision for doubtful accounts to 6.9% of net revenues during the third quarter of 

2003 as compared to 7.7% in the comparable prior year quarter, partially offset by an 

increase in salaries, wages and benefits to 40.4% of net revenues during the 2003 

third quarter as compared to 39.8% in the comparable prior year quarter. 

Contributing to the increase in salaries, wages and benefits during the third quarter of 

2003 as compared to the comparable prior year quarter was an increase of .4% of net 

revenues in employee benefit expense. 

41. Subsequent to the filing of UHS’s 3Q03 10-Q, the stock began to rise, and was 

trading at $49.98 on November 13, 2003 when CEO Miller sold or otherwise disposed of over 

26,000 shares (over 1⁄4 of his shares sold during the Class Period). 

42. The statements referenced above in ¶¶35-40 were each materially false and 

misleading because: 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 13 of 39
(a) Defendants had failed to properly write off uncollectible receivables 

throughout the Class Period, and materially overstated UHS’s financial results by maintaining 

known uncollectible accounts as assets on UHS’s balance sheet. In fact, UHS reported receivables 

from uninsured patients as assets even though these were essentially uncollectible on the day the 

patient left the hospital; 

(b) The Company’s allowance for doubtful accounts was insufficient given its bad 

debt exposure and, as a result, the Company’s reported operating income was artificially inflated; 

(c) The Company’s reported operating income was not a true measure of the 

Company’s operating performance because defendants failed to properly deduct from operating 

income the appropriate allowance for doubtful accounts; 

(d) UHS’s financial statements were not prepared in accordance with GAAP and 

were therefore materially false and misleading as detailed in ¶¶61-85; 

(e) UHS hospitals were losing better-paying patients to their competitors and the 

proportion of uninsured patients, who constitute a greater credit risk, was increasing; and 

(f) Due to poor case management certain UHS hospitals were unable to 

effectively manage their caseloads and, as a consequence, had experienced an increase in the number 

of Medicare patients who remained hospitalized at UHS facilities beyond the period reimbursable by 

Medicaid and Medicare and, therefore, the hospitals were not receiving full payments for the 

services provided. 

43. On December 10, 2003, Susquehanna Financial Group, LLP published to 

Susquehanna Report, a research report, in which it contrasted the general trend toward higher bad 

debt in 2004 in the healthcare industry to UHS’s contention that its bad debt level was stable. In this 

regard, the Susquehanna Report stated, in pertinent part, as follows: 

According to last quarter’s call, management indicated that it reviews the company’s 

bad debt expense policy by primarily looking at cash flow from operations as a 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 14 of 39
trending indicator. In addition, the company monitors days in AR, aging of accounts 

and bad debt as a percentage of revenue. Last quarter, the company indicated bad 

debt as a percentage of revenue remains stable and management sees no changes 

in payor mix or collectability of accounts. Bad debt expense in the acute care 

division was 8.5-9.0% during Q3. The Company’s French and radiation oncology 

centers carry lower bad debt risk than the acute care hospitals. 

44. A December 31, 2003 Deutsche Bank report, based on findings published by the 

Center on Budget and Policy Priorities, stated that bad debt would remain an issue for hospitals in 

2004, as Medicaid cuts would cause further uncompensated care for many hospitals. Deutsche 

Bank’s report further stated the cuts were expected to be significant in the five key “high risk” states 

of Texas, California, Tennessee, Florida and Missouri, leaving UHS with significant exposure due to 

the number of its facilities in those locations. 

45. During the 22nd Annual J.P. Morgan Healthcare Conference held in mid-January 

2004, CEO Alan Miller stated that UHS’s bad debt ratio had not been increasing at the same rate as 

its peers because UHS had not experienced a material adverse change in self-pay revenues in its 

markets or in the collection rates and expected the ratio to remain stable in the near term. Miller 

failed to disclose that UHS’s bad debt ratios were superior to other hospitals’ due to improper 

accounting practices. 

46. The statements referenced above in ¶¶43-45 were each materially false and 

misleading for the reasons set forth in ¶42 above. 

UHS Admits Its Understated Bad Debt During the Class Period

47. Just over 30 days after CEO Alan Miller had reassured investors at the 22nd Annual 

J.P. Morgan Healthcare Conference that, unlike its peers, UHS’s bad debt ratio had not been 

increasing, UHS issued a news release over the PR Newswire on February 18, 2004. The news 

release announced UHS’s financial results for the fourth quarter and year ended December 31, 2003. 

For the first time during the Class Period UHS reported an increase in its bad debt level. The release 

stated in relevant part: 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 15 of 39
Universal Health Services, Inc. (NYSE: UHS) announced today its results for 

the fourth quarter and full year ended December 31, 2003. Reported net income was 

$46.5 million or $.75 per diluted share during the fourth quarter of 2003, as 

compared to $43.9 million or $.69 per diluted share during the fourth quarter of 

2002. For the full year of 2003, reported net income was $199.3 million or $3.20 per 

diluted share as compared to $175.4 million or $2.74 per diluted share during 2002. 

* * * 

The Company’s provision for doubtful accounts was 7.8% of net revenues 

during the fourth quarter of 2003 as compared to 6.9% during the prior year’s 

fourth quarter. The increase resulted primarily from an increase in uninsured and 

self-pay patients which unfavorably impacts the collectibility of our patient accounts. 

We expect this trend to continue until there is a notable strengthening of the labor 

market. 

48. The Company announced an increase in its bad debt level for the first time in midFebruary 2004 and attributed part of the increase to a “true up” of bad debt from previous quarters. 

In this regard, Morgan Stanley stated in a February 18, 2004 research report: 

According to the Company, bad debt at the acute care hospitals increased to 

roughly 9.1% of revenue from about 8.5%. Part of the increase was due to a “trueup” of bad debt from previous quarters. 

* * * 

Consolidated bad debt expense was 7.8% of revenue in 4Q03 vs. 6.9% in 

both 3Q03 and 4Q02. According to the company, bad debt for the acute care 

hospitals ran approximately 9.1% of revenue in the quarter vs. 8.5% for the year. 

While UHS did not take a bad debt write-off in 4Q03, the company noted that the 

higher bad debt expense was used to effectively “true-up” bad debt expense from 

previous periods. The company believes that the full-year bad debt expense result 

of 7.2% of revenue is the correct run rate for 2004. However, we are raising our 

2004 estimate to 7.4% of revenue vs. 7.1% previously. Our adjustment reflects this 

quarter’s data point and what seems to be a general deterioration of bad debt 

throughout the industry. 

49. On March 1, 2004, before the market opened, the Company issued a news release 

over the PR Newswire in which it stated that its earnings per share for the three-month period ending 

March 31, 2004 could be off by as much as 25%. The release stated: 

Universal Health Services, Inc. (NYSE: UHS) announced today that its 

earnings per diluted share for the three-month period ending March 31, 2004, could 

be as much as 25% lower than the $.84 per diluted share recorded in the same period 

in the prior year. On a same facility basis, the Company’s acute care hospitals have 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 16 of 39
continued, in the first two months of 2004, to experience a decline in inpatient 

admissions. Moreover, during this period, certain of the Company’s acute care 

facilities have been impacted by a negative shift in payor mix, a decline in intensity 

and an increase in length of stay. In addition, the rising level of uninsured and selfpay patients continues to unfavorably impact our bad debt expense. The Company is 

vigorously addressing each of these areas. 

50. The announcement that bad debt numbers had unexpectedly increased is belied by the 

systematic reporting requirements of information related to bad debt which UHS imposed on its 

member hospitals. Former employees from numerous hospitals explained the ability of the corporate 

office to access financial information in electronic format for all of its hospitals. For example, at 

LCH all revenue was recognized upon delivery of service and posted in the hospital’s computerized 

billing system. That data was sent to UHS’s corporate office in electronic format approximately 

three to four times per day. Additionally, bi-weekly and monthly reports tracking accounts 

receivable and bad debt were provided to the appropriate executives at UHS’s corporate 

headquarters. Similarly, former UHS personnel from the office of the controller at Summerlin 

Hospital Medical Center (“SHMC”) confirmed that each UHS Las Vegas area hospital submitted its 

financial information, including uncollectible receivable account amounts, to Valley Health Systems, 

a centralized business office responsible for billing patients, collecting receivables and writing off 

receivables that were not collected. Valley Health Systems consolidated the financial information 

from the hospitals and forwarded it to UHS’s corporate accounting department at least on a monthly 

basis. A former director of the Midwest Center for Youths and Family Services (“Midwest Center”) 

stated there are “no surprises or sudden changes” when it comes to bad debt levels as it is known at 

the point of service whether a patient is uninsured, and because any indicators for potential bad debt 

problems would appear in reports submitted to UHS corporate offices for monthly management 

meetings. Accordingly, UHS executives were well aware of the status of bad debt accounts in 

ample time to appropriately record such information in UHS financials. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 17 of 39
51. During a conference call with analysts held on March 1, 2004, defendants further 

disclosed that they would increase UHS’s bad debt allowance to more than 10% of acute care 

revenues, that the increase was in part to “catch up” from previous quarters and that defendants had 

known of certain of the problems “for some time.” In this regard, defendant Filton stated, in relevant 

part, as follows: 

The decline in expected earnings results from a number of factors. As we have 

discussed before, we are generally finding that a (indiscernible) remain solid. 

According today to the same facility basis there’s still several percentage points 

behind the same period last year. We continue to attribute the majority of the 

admission’s weakness to the general malaise in the economy particularly the jobs 

market but we’ve also identified trends indicating that the erosion of some business 

surgeries for example in certain markets are results of increased hospital and position 

competition. In some cases the business that has been lost represent some of our 

better paying ... patients. Bad debt expense remains a pressure point in our hospital 

as the level of uninsured patients being treated continues to rise. Finally a number of 

our hospitals have experienced an increase in length of stay, primarily Medicare 

patients early in 2004, and this proves problematic as we receive a fixed level of 

reimbursement for the stations. So what are we doing about these adverse filings – 

certain of the problems have been well known for sometime now and we have 

already been responding to (indiscernible) others are more recent and we are still 

analyzing and creating additional solutions at the same time. Among these steps we 

have already taken are, we realize some of our hospitals that (indiscernible) for an 

expected seasonal surge in business that in many cases did not materialize. 

Consequently several hundred MGEs (ph) had been reduced throughout our hospitals 

and we will look for additional salary expense savings that do not impair patient care 

– specifically we have frozen hiring for many general and administrative positions 

and are taking steps to reduce overhead expenses throughout the organization.... 

... I think that for the most part the general admission softness and pressure 

on bad debt are dynamics that have been present now for several quarters and for 

the most part, again, we see across all of our facilities. 

52. The reasons provided above for the unexpected decline in earnings, however, do not 

hold up to the scrutiny of former employees of various UHS hospitals. These employees report that 

issues such as length of stay and increases in the numbers of self-pay patients were either nonexistent, or had been recognized and discussed well before the Class Period. For example, a former 

ERMC director confirmed that UHS management had been focusing on the length of stay issued at 

the ERMC facility from the beginning of 2003, if not earlier. As ERMC was a for-profit hospital, 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 18 of 39
one of the main focuses for increasing profits was keeping expenses down, in part, through lower 

lengths of stay. The former director further explained that the length of stay issue wasn’t related to 

patients staying past a number of days for which Medicare would reimburse the hospital, but rather, 

was related to the indigent patient population who had no coverage, and likely no ability to pay, from 

the point of initial service, regardless of the length of stay. Similarly, a former business development 

employee from the Midwest Center explained that it is known whether a patient is uninsured or a 

Medicare patient at the time of service, and that due to the nearly daily reporting of such information 

from the hospitals to the corporate office, unexpected spikes in those numbers are virtually 

impossible. 

53. During the March 1st call, Adam Feinstein, a Lehman Brothers analyst, asked Filton 

the following question with respect to the magnitude of the earnings decrease: 

[T]he magnitude of the decline in earnings really stands out – I mean you guys are 

saying earnings down almost 25 percent and it sounds like pricing is holding up 

pretty strong. 

* * * 

Just I guess in terms of the bad debt, is there any sort of catch-up charge, though, that 

you are anticipating here? I guess, just trying to really think through just the issue 

with the bad debt – I mean is there some sort of boost in the reserve levels? 

Filton answered as follows: 

There is no conscious change, Adam, in our reserving policy or anything like 

that. Again, as we talked about in the fourth quarter, I think the fourth quarter 

probably contained some intra or ... quarter catch-up in 2004. Look, I’m sure if we 

went through the detail we would find some element of catch-up in the first quarter 

of ‘04. I don’t think it is material. I think the greater issue is just the increase in the 

level of uninsureds, which, again, as I listen to what my peers have to say seem to be 

what everybody or most of our peers are experiencing. 

54. On this news, UHS’s stock dropped to $44.88 per share on volume of 6.7 million 

shares, some 21% below the Class Period high of $56.95 per share. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 19 of 39
55. On March 1, 2004, TheStreet.com published an article about the UHS announcement 

in which it reported on UHS’s admission that its problems were not all industry-wide. In this regard, 

the article stated as follows: 

Some of Universal’s problems may not prove contagious, however. The 

company acknowledged that it had overstaffed its hospitals for business that did not 

materialize in the first half of the quarter. It blamed its soft admissions, in large part, 

on competition from nearby physician-owned facilities. It also said it has been 

treating more Medicare patients – for longer periods – who bring in a limited amount 

of revenue. 

56. Similarly, a news article on March 19, 2004, reported that “[s]ome of Universal’s 

problems appear to be company-specific. Competition in some markets hit admissions, making it 

the only publicly traded company with same-facility admissions declines in its acute-care hospitals 

in the fourth quarter, when many logged notable increases.” 

Defendants Miller and Filton Benefit from Inflation

of UHS Stock Price Caused by UHS’s False Statements

57. The Individual Defendants engaged in a scheme to inflate the price of UHS securities 

in order to: (i) protect and enhance their executive positions and the substantial compensation and 

prestige they obtained thereby; (ii) enhance the value of their personal holdings of UHS securities; 

and (iii) sell their personally-held UHS shares at artificially inflated prices for proceeds in excess 

$6.6 million. 

58. During the Class Period, as set forth on the chart below, defendants sold or otherwise 

disposed of 131,753 shares of UHS stock at artificially inflated prices for proceeds of $6,666,653. 

STEVE G. FILTON 

CHIEF FINANCIAL OFFICER 

DATE NUMBER OF 

SHARES 

PRICE PROCEEDS 

7/25/03 4,077 $47.83 $195,002 

TOTAL 4,077 $47.83 $195,002 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 20 of 39
ALAN B. MILLER 

CEO AND CHAIRMAN

DATE NUMBER OF 

SHARES 

PRICE PROCEEDS 

11/13/03 26,010 $49.98 $1,299,979 

9/16/03 25,351 $51.28 $1,299,999 

7/29/03 24,940 $51.75 $1,290,625 

7/28/03 26,286 $49.10 $1,290,642 

TOTAL 102,587 $49.10-$51.75 $5,181,245 

59. Defendants were additionally motivated to falsely inflate UHS’s financial results due 

to the financial incentives they were granted under the restricted stock award program and under the 

loan forgiveness program of UHS. In 2002 Miller had been granted 319,490 shares of restricted 

stock worth $16.3 million. The shares issued to Miller were scheduled to vest on the third, fourth 

and fifth anniversary dates of the award and would be vested only if the Company achieved a 14% 

cumulative increase in earnings during the two-year period ending December 31, 2004 compared to 

the year ended December 31, 2002. Filton was also granted 17,528 shares of restricted stock in 2002 

pursuant to this program. At the time the shares were granted to Filton, they were worth $896,000. 

During the Class Period, Miller was forgiven $7.4 million for a loan made by the Company to pay 

his tax liabilities incurred upon the exercise of stock options. 

60. As alleged herein, defendants acted with scienter in that defendants knew that the 

public documents and statements issued or disseminated by or in the name of the Company were 

materially false and misleading; knew or recklessly disregarded that such statements or documents 

would be issued or disseminated to the investing public; and knowingly and substantially 

participated or acquiesced in the issuance or dissemination of such statements or documents as 

primary violators of the federal securities laws. As set forth elsewhere herein in detail, defendants, 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 21 of 39
by virtue of their receipt of information reflecting the true facts regarding UHS and its business 

practices, their control over and/or receipt of UHS’s allegedly materially misleading misstatements 

and/or their associations with the Company which made them privy to confidential proprietary 

information concerning UHS, were active and culpable participants in the fraudulent scheme alleged 

herein. Defendants played an active role in monitoring the financial status of each of its hospitals 

and medical facilities. Individuals who were formerly employed as directors of various divisions in 

the Midwest Center, the ERMC and in the business office at the LCH, describe a daily monitoring by 

the corporate office of length of stay, accounts receivable, and other categories of information which 

comprise UHS financial reports. Defendants knew and/or recklessly disregarded the falsity and 

misleading nature of the information which they caused to be disseminated to the investing public. 

The ongoing fraudulent scheme described in this Complaint could not have been perpetrated over a 

substantial period of time, as has occurred, without the knowledge and complicity of personnel at the 

highest level of the Company, including the Individual Defendants. 

UHS’s False Financial Statements

61. In order to artificially inflate the price of UHS’s stock, defendants used improper 

accounting practices in violation of Generally Accepted Accounting Principles (“GAAP”) and SEC 

reporting requirements to falsely inflate UHS’s earnings, assets and stockholders’ equity earnings 

during the Class Period, including the defendants’ failure to establish and maintain adequate 

allowances for uncollectible receivables, particularly for its acute care business. As set forth in SEC 

Rule 4-01(a) of SEC Regulation S-X, “[f]inancial statements filed with the [SEC] which are not 

prepared in accordance with [GAAP] will be presumed to be misleading or inaccurate.” 17 C.F.R. 

§210.4-01(a)(1). Management is responsible for preparing financial statements that conform with 

GAAP. As noted by the American Institute of Certified Public Accountants (“AICPA”) professional 

standards: 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 22 of 39
[F]inancial statements are management’s responsibility.... [M]anagement is 

responsible for adopting sound accounting policies and for establishing and 

maintaining internal control that will, among other things, initiate, record, process, 

and report transactions (as well as events and conditions) consistent with 

management’s assertions embodied in the financial statements. The entity’s 

transactions and the related assets, liabilities, and equity are within the direct 

knowledge and control of management.... Thus, the fair presentation of financial 

statements in conformity with generally accepted accounting principles is an implicit 

and integral part of management’s responsibility. 

62. UHS’s reported financial results during the Class Period were materially false and 

misleading because the Company failed to timely expense uncollectible receivables, despite the fact 

that the Company was experiencing a significant deterioration in the quality of its receivables. 

63. UHS’s 10-K for the year ended December 31, 2003, represented that defendants 

“estimate[d] provisions for doubtful accounts based on general factors such as payor mix, the agings 

of the receivables and historical collection experience [and] routinely review[ed] accounts receivable 

balances in conjunction with these factors and other economic conditions which might ultimately 

affect the collectibility of the patient accounts and [made] adjustments to ... accounts as warranted.” 

64. GAAP provides that an estimated loss from a loss contingency, such as the 

collectibility of receivables, “shall be accrued by a charge to income” if: (i) information available 

prior to issuance of the financial statements indicated that it is probable that an asset had been 

impaired or a liability had been incurred at the date of the financial statements; and (ii) the amount of 

the loss can be reasonably estimated. Statement of Financial Accounting Standards (“SFAS”) No. 5, 

Accounting for Contingencies, ¶8 (March 1975). SFAS No. 5 also requires that financial statements 

disclose contingencies when it is at least reasonably possible that a loss may have been incurred. 

The disclosure shall indicate the nature of the contingency and shall give an estimate of the possible 

loss, a range of loss or state that such an estimate cannot be made. SFAS No. 5, ¶22 also states: 

[T]he conditions under which receivables exist usually involve some degree of 

uncertainty about their collectibility, in which case a contingency exists as defined in 

paragraph 1. Losses from uncollectible receivables shall be accrued when both 

conditions in paragraph 8 are met. Those conditions may be considered in relation to 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 23 of 39
individual receivables or in relation to groups of similar types of receivables. If the 

conditions are met, accrual shall be made even though the particular receivables that 

are uncollectible may not be identifiable. 

65. In addition, “[a]n expense or loss is recognized if it becomes evident that previously 

recognized future economic benefits of an asset have been reduced or eliminated.” FASB Concepts 

Statement No. 5, ¶87. 

66. In order to falsely and materially inflate earnings during the Class Period, UHS 

violated GAAP and SEC rules by failing to record additional provisions for uncollectible receivables 

in its financial statements related to its accounts receivables. As alleged herein, UHS’s business was 

changing such that patients were personally responsible for a greater portion of charges for services. 

Patients were more likely to default on payments owed to UHS. Despite this increased risk, 

defendants failed to increase UHS’s provision for doubtful accounts receivable during the Class 

Period and, in fact, reduced the provision for uncollectible receivables as a percentage of revenues 

from previous years. The following chart sets forth UHS’s provisions for accounts receivable from 

1Q03-1Q04. 

Quarter Ended 

3/31/03 6/30/03 9/30/03 12/30/03 3/31/04

Provision for Doubtful 

Accounts Receivable as a % of 

Revenues 

7.31% 6.83% 6.95% 7.83% 8.42% 

67. The provision for doubtful accounts for Acute Care had a similar trend: 

3/31/03 6/30/03 9/30/03 12/30/03 3/31/04

Provision for Doubtful Acute 

Care Accounts Receivable as a 

% of Acute Care Revenues 8.8% 8.6% 8.5% 10.4% 10.5% 

 

68. As defendants knew or recklessly ignored, prior to and during the Class Period, UHS 

improperly delayed the write-off of uncollectible accounts. Despite a pronounced increase in 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 24 of 39
uncollectible receivables from self-insured patients during the Class Period, UHS, inexplicably 

decreased its provision for uncollectible accounts. 

69. UHS’s reduction in its provision for uncollectible accounts was in marked contrast to 

that of its competitors. 

70. Indeed, former UHS employees stated that during the Class Period, the Company 

mandated that no accounts less than 180 day delinquent be written off. UHS’s policy of failing to 

timely write off accounts that were delinquent understated the Company’s historical loss experience. 

In this way, UHS deceptively began to reduce its provision for doubtful accounts during the Class 

Period. Moreover, when analysts questioned management about why UHS’s provision for doubtful 

accounts was less than that of its peers, defendants falsely stated that the reduced provision was 

attributable to its “business mix.” 

71. Prior to the Class Period, the AICPA, in 2001, issued an alert which stated, in 

pertinent part, that: 

While changes in [accounting] estimates may be acceptable when supported 

by real economic facts, changing estimates when the underlying economics of the 

business do not support the change, and without any disclosure, is inappropriate. You 

may need to review changes in estimates to determine that they are appropriate, 

timely, and adequately supported with sufficient competent evidential matter. In 

addition, the company’s disclosures need to comply with the requirements of APB 

Opinion No. 20, Accounting Changes, regarding the need to disclose material 

changes in accounting estimates. Paragraph 33 of APB Opinion No. 20 specifically 

requires companies to disclose the effect on income and per share amounts for a 

change that affects several future periods. 

72. In addition, the SEC issued numerous statements to its registrants, their auditors, and 

to accounting and auditing standards-setters warning them to be ever vigilant about the fairness of 

financial reporting practices in general and accounting reserve practices in particular after having 

witnessed alarming financial reporting abuses prior to and during the Class Period. 

73. Nonetheless, defendants, in violation of GAAP, intentionally understated UHS’s 

provision for doubtful accounts during the Class Period. As a result, UHS’s reported earnings 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 25 of 39
during the Class Period were materially inflated; UHS failed to file financial statements with the 

SEC that conformed to the requirements of GAAP; and defendants disseminated financial statements 

of UHS that were presumptively misleading and inaccurate. 

74. Concerning the Company’s financial statement disclosures, GAAP, in Accounting 

Principles Board (“APB”) Opinion No. 22, ¶7, provides that the usefulness of financial statements in 

making economic decisions depends significantly upon the user’s understanding of the accounting 

policies followed by a company. In fact, GAAP states that information about the accounting policies 

adopted by a reporting company is “essential” for financial statement users. (APB Opinion No. 22, 

¶8.) 

75. Accordingly, GAAP, in ¶12 of APB Opinion No. 22 provides: 

In general, the disclosure should encompass important judgments as to 

appropriateness of principles relating to recognition of revenue and allocation of 

asset costs to current and future periods; in particular, it should encompass those 

accounting principles and methods that involve any of the following: 

(a) A selection from existing acceptable alternatives; 

(b) Principles and methods peculiar to the industry in which the reporting entity 

 operates, even if such principles and methods are predominantly followed in 

 industry; 

(c) Unusual or innovative applications of generally accepted accounting 

 principles (and, as applicable, of principles and methods peculiar to the 

 industry in which the reporting entity operates). 

76. In violation of GAAP, UHS failed to disclose its policy of accounting for doubtful 

accounts. After the end of the Class Period, UHS’s financial statements for the year ended 

December 31, 2003 filed with the SEC on Form 10-K disclosed: 

Provision for Doubtful Accounts: Collection of receivables from third-party 

payors and patients is our primary source of cash and is critical to our operating 

performance. Our primary collection risks relate to uninsured patients and the portion 

of the bill which is the patient’s responsibility, primarily co-payments and 

deductibles. We estimate our provisions for doubtful accounts based on general 

factors such as payor mix, the agings of the receivables and historical collection 

experience. We routinely review accounts receivable balances in conjunction with 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 26 of 39
these factors and other economic conditions which might ultimately affect the 

collectibility of the patient accounts and make adjustments to our allowances as 

warranted. Significant changes in business office operations, payor mix, economic 

conditions or trends in federal and state governmental health coverage could affect 

our collection of accounts receivable, cash flow and results of operations. At 

December 31, 2003 and 2002, accounts receivable are recorded net of allowance for 

doubtful accounts of $56.4 million and $59.1 million, respectively. 

77. Indeed this was the first time UHS disclosed its policy of accounting for doubtful 

accounts. In fact, UHS’s 2003 Form 10-K disclosed for the first time that it deemed such policy to 

be a “critical” accounting policy. 

78. Ultimately, in the third quarter of 2003, UHS had to begin to increase the provision 

and in the fourth quarter of 2003 and the first quarter of 2004, increased the provision substantially. 

Had UHS used the same ratio it used in the fourth quarter of 2003 (7.83%) to calculate its provision 

in prior quarters, its allowance would have been materially higher and reported earnings would have 

been materially lower. 

2nd Q03 3rd Q03 

Provision using 12/31/03 rate (7.83%) $ 70,701 $ 70,183 

Reported Provision $ 61,702 $ 62,288 

Difference $ 8,999 $ 7,895 

Difference reduced for tax effect $ 3,363 $ 2,944 

Effect of difference on Net Income $ 5,636 $ 4,951 

Reported Net Income $ 50,950 $ 47,362 

Actual Net Income using 12/31/03 rate for provision $ 45,314 $ 45,999

79. The rate used in the first quarter of 2004 (8.42%) was even higher. Using this ratio 

would have resulted in even lower net income. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 27 of 39
80. The Company’s failure to properly account for and disclose UHS’s deteriorating 

accounts receivables was materially misleading to investors. 

81. Although UHS has now admitted, albeit backhandedly, that its financial statements 

issued during the Class Period were materially false and misleading, defendants have continued their 

financial deception by failing to restate UHS’s previously misstated financial statements in 

accordance with GAAP. 

82. GAAP provides that previously issued financial statements which are materially 

misstated as a result of an oversight or a misuse of facts that existed at the time are to be 

retroactively restated. See, e.g., APB Opinion No. 20. 

83. In violation of GAAP, UHS’s understated provision for doubtful accounts during the 

Class Period was improperly corrected by prospective increases to the provision after the Class 

Period when GAAP requires that UHS’s materially false and misleading Class Period financial 

statements be restated. 

84. As a result of the foregoing accounting improprieties, defendants caused UHS’s 

reported financial results to violate, among other things, the following provisions of GAAP for 

which each defendant is necessarily responsible: 

(a) The principle that financial reporting should provide information that is useful 

to present and potential investors in making rational investment decisions and that information 

should be comprehensible to those who have a reasonable understanding of business and economic 

activities. (Concepts Statement No. 1, ¶34); 

(b) The principle of materiality, which provides that the omission or misstatement 

of an item in a financial report is material if, in light of the surrounding circumstances, the 

magnitude of the item is such that it is probable that the judgment of a reasonable person relying 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 28 of 39
upon the report would have been changed or influenced by the inclusion or correction of the item. 

(Concepts Statement No. 2, ¶132); 

(c) The principle that financial reporting should provide information about how 

management of an enterprise has discharged its stewardship responsibility to owners (stockholders) 

for the use of enterprise resources entrusted to it. To the extent that management offers securities of 

the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to 

prospective investors and to the public in general. (Concepts Statement No. 1, ¶50); 

(d) The principle that financial reporting should provide information about an 

enterprise’s financial performance during a period. Investors and creditors often use information 

about the past to help in assessing the prospects of an enterprise. Thus, although investment and 

credit decisions reflect investors’ expectations about future enterprise performance, those 

expectations are commonly based at least partly on evaluations of past enterprise performance. 

(Concepts Statement No. 1, ¶42); 

(e) The principle that financial reporting should be reliable in that it represents 

what it purports to represent. The notion that information should be reliable as well as relevant is 

central to accounting. (Concepts Statement No. 2, ¶¶58-59); 

(f) The principle of completeness, which means that nothing is left out of the 

information that may be necessary to ensure that it validly represents underlying events and 

conditions. (Concepts Statement No. 2, ¶80); 

(g) The principle that conservatism be used as a prudent reaction to uncertainty to 

try to ensure that uncertainties and risks inherent in business situations are adequately considered. 

The best way to avoid injury to investors is to try to ensure that what is reported represents what it 

purports to represent. (Concepts Statement No. 2, ¶¶95, 97); and 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 29 of 39
(h) The principle that contingencies that might result in gains are not reflected in 

accounts since to do so might be to recognize revenue prior to its realization and that care should be 

used to avoid misleading investors regarding the likelihood of realization of gain contingencies. 

(FAS No. 5.) 

85. The undisclosed adverse financial information concealed by defendants during the 

Class Period is the type of information which, because of SEC regulations, regulations of the 

national stock exchanges and customary business practice, is expected by investors and securities 

analysts to be disclosed and is known by corporate officials and their legal and financial advisors to 

be the type of information which is expected to be and must be disclosed. 

NO SAFE HARBOR

86. The federal statutory safe harbor provided for forward-looking statements under 

certain circumstances does not apply to any of the allegedly false statements pleaded in this 

Complaint. Further, none of the statements pleaded herein were identified as “forward-looking 

statements” when made. Nor was it stated that actual results “could differ materially from those 

projected.” Nor were the forward-looking statements pleaded accompanied by meaningful 

cautionary statements identifying important factors that could cause actual results to differ materially 

from the statements made therein. Defendants are liable for any forward- looking statements pleaded 

because, at the time each of those forward-looking statements was made, the speaker knew the 

forward-looking statement was false and the forward-looking statement was authorized and/or 

approved by an executive officer of UHS who knew that those statements were false when made. 

APPLICABILITY OF PRESUMPTION OF RELIANCE:

FRAUD-ON-THE-MARKET DOCTRINE

87. At all relevant times, the market for UHS stock was an efficient market for the 

following reasons, among others: 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 30 of 39
(a) UHS stock met the requirements for listing, and was listed and actively traded, 

on the NYSE, a highly efficient market; 

(b) As a regulated issuer, UHS filed periodic public reports with the SEC and the 

National Association of Securities Dealers; 

(c) UHS stock was followed by securities analysts employed by major brokerage 

firms who wrote reports that were distributed to the sales force and certain customers of their 

respective brokerage firms and that were publicly available and entered the public marketplace; and 

(d) UHS regularly issued press releases which were carried by national 

newswires. Each of these releases was publicly available and entered the public marketplace. 

88. As a result, the market for UHS securities promptly digested current information with 

respect to UHS from all publicly-available sources and reflected such information in UHS’s stock 

price. Under these circumstances, all purchasers of UHS securities during the Class Period suffered 

similar injury through their purchase of stock at artificially inflated prices and a presumption of 

reliance applies. 

COUNT I

For Violations of Section 10(b) of the Exchange Act and 

Rule l0b-5 Promulgated Thereunder Against All Defendants 

89. Plaintiff repeats and realleges the allegations set forth above as though fully set forth 

herein. 

90. During the Class Period, UHS, Miller and Filton carried out a plan, scheme and 

course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the 

investing public, including plaintiff and other class members, as alleged herein; (ii) artificially inflate 

and maintain the market price of UHS securities; and (iii) cause plaintiff and other members of the 

Class to purchase UHS stock at artificially inflated prices, and in furtherance of this unlawful 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 31 of 39
scheme, plan and course of conduct, defendants UHS, Miller and Filton took the actions set forth 

herein. 

91. These defendants: (a) employed devices, schemes, and artifices to defraud; (b) made 

untrue statements of material fact and/or omitted to state material facts necessary to make the 

statements not misleading; and (c) engaged in acts, practices and a course of business which 

operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to 

maintain artificially high market prices for UHS securities in violation of Section 10(b) of the 

Exchange Act (15 U.S.C. §78j(b)) and Rule l0b-5 (17 C.F.R. §240.10b-5)). These defendants are 

sued as primary participants in the wrongful and illegal conduct charged herein. Defendants Miller 

and Filton are also sued herein as controlling persons of UHS, as alleged below. 

92. In addition to the duties of full disclosure imposed on these defendants as a result of 

their making of affirmative statements and reports, or participation in the making of affirmative 

statements and reports to the investing public, they each had a duty to disseminate truthful 

information promptly that would be material to investors in compliance with the integrated 

disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. §210.04), 

Regulation S-K (17 C.F.R. §229.10 et seq.) and other SEC regulations, including accurate and 

truthful information with respect to the Company’s operations, financial condition and performance 

so that the market prices of the Company’s publicly-traded securities would be based on truthful, 

complete and accurate information. 

93. UHS and these defendants, individually and in concert, directly and indirectly, by the 

use of the mails or other means or instrumentalities of interstate commerce, engaged and participated 

in a continuous course of conduct to conceal adverse material information about the business, 

business practices, performance, operations and future prospects of UHS as specified herein. These 

defendants employed devices, schemes and artifices to defraud, while in possession of material 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 32 of 39
adverse non-public information, and engaged in acts, practices and a course of conduct as alleged 

herein in an effort to assure investors of UHS’s value and performance and substantial growth. This 

included the making of, or the participation in the making of, untrue statements of material facts and 

omitting to state material facts necessary in order to make the statements made about UHS and its 

business, operations and future prospects in the light of the circumstances under which they were 

made, not misleading, as set forth more particularly herein, and engaging in transactions, practices 

and a course of business which operated as a fraud and deceit upon the purchasers of UHS securities 

during the Class Period. 

94. Defendants UHS’s, Miller’s and Filton’s primary liability, and controlling person 

liability, arises from the following facts: (i) each of the defendants was a high-level executive and/or 

director at the Company during the Class Period; (ii) each of the defendants, by virtue of his 

responsibilities and activities as a senior executive officer and/or director of the Company, was privy 

to and participated in the creation, development and reporting of the Company’s internal budgets, 

plans, projections and/or reports; (iii) these defendants enjoyed significant personal contact and 

familiarity with each other and were advised of and had access to other members of the Company’s 

management team, internal reports, and other data and information about the Company’s financial 

condition and performance at all relevant times; and (iv) these defendants were aware of the 

Company’s dissemination of information to the investing public which they knew or recklessly 

disregarded was materially false and misleading. 

95. Defendants UHS, Miller and Filton had actual knowledge of the misrepresentations 

and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that 

they failed to ascertain and to disclose such facts, even though such facts were readily available to 

them. Such defendants’ material misrepresentations and/or omissions were done knowingly or 

recklessly and for the purpose and effect of concealing UHS’s operating conditions, business 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 33 of 39
practices and future business prospects from the investing public and supporting the artificially 

inflated price of its stock. As demonstrated by their overstatements and misstatements of the 

Company’s financial condition and performance throughout the Class Period, these defendants, if 

they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in 

failing to obtain such knowledge by deliberately refraining from taking those steps necessary to 

discover whether those statements were false or misleading. 

96. As a result of the dissemination of the materially false and misleading information 

and failure to disclose material facts, as set forth above, the market price of UHS securities was 

artificially inflated during the Class Period. Unaware of the fact that the market price of UHS shares 

was artificially inflated, and relying directly or indirectly on the false and misleading statements 

made by these defendants, or upon the integrity of the market in which the securities trade, and/or on 

the absence of material adverse information that was known to or recklessly disregarded by these 

defendants but not disclosed in public statements during the Class Period, plaintiff and the other 

members of the Class acquired UHS securities during the Class Period at artificially high prices and 

were damaged thereby. 

97. At the time of said misrepresentations and omissions, plaintiff and other members of 

the Class were unaware of their falsity, and believed them to be true. Had plaintiff and the other 

members of the Class and the marketplace known of the true performance, business practices, future 

prospects and intrinsic value of UHS, which were not disclosed by these defendants, plaintiff and 

other members of the Class would not have purchased or otherwise acquired their UHS securities 

during the Class Period, or, if they had acquired such securities during the Class Period, they should 

not have done so at the artificially inflated prices which they paid. 

98. By virtue of the foregoing, these defendants each violated Section 10(b) of the 

Exchange Act and Rule l0b-5 promulgated thereunder. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 34 of 39
99. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and the 

other members of the Class suffered damages in connection with their purchases of the Company’s 

securities during the Class Period. 

COUNT II

For Violations of Section 20(a) of the Exchange Act 

Against Defendants Miller and Filton 

100. Plaintiff repeats and realleges the allegations set forth above as if set forth fully 

herein. 

101. Defendants Miller and Filton were and acted as controlling persons of UHS within the 

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level 

positions with the Company, participation in and/or awareness of the Company’s operations and/or 

intimate knowledge of the Company’s actual performance, these defendants had the power to 

influence and control and did influence and control, directly or indirectly, the decision-making of the 

Company, including the content and dissemination of the various statements which plaintiff contends 

are false and misleading. Each of these defendants was provided with or had access to copies of the 

Company’s reports, press releases, public filings and other statements alleged by plaintiff to be 

misleading prior to and/or shortly after these statements were issued and had the ability to prevent 

the issuance of the statements or cause the statements to be corrected. 

102. In addition, each of the defendants had direct involvement in the day-to-day 

operations of the Company and, therefore, is presumed to have had the power to control or influence 

the particular transactions giving rise to the securities violations as alleged herein, and exercised the 

same. 

103. Miller’s control of UHS was dramatic. Due to the structure of UHS and four types of 

common stock with different ratios for voting and for appointing directors, Miller held less than 

1.5% of the outstanding shares of UHS and controlled nearly 84% of the voting power of the 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 35 of 39
Company. He had the lion’s share of the Class A securities and had the right to elect six of the eight 

board directors of the Company. 

104. As set forth above, UHS and these defendants each violated Section 10(b) and SEC 

Rule l0b-5 by their acts and omissions as alleged in this Complaint. By virtue of their controlling 

positions, defendants Miller and Filton are liable pursuant to Section 20(a) of the Exchange Act (15 

U.S.C. §78t(a)). As a direct and proximate result of these defendants’ wrongful conduct, plaintiff 

and other members of the Class suffered damages in connection with their purchases of the 

Company’s securities during the Class Period. 

PLAINTIFF’S CLASS ACTION ALLEGATIONS

105. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil 

Procedure 23(a) and (b)(3) on behalf of itself and all purchasers of UHS securities from July 21, 

2003 through February 27, 2004. Excluded from the Class are defendants herein, members of the 

immediate family of each of the defendants, any person, firm, trust, corporation, officer, director or 

other individual or entity in which any defendant has a controlling interest or which is related to or 

affiliated with any of the defendants, and the legal representatives, agents, affiliates, heirs, 

successors-in-interest or assigns of any such excluded party. 

106. The members of the Class are so numerous that joinder of all members is 

impracticable. UHS had more than 56 million shares outstanding as of October 31, 2003. The 

precise number of class members is unknown to plaintiff at this time but is believed to be in the 

thousands. In addition, the names and addresses of the class members can be ascertained from the 

books and records of UHS or its transfer agent. Notice can be provided to such record owners by a 

combination of published notice and first-class mail, using techniques and a form of notice similar to 

those customarily used in class actions arising under the federal securities laws. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 36 of 39
107. Plaintiff will fairly and adequately represent and protect the interests of the members 

of the Class. Plaintiff has retained competent counsel experienced in class action litigation under the 

federal securities laws to further ensure such protection and intends to prosecute this action 

vigorously. 

108. Plaintiff’s claims are typical of the claims of the other members of the Class because 

plaintiff’s and all the class members’ damages arise from and were caused by the same false and 

misleading representations and omissions made by or chargeable to defendants. Plaintiff does not 

have any interests antagonistic to, or in conflict with, the Class. 

109. A class action is superior to other available methods for the fair and efficient 

adjudication of this controversy. Since the damages suffered by individual class members may be 

relatively small, the expense and burden of individual litigation make it virtually impossible for the 

class members to seek redress for the wrongful conduct alleged. Plaintiff knows of no difficulty that 

will be encountered in the management of this litigation that would preclude its maintenance as a 

class action. 

110. Common questions of law and fact exist as to all members of the Class and 

predominate over any questions affecting individual members of the Class. Among the questions of 

law and fact common to the Class are: 

(a) Whether the federal securities laws were violated by defendants’ acts as 

alleged herein; 

(b) Whether defendants’ public statements during the Class Period omitted and/or 

misrepresented material facts about UHS and its business; and 

(c) The extent of injuries sustained by members of the Class and the appropriate 

measure of damages. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 37 of 39
PRAYER FOR RELIEF

WHEREFORE, plaintiff, on behalf of itself and the Class, prays for judgment as follows: 

A. Declaring this action to be a class action properly maintained pursuant to Rule 23(a) 

and (b)(3) of the Federal Rules of Civil Procedure; 

B. Awarding plaintiff and other members of the Class damages together with interest 

thereon; 

C. Awarding plaintiff and other members of the Class their costs and expenses of this 

litigation, including reasonable attorneys’ fees, accountants’ fees and experts’ fees and other costs 

and disbursements; and 

D. Awarding plaintiff and other members of the Class such other and further relief as 

may be just and proper under the circumstances. 

Case 2:04-cv-01233-JP Document 24 Filed 09/29/04 Page 38 of 39
JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury. 

DATED: September 29, 2004 LAW OFFICES BERNARD M. 

 GROSS, P.C. 

DEBORAH R. GROSS (DG639) 

DEBORAH R. GROSS 

1515 Locust Street, 2nd Floor 

Philadelphia, PA 19102 

Telephone: 215/561-3600 

215/561-3000 (fax) 

Liaison Counsel 

LERACH COUGHLIN STOIA GELLER 

 RUDMAN & ROBBINS LLP 

WILLIAM S. LERACH 

DARREN J. ROBBINS 

LAURA M. ANDRACCHIO 

SUSAN G. TAYLOR 

401 B Street, Suite 1700 

San Diego, CA 92101 

Telephone: 619/231-1058 

619/231-7423 (fax) 

LERACH COUGHLIN STOIA GELLER 

 RUDMAN & ROBBINS LLP 

SAMUEL H. RUDMAN (SR-7957) 

DAVID A. ROSENFELD (DR-7564) 

200 Broadhollow Road, Suite 406 

Melville, NY 11747 

Telephone: 631/367-7100 

631/367-1173 (fax) 

Lead Counsel for Plaintiff 

S:\CasesSD\UniversalHealth\CPT00012805.doc 

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