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2008 Interview with: Universal Health Services, Inc., Chairman, President and CEO - featuring: their nation's largest hospital companies, operating acute care and behavioral health hospitals and ambulatory centers nationwide and in Puerto Rico. |
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| Universal Health Services, Inc. (UHS-NYSE) | |
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Universal Health Services’ Growth
Strategy Involves Building Hospitals In Communities Where There Is An
Increasing Population And Therefore, A Great Need For Their Services
A native of Brooklyn, NY, Mr. Miller attended the College of William & Mary on a basketball scholarship, where he earned a bachelors degree in economics. He went on to earn a Master of Business Administration from the Wharton School of the University of Pennsylvania.
After working in the advertising industry for several years, Mr. Miller joined his Wharton School roommate at a hospital management company called American Medicorp. When that company faced financial adversity in 1973, Mr. Miller took over as CEO and engineered a turnaround that brought him great attention within the healthcare industry. In fact, the turnaround brought so much attention that American Medicorp became the target of a hostile takeover by Humana in 1978. The day after the takeover was complete, Mr. Miller founded UHS.
Universal Health Services, Inc. is one of the
nation's largest hospital companies, operating acute care and behavioral
health hospitals and ambulatory centers nationwide and in Puerto Rico. It
acts as the advisor to Universal Health Realty Income Trust, a real estate
investment trust (NYSE: UHT) which Mr. Miller founded and now acts as
chairman. CEOCFO: Mr. Miller, what was your vision when you founded Universal Health Services and what is it today? Mr. Miller: “We were interested in putting a company together that was similar to a company that I had been president of, which had been taken over in a hostile tender. We were doing good things in communities, building new hospitals, installing new equipment and really upgrading facilities that were already there. It’s a very satisfying feeling and we wanted it to continue. All the people involved in such an undertaking are not only concerned about employment but more importantly, they are concerned with helping people, helping communities and helping their fellow men at the same time. It’s a very gratifying feeling and it has continued.”
CEOCFO: Please tell us about your geographic footprint, and why you are in the areas that you are in. Mr. Miller: “We are in every part of the US. We are also in Puerto Rico and one non-contiguous state; Alaska. We have been in France and the UK. We seek fast growing communities and opportunities to develop hospitals. It’s been a good strategy to be in fast growing communities because the increasing population will need a hospital at some point.”
CEOCFO: Do you tend to build new hospitals, or do you take over existing facilities? Mr. Miller: “We do both. We have a development department and we are always looking for acquisition opportunities. Occasionally, hospitals run into trouble and they create a foundation with the proceeds of a sale, if they are nonprofit. They can help the community at the same time that we are taking care of their hospital needs. We also build them. We find communities where the population has outpaced the number of facilities. Therefore, we grow both by building and by acquisition.”
CEOCFO: How do you decide on where and when you build/acquire a hospital, behavioral facility or an ambulatory center? Mr. Miller: “It is strictly opportunistic and what is available. We have never established an ideal size for our Behavioral Health division, but we’ve grown slowly and done it very well. For the first 20 years of our company, we acquired about one facility a year and had 20 facilities or so. Then a number of different factors came together. Some other companies in the field ran into problems and we were able to buy a number of facilities at one time, and now we have over 100 behavioral health hospitals. So, it was just being opportunistic when we could purchase the facilities or build them at a reasonable price and provide a good service. It works the same way for the acute division. When a hospital becomes available, we evaluate the opportunity. The difference is that an acute hospital is probably about ten times as costly as a behavioral health facility.”
CEOCFO: How would I know I was in a UHS hospital; what would be different? Mr. Miller: “Hospitals tend to look alike, but if you were evaluating it, you would find that our facilities are very up-to-date and modern. We pride ourselves on that. They’re very well equipped with the latest technology. We spend a great deal, about $500 million a year, on equipment and construction. We believe our staffs are very responsive. We have programs to create a better atmosphere for patients and all the people are trained in those programs. We try to hire people who not only have technical ability but also have positive, willing to serve attitudes. I think you would find a very supportive staff, and well-equipped and modern facilities. That would be a UHS hospital. That is not to say others around the country would not be like that, but I think our hospitals are consistently that way. If they’re not, we bring them up to our standards and today, all our hospitals are like that. We do not brand our hospitals. However, we are a part of the community and the community feels that we are their hospital. They don’t all look alike from the outside. They don’t all have a UHS logo on them. We are a good citizen and an integral part of every community we’re in.”
CEOCFO: Innovation is important to UHS; what do you do that might be a bit different in that area? Mr. Miller: “We’ve spent a lot of time over the years designing not only our facilities, but systems to make them both more efficient from a business standpoint and more convenient for patients. We have a number of what I’ll call small innovations. Hospitals do the same thing, but we have made small innovations in the admissions process, the discharge process, and the way the facilities are laid out. We spend a great deal of time figuring out the best places to put the nursing stations, how many rooms, where the utilities should be, where the examination rooms should be and the relationship between the operating room, the emergency room and intensive care areas. These are very carefully designed and there’s a consistency in our hospitals that comes from more 30 years of design and building experience. Our facilities may look like other hospitals but once you get into the core, they are very much more efficient.”
CEOCFO: There is a shortage of personnel in nursing; how do you work around that? Mr. Miller: “The task is to retain people that we have already brought into the facility. We have a number of different programs to not only compensate but reward and retain our personnel. We have a very well developed corporate HR department that works with the HR departments in each hospital. That’s a concern of ours. Some years ago there was quite a nursing shortage, but that has moderated over the last few years.”
CEOCFO: Is that with foreign nurses coming in, or is it just from the internal growth? Mr. Miller: “It’s a combination but what happened is that because there was a shortage of nurses, the compensation for nurses has gone up quite a bit. Nurses, both RNs and LPNs, now make an excellent living and that has attracted people to the profession. As other industries have gone down and cut staff, more people are interested in nursing. In addition, in some markets, a number of nurses who may have retired or worked fewer hours are now back in the job market because of the economy. We have a very flexible approach to nursing so that nurses can generally work the hours they want and obviously, as much as they want. A combination of all of that has helped to alleviate the problem.”
CEOCFO: What are the challenges that the industry faces in general and Universal Health Services in particular, and how do you meet them? Mr. Miller: “The biggest problem seems to be the uninsured and we’re about to go into an election. The uninsured and healthcare has been a number two or three concern all along. At one point, the war was the biggest concern, now the economy is now number one but healthcare has always been right up there. I think the president and the new cabinet, whoever it will be; either party is going to have to address the issue of the uninsured. The number that is now being agreed upon is that 47 million people are uninsured, but that number changes all the time. It’s not the same 47 million people. As some people become employed and get insurance, others leave their jobs and may lose their insurance after a while. About 15 million of the uninsured are illegal aliens, but they have a right to healthcare as well, which puts a burden on hospitals. Therefore, that is an issue that has to be dealt with and I’m very hopeful that it will.”
CEOCFO: How is business today? Mr. Miller: “We seem to be doing better than the industry in general. We’ve had an outstanding year and expect that it will continue. We have a combination (which is unique in our industry) of growing behavioral health and acute care divisions. We are something over $5 billion in revenue, about $4 billion of that is acute care revenues and about $1 billion is now behavioral health. It’s a good combination. They complement each other.”
CEOCFO: How do you maintain cost control?
Mr. Miller:
“Staffing is 42 percent of our expense, so we watch our staffing. As I
mentioned, we try to retain people so we have an efficient staff that is
familiar with the facilities. We don’t have to spend as much on recruitment
because we retain and reward people. That is the biggest thing. We also have
guidelines for how many people and what time of day they’re working. That is
something we have developed over our 30-year history. We buy efficiently.
We’re a part of a buying group, and in addition to that, we have an in-house
staff that buy independently. We’re very experienced and have a fine group
of people. We build hospitals very efficiently and, in fact, we do it so
well that we have started building for others.
We’re an efficient operation, for example, I’m the president and the chairman and the chief executive officer, we don’t have a chief operating officer. Those are three or four jobs that would cost another company $1 or $2 million. We staff the same way in other departments and most of us have been with the company for more than 20 years. That is also by design. We’ve always wanted this to be a good place for people to work, so they could enjoy working in good surroundings, being treated professionally and appropriately. We don’t put up with harassment of any sort. It must be a nice place to work because people stay with us. People who have retired or moved away have stayed in contact with us and occasionally come back and tell us how good it was to work with us.”
CEOCFO: What is ahead? Mr. Miller: “More of the same. We’ve done well. We make changes but we do not make changes that are wholesale or draconian. Occasionally people leave and retire. I’m concerned mostly with the staff and the professionalism of the staff. Every facility has to be modern and well equipped, and we won’t accept anything less. We don’t have a huge company, as this industry goes. After 30 years, we could have been many times more sizable but that wasn’t our goal. Our goal is to be the best in quality and to be recognized as being the best. I hope we will continue that in the future.
We are the only company in our industry with an investment grade credit rating. As you read the papers, you see more industries have expanded like mad by taking on all kinds of debt. It makes them feel good for a short period however, when they can’t service the debt or they have done risky things, they fall apart. We have been growth minded but also moderate and conservative. I think that has held us in good stead and we hope to continue to do that in the future.”
CEOCFO: Why should potential investors be interested in UHS? Mr. Miller: “There are two things to look at when you make an investment. You have to look at the industry and overall, our industry is one that is essential. It is not going away. It is a growth industry. Our problems involve how we handle that growth. The population is aging. Just the other day, I was listening to projections that 20 years from now there will be another 150,000,000 Americans, which will put the total population of this country well over 400,000,000 people. At some point in their lives, those people will need hospitalization. How we deal with them and how they impact the environment is an issue. In addition, the number of people in the older age brackets, over 65 or 75, is enormous and that’s where a lot of the growth is coming. Those people consume a disproportionate share of healthcare. We have a growth industry that will continue to grow for as long as I can imagine.
The second thing is to that our company has functioned well in the industry. Investors should look at a company’s record and its management, and if they’re done well in the past. We’ve been a financial return leader throughout our history. For the 10-year period between 1990 and 2000, we were the leader among all healthcare companies in terms of return for investors. We were also the same for the 10-year period between 1992 and 2002. We’ve had a few slower years and some problems, none of which were enormous. We had Hurricane Katrina and lost four hospitals, and had an extremely competitive situation in one market but have recovered. We are now considered the premier company in the industry, that’s where I would put my money.”
CEOCFO: What should people remember most Universal Health Services?
Mr. Miller:
“What people should remember most about Universal Health Services is that we
provide excellent service, are concerned with quality, we have an
outstanding record and we’ve had a wonderful history of taking care of
patients. That is why our business is doing well and our investors have done
extraordinarily well, so it’s a good combination. We live in a great country
that’s going to continue to grow and the future should be bright.” |
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“We are in every part of the US. We are also in Puerto Rico and one non-contiguous state; Alaska. We have been in France and the UK. We seek fast growing communities and opportunities to develop hospitals. It’s been a good strategy to be in fast growing communities because the increasing population will need a hospital at some point.” - Alan B. Miller |
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