Q&A: Universal Health CEO believes Obamacare is here to stay

Alan Miller founded Universal Health Services in 1978 and has long served as its chairman and CEO, with his son Marc serving as president. The publicly traded King of Prussia, Pa.-based company operates acute-care hospitals and behavioral health facilities in 37 states and the United Kingdom. Modern Healthcare senior reporter Harris Meyer recently spoke with Miller about the reasons for the company's improving financial performance at a time when some other for-profit hospital chains are struggling. This is an edited transcript.

Modern Healthcare: 2015 was a good year for Universal Health Services in terms of revenue and profits. What factors accounted for your success?

Alan Miller: We've done very nicely in 2015. We had an excellent year, and it just relates to what we've been doing for the 37-year history of the company. We've been growing every year. Our focus is on high-quality services to patients. Obviously, they vote with their feet, and their physicians suggest they come to us. So we've had increasing business because of the quality of the care we give. I also think our locations are important. We have locations in places that are growing. If you have a growing population, and you do a very good job, you're going to do well.

MH: You've focused on trying to be the dominant player in the markets you're in, whether it's Las Vegas, Hidalgo County in Texas or Washington, D.C.

Miller: We have, on occasion, been dominant, but that's not my word. We just want to be important in each market. That enables us to negotiate rates on an equal basis. If you don't have substantial market share, the insurance companies don't need you. It's as simple as that. They will just say, 'Here are the rates and if you like them, fine, if not, thank you very much,' and they'll move on. But they can't do that with us because we have become very important in every market we're in, and that was a strategy. If we're not No. 1 or No. 2, we're not going to be in that market. That was our strategy with regard to acute care. In the behavioral health business, we did the same thing. But it's not quite the same because there aren't that many behavioral facilities in every location. You're most likely going to have limited competition. Of course there are others, but we have a reputation.

One thing that was very helpful is that three years ago, we managed to buy the second-largest company, Psychiatric Solutions, when some of its leaders tried to take the company private and the board said no. They brought in Goldman Sachs and sought a fair price for the company. We were the high bidder and got the company. We had about 100 hospitals and they had about 100 hospitals. By putting them together, we got about 200 hospitals, and our company became the dominant entity in the free-standing psych business. We consolidated a good number of the free-standing psychiatric hospitals in the country.

MH: Do you see your company putting more emphasis on behavioral care and that business growing more rapidly because of the limited number of facilities in many markets, along with the increasing national focus on behavioral health and substance-abuse treatment?

Miller: We're very good at both acute care and behavioral care, so it really isn't just one line of business that we focus on. Our concern is taking care of patients. If there are opportunities to build or acquire hospitals in either division, we'll do that. We are currently talking to other people, we are currently building hospitals, and we are expanding them. It's a continual thing for us.

MH: Do you think the political talk about expanding and improving behavioral health and substance-abuse treatment is going to benefit your company?

Miller: Definitely, definitely. We provide excellent care, and there seems to be more of a need now, a better focus. A study just came out on the increase in suicides in the U.S. You have people with bipolar disorders, schizophrenia and depression, which leads to these suicides. These people are not taking their lives lightly. They're suffering greatly. So there should be more treatment open to them. There are great stresses in our society, and I think sometimes drugs and alcohol are a reaction to that. Families, at one time, used to be ashamed or would hide mental illness. Now we realize that mental ailments are a sickness like physical ailments that can be treated, and there's nothing to be ashamed of.

MH: Are you seeing troubled not-for-profit or for-profit hospitals out there that want to be acquired, or are people holding on to their independence? And are you looking for acquisitions in markets where you're already pretty strong? Is there anything holding you back from expanding?

Miller: We're not being held back at all. We have more opportunities, and we're selecting from them. We're looking in markets that we currently are in because we know the players and the markets and they know us. In fact, one of our teams is out talking to a group today. But we're open to new markets. Since we are pre-eminent in mental healthcare, a number of acute-care people are talking to us about joining them and providing that expertise to build or manage their capability in mental health, which they don't feel secure in because it's not their direct business. The future appears to be having a network that can take on financial risk and deal with the whole continuum of care, including mental health.

MH: Investor-owned hospital companies have been less inclined than not-for-profits to acquire physician practices. But I saw in one of your investor slides that you were talking about acquiring primary-care practices. What is your company's approach to owning physician practices?

Miller: That's not our business, but we have a division that acquires physician practices and manages that business. What's driving that is that physicians are facing increasing administrative requirements, and it's becoming too burdensome. So they're saying they are willing to let someone else do that and go to work for a very good organization, and they can take care of patients and not concern themselves with all these other things. We're not interested in going all over the world and buying physician practices.

We're doing that in conjunction with our facilities and in our markets.

MH: Universal recently said it was considering exiting one of the CMS bundled-payment programs. The investor-owned hospital chains have been less-active participants in the Medicare value-based payment initiatives. What are your thoughts about participating in value-based payment models in the future?

Miller: It's slow. We're involved in the demonstrations, but it's not widespread. There's a lot of conjecture that this ultimately might be where we're going, that fee-for-service will go away, there'll be bundled payments, and providers will take some risk.

But I can tell you, it's a far cry from that now. It will take some time if it does go that way.

MH: Your thoughts on likely health policy directions as we head into the November elections?

Miller: Who knows? Some Republicans are talking about eliminating Obamacare. I don't think that's possible. The Democrats are saying that's Obama's legacy, and they're going to keep it. I think what should be done—and I wrote a book about this several years ago—is that the law should be moderated and improved. There are a lot of taxes that were banged together, such as the medical device tax, to try and impress the (Congressional Budget Office) when they were scoring this thing. Now it's bipartisan that the device tax should be eliminated. I don't think you can look at anything happening now as being in any way definitive. It's an election time. Afterwards, I think there would be some changes and improvements. But I certainly don't think Obamacare is going away, nor would I want it to. It has expanded coverage to, if you believe the numbers, around 20 million people. That's a good thing for them, and it's good for us, too.

MH: Tell me your thoughts about where you think the investor-owned hospital sector is going. Do you think it's going to expand?

Miller: You can't tell. I've been at this for a very long time. There are 5,000 hospitals, and we have topped out at around 1,000. If you back up 50 years, two companies came along and brought private investment into the hospital business. They were looking for a return on investment, but they were bringing efficient business principles and group buying to a field that had been just smaller doctor-owned hospitals. The impetus was growth in the country, particularly in Texas, Florida and California. Those three big states needed new hospitals, and there were opportunities as people moved there. So we came with our capital and our expertise and built hospitals. Then other companies joined, and the Federation of American Hospitals was formed. One of its really great leaders was Mike Bromberg, who was so good at reading proposed legislation and regulations and seeing where they were going. He worked very closely with the American Hospital Association, and created a working relationship that exists today, so that all the hospitals talk to each other. We're all going to grow. The good ones will grow, and the others will be absorbed. But you know what Yogi Berra said about predictions—they're very hard, especially about the future.