UHS' concentrated voting power won't change under new CEO

Universal Health Services CEO Alan Miller—the second-longest serving CEO of a U.S. publicly traded company behind Berkshire Hathaway's Warren Buffett—announced Tuesday he'll hand over the reins to his son in January.

"I am still CEO until Jan. 1," Miller said in an interview with Modern Healthcare. "If Warren Buffett retires before then, I will get another title."

At 83, Miller is also one of the oldest Fortune 500 CEOs. He's led King of Prussia, Pa.-based UHS since founding the company with six employees in 1979, growing it to a massive enterprise with 90,000 employees; about 400 facilities in the U.S., Puerto Rico and the United Kingdom; and $11.4 billion in revenue in 2019.

"Few people have as much staying power as he has," said Chip Kahn, CEO of the Federation of American Hospitals, a for-profit hospital trade group. "I think that's because he's performed."

Over the past four decades, Miller has kept his company on a short leash. He currently holds 85% voting control and his successor, Marc Miller, said that's unlikely to change under his watch.

Even after he steps down from the CEO spot, the elder Miller will continue in his role as executive chairman of UHS' board in addition to other management responsibilities. He'll also continue to serve as CEO of Universal Health Realty Income Trust, a real estate investment trust he founded in 1986 that has 71 investments across 20 states.

UHS' stock price was down 3.7% at Tuesday's market close. Marc Miller cautioned the announcement marks the rollout of UHS' longstanding succession plan and doesn't signal an operational shift. That's true for the dozens of potential health system partnerships UHS is currently mulling.

"Nobody should think that just because we're having this change right now that any of that will change as far as our outlook and our strategy," he said.

Marc Miller has been with UHS for about 25 years, and has served as president for almost 12. Prior to becoming president, he was the company's senior vice president and president of its acute-care division. He earned an MBA from the University of Pennsylvania's Wharton School and a bachelor's degree from the University of Vermont.

Before forming UHS, Alan Miller's previous hospital company, American Medicorp, was subject to a hostile takeover by Humana. That may help explain his longtime practice of holding overwhelming power over the company's decisions.

"He felt like he was on the verge of unlocking value, and that company was taken over by a third party," said A.J. Rice, a healthcare services analyst with Credit Suisse. "He always wanted to be in the driver's seat of determining when a big strategic decision was being made, that a short term move in stock wouldn't dictate that."

Some shareholders have quibbled with UHS' structure over the years, but for the most part, people who buy UHS stock understand the dynamic going into it, Rice said.

When it comes to hospital chains, UHS is the closest thing to a family-run company there is, said Paul Keckley, longtime industry consultant and managing editor of the Keckley Report. The level of power concentrated at the top is unique, and it's supported by a small board that gives its CEO lots of latitude, he said.

"This one is way beyond anything else that I've seen," Keckley said.

Alan Miller offered no specific philosophy to explain his high level of control. As he put it, it's just that he believes in the company.

"I have been happy to invest in the company and stay invested in the company and we are shareholders just like every other shareholder," Miller said.

In describing his management style, Alan Miller said it's all about putting mission first—the mission being taking care of patients in a superior way. He said UHS' management sees that as its major responsibility.

As such, he quickly brushed off allegations from 19 lawsuits UHS recently paid $122 million to settle. In those cases, whistleblowers accused the company's behavioral health hospitals of fraudulently admitting patients and unnecessarily extending their lengths of stay, among other things, to drive up reimbursement from insurers.

"We were never guilty," Alan Miller said, "and after 6 years the government gave up and there is nothing else to say about it. We have 300-some facilities and they do a great job. There may have been an unhappy employee, and that's that."

The massive government investigation has been a cloud over UHS for years, and the company's chief financial officer had been vocal about his desire to reach a conclusion. UHS' stock price jumped more than 10% when the preliminary settlement was announced last year.

Alan Miller graduated from the College of William and Mary in Virginia and then went on to serve in the U.S. Army. He earned an MBA from the Wharton School of the University of Pennsylvania. He's garnered a number of business awards over the years and Modern Healthcare has placed him on its 100 Most Influential People in Healthcare list for the past 17 years.

From the start, Alan Miller said he wanted his company to have three legs: acute-care hospitals, behavioral health and an international division. He said that structure has served it well.

Alan Miller's decision to get into the behavioral health business early on was a key factor in UHS' success over the years. The sector has emerged as a growth business over the past 15 years as the stigma around seeking mental health treatment has lifted and insurance coverage has improved, Rice said.

Rice added that under Alan Miller's watch, UHS has done a good job of locating in growing markets, especially Las Vegas, and maintaining a conservative balance sheet, which has helped the company take advantage of various opportunities.

"People would say he's one of the icons of the industry," he said.