Welcome to the "Lessons from the C-suite" series, featuring Advisory Board President Eric Larsen's conversations with the most influential leaders in health care.
In this edition, Marc D. Miller, CEO and president of Universal Health Services, talks with Advisory Board President Eric Larsen and OptumInsight CEO Robert Musslewhite about succeeding his father at the helm of the $11.4 billion health care organization, delivering industry-leading health care outcomes while staying under the radar, providing "whole person" care before it was a buzzword, and more.
Marc D. Miller, CEO and president of Universal Health Services
Question: Marc, one of the fun benefits of these interviews is seeing the richness and diversity of the backgrounds of the CEOs with whom we sit down. Just a fascinating and colorful set: CommonSpirit's Lloyd Dean was a pharmaceutical sales rep and a teacher; Johnson & Johnson's Alex Gorsky was an Army Ranger; and Banner's Peter Fine was an unapologetic ski bum—which made me question all of his subsequent career choices (only downhill after that gig).
Marc, you have a unique position in this lineup having grown up in the "family business." As of this week, you're succeeding your father, Alan B. Miller, as CEO of Universal Health Services (UHS)—a Fortune 500 hospital and health care service organization with more than $11 billion in revenue, 90,000 employees, and 400 facilities in 37 states and the U.K.—after 25 years of rising through the ranks as a facility COO, assistant administrator, and hospital CEO. To begin, I'd love to hear your reflections on this path as you embark on your new role.
Marc D. Miller: Eric and Robert, you're right—my story really does start with my family. My father got a job in Philadelphia in health care, so my sisters and I were exposed to health care at a very early age. And it's something I only recognized later, but because of my father's work, I unwittingly knew a lot more about health care than anybody else my age for all my formative years.
Despite that, however, I ended up going to the University of Vermont and graduating without any clear idea of what I wanted to do. I worked a while as a software consultant, teaching hospitals how to use financial management systems, and then headed to business school at Wharton. But I kept returning to health care; it appealed to me because it was a profession dedicated to helping people and also a profession where I felt I could make a difference. So, I joined UHS with the thought that my father had started this company, so I should see if my interests aligned with what they were doing. And my father felt similarly; he told me that, "if it doesn't work out, there's plenty of other things you can do."
Q: When did you first realize you loved what you were doing?
Miller: In one of my first positions, I got to work at The George Washington University Hospital in Washington, D.C., during a very interesting time, when it was newly acquired and not everyone was accepting what we were doing. It was at times dicey, and somewhat confrontational—and I loved it. It made me realize that this is something I really wanted to learn more about and do more of.
Next, I served as COO of a smaller community hospital in Florida, Wellington Regional. I assumed it would be easier than GW, but I soon realized that a large academic institution has far more resources available than does a 120-bed hospital in West Palm Beach. So you're running solo, you're in a dogfight nearly every hour, you're wearing about four different hats each day—but it was also a game-changer for me.
So by then I was on a path. My hospitals were performing well, I eventually became a hospital CEO. And because I was afforded an opportunity to really understand not just the inner workings of the hospitals, but how the company worked, when I finally took on a regional role—despite not being in a very senior position yet—I started making some suggestions, namely that we needed to have more people in the corporate office who had hospital experience. And when we started to make that change, many of our hospital leaders noticed immediately. That was a big turning point for me, was just understanding that a lot of what I saw in the hospital really resonated up here. And we grew and expanded from there.
Redefining behavioral health
Q: Marc, central to the growth of UHS has been behavioral health; your father's prescience (starting back in 1983 with UHS' first acquisition) eventually turned UHS into the country's largest facility-based behavioral health provider. This distinguishes UHS from all the other for-profit health systems and affords some unique competitive advantages. I'd be curious to hear your thoughts on your father's foresight here, as well as other key lessons you learned from him over the years.
Miller: My father has a couple of things going for him that are very different than any other executive I've met, and it starts with the fact that he came from humble beginnings and couldn't imagine attaining the success that he did. He went from living in sparse conditions in Brooklyn, New York, to becoming the youngest VP at the behemoth advertising firm Young & Rubicam. That success gave him an edge to do what he wanted to do. And as a result, he doesn't experience any of the external pressure that most other people feel. He truly does not care what anybody thinks, which means he's not trying to impress anybody. He does what he does because he thinks it's the right thing to do.
You're exactly right on behavioral health: Do you know how many people criticized us, for years, for our approach to behavioral health? I mean, when I started to listen to analysts' calls, they'd often say, "You realize you're the only one doing this," meaning you're making a big mistake. And my dad didn't understand it. He believed in behavioral health not just because he thought it was the right thing to do, but because he thought we'd make a return on it as well. And the real criticism at the time was that you can't make a return on this because no one else is—other competitors struck out trying similar approaches to this business. And my dad just said, "I think it's important." So that was the first time that I saw him really go against the grain, but he believed that if we could build the best team—and we have the strongest team of behavioral operators—that was all we needed to be successful.
While he did not explicitly state, "Treating the whole person," looking back, I think that's what he meant. He didn't believe it was right to treat acute care issues and overlook mental health. So for me, that's the first lesson, that it's okay to stand by yourself sometimes if you know what you're doing—but you have to be right.
Q: Hand-in-hand with this discussion—both about behavioral health and your father's approach toward governance—is a key strategic shift over the past decade or so, with UHS moving from a 80/20 ratio of acute care services to behavioral health services to about 50/50. Can you add some color around this transition? How intentional was it?
Miller: This is the second thing that defined my father: He never cared about how big the company was. Whenever people would say we should push a little harder on this deal or that deal, he'd always push back, asking one, whether you really wanted to do the deal; two, why you wanted to do it; and three, if you wanted to do it, did it make financial sense—and if didn't make financial sense, we've always backed away. In fact, we've probably backed away more than any other company in the sector. It can frustrate some, at times, but we've always been comfortable with our approach.
And this actually circles back to behavioral health, because we're totally agnostic as far as which side of the business we look to expand. Our focus is always to make the right deal, one that makes the most sense for UHS. And for the last 10 years or so we have seen more opportunities on the behavioral side. We would often see 10 to 12 other bidders for possible acute acquisitions, but far less for behavioral. So over the last ten years, we've gone from 80/20 to about 50/50 acute-care to behavioral, and I think we're stronger for it.
Q: Given these assets, UHS has an opportunity to achieve a unique coordination, or synchronization, between behavioral and medical care—earlier you called it "total patient care." How do you take the medical and behavioral aspects of care and harmonize them together? And ultimately, layer in pharmaceutical management as well? Very few health systems can even aspire to manage these elements together, but those few who are able can then manage total cost of care, take full capitation, and manage medical loss ratio. Fair characterization? And has the pandemic changed your strategic thinking on the timing around this question?
Miller: Yes, fair characterization. The timing for a lot of things has changed due to the pandemic. And because we don't really know when the pandemic will pass, or when we'll be back to normal, we can't say precisely what the new timeline looks like. That said, in the future, we'll be able to bring some of our behavioral health best practices to the acute care setting. Because when someone comes in for acute care, they don't leave their behavioral health needs at home—they are there with them, and the more we can recognize and treat that at the same time as these acute care needs, the better. So I agree with the way you framed that aspiration.
Now, as we all know, length of stay is getting shorter, so this is not going to be something that generally happens via inpatient care. We will see it with crisis care in the EDs, for example, but outside of that, it's learning more about the patients while they're in for acute needs and figuring out the best way to treat that patient long term, post-discharge. And a lot of times, if they need it, that'll be in an outpatient behavioral healthcare setting.
We're working to connect those areas more. We have an opportunity to refine and redefine what we do with telehealth, especially on the behavioral health side. We're excited about that, and we'll be rolling out some new things in the coming year that should give us an edge with tele-psych going forward.
Q: Does your experience in total patient care push you to consider investments in other non-acute areas of care, either by acquisition or partnership? What about post-acute care investments, both institutional and non-institutional (such as various at-home modalities)?
Miller: Yes and no. There are certainly areas that we believe we should play in. But, again, it depends on who you're comparing us with, right? The insurers we are going up against are often 10 or 20 times our size, or more. So that's one of the calculations we have to make: If something isn't going to move the needle for us, how much time should we really spend on it? So if I use myself as an example here, it's not a good use of my time to spend 20% of my time on something that generates 1% of our revenue, right?
That said, I agree with you that we need to play in some of these spaces, and home health is a good example. We've partnered with BAYADA, a home health company, to impart the UHS approach, but we're not going to buy a home health business ourselves or invest a ton of time in that arena. In fact, we're doing a lot more partnering in general than we were doing 10 years ago. For instance, for outpatient services, we're partnered with a surgicenter company, and we'll probably look to partner more than to go into these solo and spend a considerable amount of time and resources.
(Intentionally) flying under the radar
Q: While UHS is known and highly regarded within the industry, I'm struck by how intentionally "quiet" UHS has been from a publicity point of view. It's hard to hide a Fortune 281 company, but proportional to your size, you've cast a comparatively small shadow. Can you talk about how you've stayed under the radar? Is that strategy going to continue?
Miller: This goes back to my father's ability to just live by the beat of his own drum; it was not a priority for him to pound his chest, because if he thought that it would help serve patients better, he would have done it. But we've always thought that health care is local; if you're in one of our markets, nobody knows or cares that the hospitals are owned by UHS, and if you're in Florida, Texas, or California, where they know and love the local hospitals, UHS doesn't mean anything to them—and we're fine with that. So I don't really see a big change there.
In fact, we never had a PR person until we hired Roselle [Charlier, chief marketing and communications officer] a couple of years ago. We still did some PR, of course. My dad would talk on national business shows a few times a year, just enough so that we were able to get our message out to the masses. But people in the industry all know who we are, and all the analysts know who we are. And people know our reputation; they know what they'll get from us if they deal with us, so I don't really see a need to do much more than that unless it clearly aids our ability to help people.
Q: Marc, let's turn to Covid-19. While full attention right now is appropriately on mitigating the surge, and deploying the vaccines, I'd like to ask your thoughts on some of the structural and secular shifts for healthcare and UHS that may endure post-pandemic. And while it's too early to call the trends with full confidence, there are certainly some larger shifts we're seeing now that we can reasonably expect to continue. So as you think about the pandemic, what are the things that UHS has learned around risk assumption, site-of-care shift, top-of-license practice, home as an epicenter, etc., that the pandemic might accelerate? How might these alter or speed up UHS' strategy?
Miller: That's an important question. Before I expound on the larger point, I want to say one thing about risk: While we have not chosen to dive into risk at a level that a lot of our competitors did, we have been doing things on this front. In the last few years, for example, we've been doing a lot of accountable care organization (ACO) development in just about all of our markets, and we're doing a lot more with our physician practices than we ever did previously. Now, we were never early adopters of owning doctors, but we listen to the market and sometimes we have do things that make strategic sense in a particular market.
Q: You even have your own health plan.
Miller: We do, and again, there's a specific reason for that. I'm not going to share all of our intel, but it's a very strategic health plan. That said, while it's growing, we will never compete with the major insurers in a large way, but we felt like we had to have an offering at least in in certain markets. We are smart and strategic about striking in certain areas without allowing them to get too big and overtake our overall strategy.
Now, with regard to Covid-19, I think this is like a lot of other things in life; I'd be cautious about listening to the people out there making big pronouncements. We're in the middle of this war. And so it's very hard to step out now and decide—or even have a real impression—about what lessons will spring from this. Because people are already speculating that telehealth is here to stay, outpatient is going to grow by 500% and that most people will never go to the hospital again. Some of those things might be true, but a lot of them aren't going to be true.
For instance, we've already seen that although people were worried about going to the hospital between March—when the pandemic first began—through August, they've started coming back. As the data got better and we determined that we weren't transmitting the disease in the hospital. And there are a lot of guesses as to how we've managed to avoid that, but—speaking just for UHS—we fully segregated our hospitals around Covid-19. If you were working on a Covid-19 unit, we try to insure that you never came in touch with anybody on a non-Covid unit and vice versa, and that approach enabled us to minimize risk.
As for the other projections? Well, I think we'd be foolish to say there won't be an uptick in telehealth and outpatient care, so the question then is how do we get better at delivering those services than we were before the pandemic? A lot of this is going to be dictated by reimbursement and outside forces, of course, but we believe if we keep doing what we've been doing—which is provide superior medical and behavioral care, provide what our patients are looking for—then we'll be able to not only outperform the competition in specific markets, but to lead. If they're looking for a better telehealth product, then it's incumbent upon us to produce a better outcome, have a better product than our competitors. We know we can do that. We are confident in whatever direction it goes we'll be able to compete, but—overall—I'm hesitant to say right now that I know in what directions this will go.
Q: I agree—some conservatism, even humility, in predicting these shifts is justified. One specific area, however, that is already showing a significant shift is on the ambulatory side, with physician acquisitions and valuations. Of the 220,000 primary care physicians in the country, over 50% were already employed by health systems pre-pandemic, and with a collective loss of $15 billion this year, it is clear there will be continued pressure to seek safe harbor in employment. And now, with insurers ramping up acquisition activities, more aggressive private equity (PE) acquirers, and with new Wall Street acquisition vehicles, such as special-purpose acquisition companies (SPACS), pushing valuations even higher, the pandemic may speed up the disappearance of independent practices. UHS has always been a disciplined purchaser of physicians. Do these developments change your calculus at all?
Miller: It has to. We have a lot of opinions and biases within the four walls, but you have to compete in the markets. So while I said we didn't want to own doctors, the fact of the matter is we employ or contract with more than 1,800 doctors. At the end of the day, we will do whatever we need to do to win the market. We're anticipating those changes, and we're very aware we'll have to be open to doing things differently; in fact, we're already planning for and acting on some of it now.
What you just said about Covid-19—I completely agree with you. In fact, it's already been happening. There are a lot of these practices—many that never intended to sell—but managed care almost forced them into a situation in which they had to, just because of the changes in a dynamic market. You're right that we've seen a shift in where these entities are going. They used to go to nonprofit systems, and it's much more likely now they're going to managed care companies and private equity. In some ways it's a shame, because I do believe that a strong, independent practice partnering with a hospital is the optimal way to go; we've proven that.
Q: Let's turn to the corollary of this on the acute care side—the likelihood of an acceleration of health system horizontal M&A. We'll see how the Biden administration responds, and if a newly muscular FTC will be a headwind here, but there is no denying the continued economic pressures on health systems. Meanwhile, as on the ambulatory side, UHS has been disciplined on the acquisition front on the acute care side. How are you thinking about your inorganic growth strategy and potentially expanding into new geographies?
Miller: I actually have a list of the top 250 markets in the United States that I have been refining for 20 years. And to be honest, there's probably nothing outside of that list that we could go into because it's not big enough for what we want to do. We know all the markets in the U.S.
Now, that said, there are a few markets I circled years ago that we're still not in, and that's just because there hasn't yet been a good entry point. There have been opportunities, of course, and some of our competitors have taken those opportunities, thinking they can improve performance greatly where we don't believe that to be the case. If you go into a market as the number three or number four player, you can't just snap your fingers, right? You have to be humble in how you look at your upside possibilities. In these markets that I was so excited about, once we did our due diligence, I was convinced we'd only have about a 10% chance of success within five years compared with the cost of entry. We could spend our time again doing that, or we could keep our powder dry, wait, and maybe double down in Vegas, or make a move in Texas or California, where we already have a leading position in the market. It has turned out to be a more positive approach for us to do it that way.
That said, that list isn't going anywhere; we refresh it every three months and review it multiple times a year. I do expect that some of those situations will eventually present us opportunities. There's one market we've been surveying for several years that we're about to move into, and—after about 25 years of waiting for the demographics and market conditions to line up—we're in the middle of building a new hospital in Reno that will put us in direct competition with the number one and two players there. It's trying to find that timing.
Q: How much investor and analyst pressure do you get to expand into new markets, or is it more about just overall growth?
Miller: I think It's about overall growth. The investors are very interested in the same things for all the companies, but at the end of the day, our focus is long-term. We always could buy back more shares, do more dividends, spend a little bit more, but we really want to insure that we're doing the right deals for the right reasons. That's what we tell the analysts. It's an honest answer and we'll continue doing that.
Q: Let's open the aperture here just a little bit further, Marc, because while about 21% of hospitals are on the for-profit side, the composition has changed. Instead of just the publicly traded companies like UHS, Tenet, and HCA, now you've got private equity as a significant player—most notably established firms like Apollo acquiring RCCH and LifePoint, or EGI's ownership of Ardent. And of course a spate of smaller players bidding on smaller facilities. I'd be curious to hear your perspective on private equity as an increasingly important player in the hospital space.
Miller: The interests of private equity and our interests as hospital operators are different. Our first goal is to treat and provide a quality experience for patients, and we know if we do that well, we can also make a return—but it's always in that order, patient first. Private equity has a different charter. Health care is just one of the many industries they're investing in. And they don't pretend to say they're in the health care business—they are in the return on investment business. Because their motivations are different than ours, I'm confident if we're ever pitching against each other for an asset in a community, our approach will win most times because it's focused on that community and the patient population there.
That said, they're now getting involved with systems that don't have multiple bidders or might need that financial stewardship, and maybe they can really help in those situations. But the way that the finances work, they're taking money off the table constantly and that's just different than the way we work. We're putting a lot more money, hundreds of millions of dollars, back into the system; that's our motivation, because we have a long-term focus.
Cybersecurity and withstanding 'zero-day' events
Q: Marc, I'd like to pivot to cybersecurity because it seems we're all at risk these days of being infiltrated; even your alma mater, University of Vermont, recently had a significant breach. And most concerning about this isn't just the timing—with these bad actors taking advantage of the pandemic—but that the attacks are increasingly nation-state sponsored; I've seen estimates that 50% of recent attacks stem from Russia, 25% from Iran, 10% from North Korea, etc. So the malefactors now have access to state resources, versus some solo computer hacker operating from his mom's basement. I'd like your perspective on this because UHS hasn't been immune. What are your thoughts on cybersecurity? And how UHS is fortifying itself against this?
Miller: So what I would say is this: We have a very robust cyber team, and we've done everything we can do to prepare and protect ourselves from becoming a target, but we got hit anyway. And that's lesson #1: If you think you can't get hit, you can.
It's important to note that our event was a zero-day event, which means that it was the first time the malware in question had ever been deployed. It used to be, when something would go out, one of our security partners would alert us within minutes, and they'd already be working on a solution for your system. But because we got hit with a zero-day event, our partners didn't know what to look for.
The good news is that all the money, time, and effort we spent paid dividends for us. We knew almost immediately that we'd gotten hit. That allowed us to shut down our systems, which means we were able to thwart a lot of the damage other health systems haven't been as fortunate to avoid. For example, none of our medical equipment was hit and all of it remained functional; we shut it off, but none of that was compromised. Our PCs were compromised, but we were able to get everything re-imaged and working again in a few weeks. And because we had prepared—not just testing, but also practicing our downtime procedures—when we did have to shut down, we were able to go into our downtime procedures in a way that really allowed us to continue to function. We did not function at the same speed and efficiency, of course, but we were still able to function—which means no patient was put in a harmful situation. And that was key.
Now, we're doing a lot of after-action evaluation, including a forensic audit, to figure out if there's anything we could have done better, such as maybe looking into tools that can withstand even a zero-day event. You have to take that information and see what you can do better with all of the different parts of the apparatus—your internal security team, your security partners, and employee training. Your employees need to be trained well; we've been told by outside parties that we're at the top of our industry here and yet we were still vulnerable.
Q: Marc, as we start to wrap up here, what's one thing that we – and our readers – should know about you?
Miller: I keep getting asked one question, which I think is typical with a CEO transition but isn't quite applicable here, which is: When you're coming in as a CEO, what are the imprints I want to make or the changes that have happened? And what I try to explain to people is that I've been making my imprint here for many, many years, having served as president since 2009. This transition isn't so much a seminal event as it is an operations handover, right? Everybody knew that this transition was going to happen one day. There's a comfort for people in knowing that the next leader is going to be much like the last leader, and the next leader has been here for many years. It's a sigh of relief. Alan will remain the chair of the board and so we're excited about that.
Q: Absolutely. I do have a two-part final question. First: When you look across all that UHS is doing, what are you most passionate about right now within the company?
Miller: We've partnered with a private equity firm the last couple of years, and we're embarking on some technological changes in investments that I'm very hopeful will take us a couple of leaps forward, especially in the behavioral health space.
Related to that, precision medicine has the ability to really be a game-changer for behavioral health patients; it's still a lot of trial and error, but the further along we get with precision medicine, the better it will get. If a patient can come in while they're having an episode and get a treatment or medication that's 90% effective for them because of their makeup, that changes everything.
Q: And finally, Marc, as you reflect on all the things you've done and with this transition in particular, what are you most grateful for?
Miller: I think it goes back to the uniqueness of this opportunity. Most people don't get to work for the bulk of their career closely with their father in a business like this, and among those who do, it's usually a smaller, private company, or the father and son don't necessarily get along well. I'm very grateful for that. To have a mentor and a father who has the ability to allow me to grow in this space, to steer things in a way that might not have been his way, that's unique. He allowed all of us to do that, and it's a real benefit for the company overall.
I'm also grateful for the way that this company works. You know, there's 11 of us who sit in here every Monday, and of that group, five of us have been here more than 25 years, three of us have been here between 10 and 12 years, and a couple others just a few years, but they feel like lifelong colleagues already. We've done a really good job selecting people who fit well with the company. I'm grateful for both sides of that: the ability not only to have long-tenured employees, but to be able to bring in and keep talented people.