For Universal Health CEO, Obamacare Makes Sense and Dollars
Obamacare's implementation may look like a "train wreck," but Universal Health Services CEO Alan Miller says his $7 billion hospital company is well-positioned for the changes. The company's stock continues racing northward on the express track.
Miller said the Affordable Care Act's expansion of Medicaid coverage and mental health coverage for people who don't currently have it will help drive down the "bad debt"—uncollectible patient bills—at UHS's nearly 200 behavioral health centers.
"And that drops right to the bottom line—right to the bottom line," Miller told CNBC.com in a recent interview.
A more robust bottom line might boost UHS's stock even higher than it already has been lately. The stock price is up nearly 80 percent over the past year, a fact that surprised even the Brooklyn-born Miller when a reporter pointed out exactly how big that dramatic jump was in percentage terms.
"Is that right?" asked the 75-year-old founder of the King of Prussia, Pa.-based UHS, which owns and operates 23 acute care hospitals.
UHS shares recently traded hands at $70.67 per share, compared with a closing price of $39.44 per share on June 12, 2012.
If investors like the stock when a Miller is running the company, they might stick around when this particular Miller finally decides to retire. Miller said having his 42-year-old son, Marc Miller, the current president of UHS, take over as CEO one day is "the succession plan."
"He's been on the board for a number of years. The board knows him and is very comfortable with him," Miller said.
But, Miller noted, "We do not have any date. Right now, I'm having fun, and he's not pushing me out the door."
Asked why he thought UHS stock has rocketed in the past year, Miller said, "First of all, I think the industry's up."
"But second of all, we have been stable. I have been here. I'm the founder. We have an excellent management team, and we're a stable company. We're not likely to do funny things, we're not likely to make unstable acquisitions."
However, one major acquisition by UHS—the $3.1 billion deal to buy competitor Psychiatric Solutions in 2010—effectively doubled Universal Health Service's number of behavioral services facilities, sealing its status as clear leader in that sector of the hospital industry.
Last October, UHS added nine other inpatient psychiatric facilities by paying $503 million to buy privately operated Ascend Health.
A bigger psych services division has provided UHS with even greater countercyclical balance to its acute care hospital business, which has seen patient numbers shrink during the recession.
Total patient days at UHS facilities increased 1 percent—to 6.31 million days—over 2011 despite the fact that patient days in its acute care facilities have slid every year since 2008.
"We like both" businesses, Miller said. "We've always had both. I think they're a very good offset. I can tell you that some years ago, people said, 'You're doing so well in acute, it's a basic business, why are you playing with, why do you have the psych business?' "
Now people are coming around, and saying, 'What a great business, Oh, how smart you are, why do you want to be the acute business?' " Miller said, laughing. "I've been through it long enough. I think it's a great offset."
Last year, UHS reported a 3 percent increase in net revenue, up to $6.96 billion, compared with $6.76 billion in 2011. Adjusted net income in 2012 was $406.4 million, versus $391.7 million in 2011.
The acquisitions of Psych Solutions and Ascend Health also left UHS in a prime position to benefit from Obamacare, Miller said.
Generally speaking, Miller said, he is deeply skeptical that the Affordable Care Act—particularly its transition to state and federally based health-care insurance exchanges to ensure coverage for all Americans—will take effect under fast-approaching deadlines set by the new law.
"This Obamacare, let me quote [Senate Finance Committee Chairman] Max Baucus, 'It's a train wreck,' " Miller said. "It's a mess. And it's supposed to get organized starting in October, and effective in January, and now you've got the IRS as that one that's supposed to do the administering for you? Good luck buddy, good luck. So, that's not going to happen, it's not going to happen."
"I like where it's going," he said. "I don't think it's going to get there as swiftly as we think."
But when asked if his own company faces a significant potential upside from Obamacare in the near term, Miller didn't hesitate in answering: "Absolutely."
"The expansion of Medicaid is a good thing," he said. "The impact on bad debt, I mean, that's a terrific thing."
Miller said that on average, uncollectible bills at UHS psych services facilities run at about 12 percent to 20 percent of total billings. That number can be even higher in some areas, including large cities.
"This is bad debt, this is people that come into the hospital, must get treated, and don't pay," he said.
With the new law, and its mandated coverage of people's mental health needs, the bad debt of UHS's business could drop precipitously.
"We don't have to do anything," Miller noted. "All of a sudden people start paying, who've never paid before. ... Bang! All of a sudden they pay a bill."
Not all of the government's moves are helpful to UHS, including the ongoing budget cuts known as sequestration.
"Sequestration is really affecting businesses, different industries, and where they cut back, you have less people likely to be covered [by health insurance] and coming in," Miller said. "And our business, the overall business, is seeing less people hospitalized."
"That's been happening now for a couple of years. That's just the effect of the economy," he said. "Sequestration obviously doesn't help it."
But that's just a small smudge on Miller's generally bullish outlook for his company—and the industry overall.
"The nice thing about this business, and why I've stayed with it so long, and all: We don't have technological obsolescence," Miller said. "People get sick, you can't stop it. And we're getting older as a population. It's an inexorable business, if you do it well."
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—By CNBC's Dan Mangan. Follow him on Twitter @danpostman.