FLYING UNDER THE RADAR

FLYING UNDER THE RADAR

Over the last decade, Universal Health Services has transformed itself. Ten years ago, it would have been accurate to call UHS a for-profit chain of acute care hospitals with a sideline in the behavioral health business.[1]

But today the behavioral division generates roughly three-quarters of the company’s profits.[2] And after a series of acquisitions, UHS is now four times larger than the next biggest owner of freestanding behavioral hospitals.[3]

Behavioral health gets a ‘minimal amount of attention from payers, which I think is generally a good thing.’
—UHS CFO Steve Filton

Why has UHS made such an aggressive move into behavioral services?

Chief Financial Officer Steve Filton offered one key reason during a presentation to investors in 2013. The behavioral sector, he said, “tends to get, I don’t want to say no attention, but a fairly minimal amount of attention from payers, which I think is generally a good thing.”[4]

With that perceived lack of scrutiny, UHS has been aggressively growing its behavioral business — and growing the business’ profit margins.[5] In 2013, about one in every four dollars generated by UHS’s behavioral division went into profit, not patient care.[6] That’s five times the profit margin of its acute care business.[7]

Maximizing Profits, Minimizing Responsibility

UHS executives have told investors that the company boosts its profits by reducing staffing costs[8] and keeping occupancy rates high.[9] But cutting staff too low can be dangerous for patients and workers.

When things do go wrong at UHS-owned facilities, the company has a troubling tendency to minimize its responsibility.

In September 2014, NBC News aired disturbing stories of abuse, and even death, at UHS’s National Deaf Academy (NDA) in Mt. Dora, Fla.[10] One family said their 10-year-old autistic son was punched, possibly molested and ultimately “broken” at NDA. Another family told of pulling their child out of the facility in 2013 when they saw bruises and other signs of physical abuse.

Asked for comment, UHS issued a statement to NBC saying NDA was “independently operated,” though “expected to meet the highest standards of patient care.

During a regulatory dispute in Virginia in late 2014, UHS executive Dean Montgomery tried to minimize the importance of the ongoing federal probe into 18 of UHS’s behavioral facilities around the country. Montgomery argued that the company’s application to expand a local facility should not be affected by the federal probe, since many of the facilities under investigation “are ones that UHS acquired from prior owner/operators.”[11]

What Montgomery neglected to say is that UHS bought those facilities four years earlier, back in 2010, and many alleged incidents of abuse and neglect occurred well after UHS took them over from Psychiatric Solutions Inc. (PSI).

Ironically, a year before Montgomery was evading blame for the failings of those former PSI facilities, UHS CFO Filton was taking credit for their improved profit margins. Speaking at 2013 investor conference, Filton said of the PSI facilities, “When we bought them…their operating margins were slightly below UHS’s.… I think they are now, after two years operating really at par.”[12]

Unwelcome Attention

The federal investigation into UHS suggests that the “minimal amount of attention” it once enjoyed may be coming to an end.

UHS is still making plans for aggressive growth. In 2014, Filton said UHS’s behavioral division intends to maintain a “600, 650-bed a year expansion pace, at least through 2015 and 2016.”[13]

But those plans may prove hard to sustain if what is now a federal probe leads to formal federal charges.