Criminal Fraud Probe, Corporate Governance Concerns Loom Over UHS Shareholder Meeting

For Release: Wednesday, 5/20/15 // Contact: Jim McNeill, Cell 202-213-1614, Jim@UHSBehindClosedDoors.org,

– Top shareholder adviser ISS backs proposal to reform skewed stock structure that gives Universal Health Services CEO and son over 85% of voting rights

– Healthcare advocates to deliver petition signed by more than 10,000 calling on company to establish dedicated quality of care and compliance committee

King of Prussia, Pa. — Concerns with corporate governance at Universal Health Services Inc. (UHS) will be highlighted at today’s shareholder meeting of the for-profit hospital company. Investors and healthcare advocates are seeking significant reforms at UHS, which recently disclosed it is under investigation for criminal fraud. UHS is the nation’s largest provider of facility-based behavioral health services.

On the agenda is a shareholder proposal that would reform UHS’s skewed ownership structure, which currently gives CEO Alan Miller and his son control of over 85 percent of voting rights. Healthcare advocates from SEIU will also deliver a petition signed by over 10,000 people calling on UHS to establish a dedicated quality of care and compliance committee on its board of directors.

Looming over the meeting will be the ongoing federal probe into potentially illegal billing practices by UHS and 21 of its behavioral health facilities. That investigation, which began in February 2013, took a dramatic turn this March when UHS disclosed that the U.S. Justice Department’s Criminal Fraud Section was probing whether the UHS corporate office fraudulently billed Medicare and Medicaid for behavioral health treatments.

The widening investigation underscores concerns of mental health advocates who worry that numerous breakdowns in care at UHS stem from an unhealthy emphasis on profit. In 2014, roughly one-quarter of revenues from UHS’s behavioral health division went into profit, not patient care. Last year, UHS also cut staffing costs in its behavioral division to their lowest level in the last decade.

“UHS’s obsessive focus on the bottom line means its caregivers on the frontline often struggle to provide quality care with inadequate staffing,” said Kirk Adams, International Executive Vice President of the Service Employees International Union and leader of the work of SEIU Healthcare, which represents more than 1 million nurses, doctors and healthcare workers. “UHS needs to show its commitment to care by embracing the corporate governance reforms being called for by a growing number of healthcare advocates and investors.”

SHAREHOLDER PROPOSAL AIMS TO REFORM SKEWED STOCK STRUCTURE: New York City Comptroller Scott M. Stringer has filed a shareholder proposal challenging the ownership structure of UHS, which gives CEO Alan Miller and his son over 85 percent of the voting rights at the company. Miller also controls the election of five of the seven directors on UHS’s board. These same directors are expected to provide oversight of the CEO and management.

The comptroller’s proposal would recapitalize the company and reapportion voting rights across all types of outstanding stock. The proposal has the key backing of Institutional Shareholder Services Inc. (ISS), the world’s leading proxy advisory firm. While the dominance of the Miller family means the proposal almost certainly will not pass, a strong vote for it by other investors would signal serious reservations about the company’s current structure.

CALL FOR A DEDICATED COMPLIANCE COMMITTEE: A delegation of healthcare advocates from SEIU will present a petition signed by more than 10,000 people calling on UHS to create a dedicated committee on its board of directors to monitor quality of care and compliance issues. SEIU, which represents caregivers at a number of UHS facilities, has been advocating for the creation of a dedicated compliance committee at the company since November 2013.

Unlike most other large investor-owned hospital companies, UHS lacks a dedicated compliance committee. At its peer companies, the compliance committee offers an important check on potentially criminal behavior, such as that under investigation at UHS. It also provides a vital outlet for employees to express concerns about care. At UHS, caregivers have reported being retaliated against or fired when they raise patient-care concerns.

UHS also deviates from its for-profit peers by failing to include quality measures in determining executive pay. A 2014 analysis of CEO compensation by Modern Healthcare found that the majority of UHS’s peer companies do incorporate quality metrics when parceling out pay. But Miller’s compensation — which totaled $18.4 million in 2014, a 40 percent boost from 2013 — is based solely on the company’s financial performance. Quality of care has no impact on his pay.

Several studies show that hospital boards can improve quality. (The New York Times summarized the findings of those studies here.) And while quality and compliance committees are common at large for-profit hospitals, they’re even more prevalent in large nonprofit hospital companies. A study in the American Journal of Medical Quality analyzed 14 of the largest 15 nonprofit hospital systems in the United States and found that 13 of them had quality committees.

UHS’s LOW LEVEL OF LIABILITY RESERVES ALSO AT ISSUE: Earlier this month, an investment group released findings that UHS has made substantial reductions to its reserve for general and professional liabilities over the last five years. UHS made those cuts even though the criminal fraud probe into UHS could lead to significant fines or penalties.

According to the CtW Investement Group, “UHS’s reserve balances are at an all-time low of 2.1% of total assets, or $192.9 million, while many of the company’s peers have increased reserves from 2013 to 2014. Moreover, these reductions boosted UHS’s earnings per share and enabled the company to meet or beat analyst consensus expectations in several of the corresponding periods.”

The investment group, which works with labor-management pension and benefit funds, has formally requested that UHS “explain to shareholders what steps the board intends to take in order to minimize the exposure of long-term shareholders to the risks of regulatory enforcement and associated litigation.”

With all these issues in play, the UHS shareholder meeting could provide an unusually revealing look at a company facing a potentially explosive federal investigation.

UHSBehindClosedDoors.org is bringing to light serious problems in care at Universal Health Services, the nation’s largest provider of behavioral health care. It is an online resource for mental health advocates and caregivers supported by the Service Employees International Union.