Kristen Hampshire

Wednesday, 02 November 2005 05:05

Divide and conquer

When Jerry Meach's seat was upgraded from back-room finance guy to front man for American Community Mutual Insurance in 1997, he could only describe his new view as a very ugly picture in a financial scene that was "totally out of control."

More than 80,000 backlogged insurance claims each stagnated for about 80 days before clearing. Employees renamed the pending claims file "the black hole" because follow-up on these incomplete claims was rare. A stubborn attitude toward change characterized an operation steeped in tradition.

"When I took over, that was the worst you could do -- change something," says Meach, president and CEO of the Livonia, Mich.-based health insurance company.

At the time, a seemingly healthy $450-million revenue and piles of unprocessed claims hid the company's internal financial turmoil as American Community was losing $1 million each month.

The company simply wasn't keeping pace with the industry. Meanwhile, outdated pricing and past-due paperwork were dragging down its reputation with subpar ratings from benchmarking organizations such as A.M. Best.

"We were rated C-plus-plus, meaning very vulnerable at that time," Meach says. "And we did a lot of talking to get that."

Insiders involved in financials and accounting operations had no idea just how badly the company's balance sheet was suffering. Even Meach, who led the accounting department as treasurer, didn't discover the financial damage until his appointment to president opened up the big picture.

By then, American Community was in desperate need of a significant overhaul.

"In that year before 2000, this company just about hit the wall," Meach says, reflecting on how the business has gone from survival mode to profitable growth mode since he took the helm. "I've had faith that this place could be something because I know the people who are here -- they are hard-working and dedicated. They needed direction and leadership. We just kept on going."

It is said that reconstruction is a time of dynamic creativity, a time to adjust to modern times, adapt and reinterpret tradition. For Meach and American Community, 1997 marked an operational and financial point break.

Today, the company pays claims in eight days, its customers are solid and a "safer risk," and its smaller size -- $378 million in revenue in 2004 -- makes it a nimble player in a competitive industry.

The reconstruction era
Meach faced a series of managerial tests in 2000 when he initiated an aggressive turnaround plan to reroute American Community's financial direction. Most of these challenges centered on claims, pricing and rewriting policies -- basic discipline and attention to detail, he says.

Rather than taking an aerial view of the business, Meach examined each process, specific files and even individual cases.

Meanwhile, clearing a mountain of backlogged claims unearthed a tunnel system of financial tangles. Changes had to be made at every level.

The most difficult time for Meach was in 2001, shortly after he introduced change to the company and realized that he must sacrifice certain parts for the good of the whole. In this case, the antiquated parts were eight managers who were not interested in growing the new way.

"There were still 350 people whose jobs depended on this company being able to survive, and we weren't going to survive if we didn't [release some people]," Meach says.

Clerical staff was reduced by 10 percent and Meach let go some of his closest colleagues -- he had worked closely with each for no fewer than 15 years.

"I had an outside attorney by my side and an ex-state policeman sitting in the closet with a gun in his pocket," Meach says of the sensitive time.

He knew that those who were not willing to participate in rebuilding and restructuring the organization would only weigh down the company's progress.

"We knew we couldn't get to the next level without changing," he says.

The claims system also needed to be cleaned up. A lagging claims process frustrates customers and sparks litigation and an "unpaid" pile that sits for six months or more skews pricing. Cost of goods is predicted based on claims that are incurred, not those reported. American Community had plenty of reported claims, but they were unprocessed and, therefore, not figured into the claim payment history, which insurance companies use to price products.

"When you drag out the payment process, you can't price products properly," Meach says. "We found out that we were woefully undercharging for our products. In 2000, we had a $14 million surplus supporting $450 million of premium. If you look at that multiple, it's about 20-to-1. An acceptable multiple is a 4-to-1 [ratio of] surplus-to-premium."

Essentially, this is how Meach discovered that American Community was losing $1 million a month because of inaccurate pricing.

His first step was to speed up claims processing so it met the industry standard, which today is about eight days. Meach set what seemed at the time to be a lofty goal: To efficiently process clean claims and turn them around in 10 working days or fewer. That meant skimming a good 70 days off the claims turnaround time.

Now, 90 percent of claims are processed electronically.

"You can immediately load them into the system, and someone doesn't have to do data entry," Meach says. "They can adjudicate the claim and either get it paid, denied if it is not covered or pended it if needs additional information."

Transferring the once-manual process to an electronic system reduced the number of unprocessed claims to 3,500 the first year and eventually whittled the pile down to nothing.

"We cleaned up that black hole," Meach says.

Pricing discrepancies became more obvious once Meach mopped up the claims mess.

"We knew there were problems, but no one knew they were as bad as they were and how they could compound," he says.

"You view claims statements as a procedural issue," he says. "But that became a financial issue when we couldn't see our reserves properly."

American Community had changed payment patterns for the better but its improved procedures voided out past payment history. In effect, American Community could not recycle past product prices as an accurate and fair cost for its services unless it wanted to continue losing money.

That's when the "Dear Valued Agent" letters mailed.

"We described our progress, our plans, and when we made changes, we gave [agents] as much notice as we could so they could keep customers advised of what would happen," Meach says.

Ninety days after one particular letter, agents' customers noticed new prices for premiums and plans, as well as trimmed benefits in some cases.

"We [instituted] rate increases to bring rates to where they should be, which was not popular with our agents or insured," Meach says.

American Community lost some agents and customers during this time, but "safe risk" customers and loyal agents stayed on board.

"A lot of that [lost] business was not business you want," Meach says. "And, we weren't charging enough for [our services], so we were losing money on that business."

The pricing readjustment paid off. A complete financial makeover resulted from a combination of clean claims processing, new technology and readjusted rates. Rather than losing $1 million each month, American Community made $250,000 one month after it instituted its aggressive plan.

The next month, revenue increased to $600,000 and eventually, the company was up to $1 million a month.

"Then, things took off and we started to rebuild our surplus," Meach says.

With rates in line and claims in the clear, American Community could focus on ways to secure more business. But its cross-functional approach to selling its suite of products was not concentrated enough to convince customers of its quality products.

"Individual and group services were lumped together, sales was all together and employees were selling both sets of products," Meach says.

Instead, he wanted employees to specialize and hone their knowledge in either individual or group health insurance sales.

"Group and individual health insurance are two separate products, and they needed to be dealt with separately," he says. "The key was to establish disciplines so employees could pay attention to all of the details of their product lines."

This theory falls in line with Meach's divide-and-conquer rebuilding strategy.

"It is important to have that big picture, but that big picture won't materialize if you don't have the discipline to pay attention to details throughout the entire organization," he says.

Now, American Community is powered by a senior management team and mid- and lower-managers who oversee operations in two departments: Individual or group health insurance. Frequent all-staff meetings and internal communication through written announcements and face-to-face meetings help connect employees and cultivate a team-oriented culture.

And most employees don't mind when Meach wages a challenge in the conference room.

"During one of the very first employee meetings I held, I tried to get across the fact that the company hadn't changed in the past and that was why it had difficulties," Meach says. "I told them they could do two things: Either change or leave. I got a round of applause that lasted one minute."

The path to growth
With 350 employees and $378 million in revenue, American Community is a PT boat in a sea of battleships, according to Meach. And that's a position he prefers.

"It takes forever to turn a battleship around, but we can change directions and be far more nimble," he says.

Coming off a four-year period of significant reconstruction, Meach attributes American Community's quick reaction time to its modest size. He's not interested in competing with the 1,200-pound gorillas that negotiate bare-bones prices with providers, drive discounts that compromise physicians' cost of doing business and compete on cutthroat fee structures.

Those large health insurance firms want more market share, and in the process, they drive many smaller competitors away from the bargaining table, Meach says.

"We are that smaller company, so that is where the pressure comes," Meach says.

Meach knows he can't fight every battle, and he doesn't want to, anyway.

"We have to differentiate ourselves based on customer service," he says. "We have to take care of our agents, and the way we do that is by providing personal customer service the way it used to be done -- the way big companies refuse to do it."

Meach says his agents are his No. 1 customers, and he treats them as such. American Community's business cards supply direct-dial phone numbers so agents can reach underwriters -- not an industry norm. A Web site allows agents to track claims progress and access information that their customers might need after-hours.

Further, Meach makes a point to call on his agents. He travels often, booking appointments from 8 a.m. to 9 p.m., and ensures that he has enough time to ask agents questions and gather their feedback.

"Repeatedly, [agents] say, ™I've been in this industry for 30 years, and I've never had a company president in my office," Meach says.

Meanwhile, American Community's focus on consumer-driven health care plans and a department dedicated to these innovative products will help put the company on the map with small groups and individuals who want choice and control in their health insurance decisions. For example, The Secure Step Plan will roll out in December to provide a flexible option for those who might not invest in health insurance.

Customers who purchase this program can upgrade coverage as they see fit, which Meach says will appeal to consumers with a show-me-the-value attitude.

Still, the health savings account market continues to feed growth for American Community and it has introduced a consumer-friendly twist -- a plan-year deductible HSA that allows customers 12 months from the date of plan purchase to meet their deductibles as opposed to setting a January premium date, which could mean only three months to meet the deductible if a customer purchases the HSA in September.

"We feel very strongly about the consumer-driven health care movement," Meach says. "It is a good thing for America. We've developed a set of plans with an intention to bring affordable insurance to the large, uninsured population out there."

Also important to future growth is offering customers a diverse selection of health plans.

"You can't paint a whole wall with one brush," Meach says. "Different consumers want different things. But the main thing they want is affordable coverage, and the only way you can give that to them is to provide them with [consumer-driven] programs where they can make decisions and have control over their own coverage."

As American Community considers what consumers want, it will stretch its geographical reach to provide products to as many groups and individuals as possible. Meach is expanding the company's eight-state battle ground to include 15 more it does not now serve. His goal is to color in a new state on American Community's service map each year.

"We'll pick states with favorable markets and offer products and distribution in those areas to expand our top-line growth profitably," Meach says.

His goal is to double the company's revenue to $700 million in five years.

"There is always something new around the corner at this place," he says, hinting at the sense of adventure that has kept him excited, positive and constantly pushing toward success.

"I like to make something new happen," Meach says, "to take something that is working well, tinker with it and make it better."

How to reach: American Community Mutual Insurance, (800) 991-2641 and

Tuesday, 24 May 2005 07:46

The Corpora file

Born: Jan. 11, 1956

Education: Moravian College, Bethlehem, Pa., bachelor of arts in accounting

Involvement: Board of directors, Direct Marketing Association's Educational Foundation

Whom do you admire most in business and why?

The ex-president of Rodale Inc., Robert Teufel. There is a guy who, over a 30-year period, took a small, quirky company and made it the most respected health and fitness publishing company in the world. He never compromised on products and he hired talented people and gave them space and authority.

What is the most important business lesson you've learned?

When I talk to vendors, I tell them I want a fair price but I want to make sure they make money on our business because I want to keep them engaged and happy.

What has been your toughest business challenge?

Working in an industry where you have a declining market. It is much more challenging when the wind is at your face than at your back.

Describe your leadership style.

Hire good people and give them goals and room, and stay in touch.

Wednesday, 23 March 2005 09:32

Game-time decisions

In the great game of sports entertainment -- fan-filled arenas, all-star athletes, decked-out suites and hospitality from box office to box seats -- Ed Snider is a humble host. As chairman of Comcast-Spectacor, his spirit is dedicated to coaching his team; his mind is busy plotting the next strategy.

Ask the sports management industry leader how he nurtured Philadelphia's first hockey team, the Flyers, into a league with a loyal following. Ask him about growth -- his formula for building a business that dips into every entertainment pot from cable television to arena management.

Ask him about the ventures he launched or acquired since 1966 -- he can't remember exactly how many. He sloughs off the question, figuring his start-ups near a dozen. The Wachovia Center, a $210-million state-of-the-art arena, is the company's latest entertainment gem.

Then ask him how he manages the whole act, and he supplies a two-part response that sounds as basic as baking from a box mix.

"You have to have the right idea and the right people," Snider says, passing ovations and overtime credit to his players.

Snider's got game -- and his formula is simple: "Take what you do well and grow it."

He recognizes overlapping opportunities and connects the dots, from teams to television, fans to arenas, ticketing to concessions.

"My thrill in business is to start something from scratch," he says.

And because a company's team is its critical success factor, Snider listens carefully and trains relentlessly. The team, after all, wins the game -- not one player.

"In the business world, [our company] is much like sports," says Peter Luukko, who worked his way up from college graduate rookie and now works closely with Snider as president of one of the company's numerous subsidiaries, Comcast-Spectacor Ventures. "We win together and lose together here. Ed is like your favorite coach. He is demanding, he cares and he's always rooting for you -- always rooting for you."

"You have to have a strong desire to win ... "

Snider recalls the first days with the Philadelphia Flyers. Hockey was new to the city when he founded the team in 1966, and filling the stadium with fans presented marketing challenges he met with ticket giveaways.

"We had to get people into the building to see the sport," he says. "We felt that once they saw a game, a very good percentage of them would enjoy it and want to come back."

Family-focused seat-filling efforts paid off.

"We invited schools as our guests," Snider says. "We worked out a plan so schools could transport kids here in busses. The thing with children is they don't have preconceived prejudices. Adults might say, 'Who wants to go to a hockey game? I'm a baseball fan.'

"Kids loved the game and started dragging their parents to the sport."

Today, tickets for Flyers games are $23 for nose-bleed seats; corporations occupy suites and box seats are a hot commodity.

"We grew every year," says Snider.

Comcast-Spectacor sprouted new businesses from Snider's initial hockey franchise and the Spectrum stadium.

"We are always finding new ventures, but every business is interrelated," he says. "We are not interested in expanding in areas that are not related in any way to our industry. We love what we do and we are good at it, and there are plenty of opportunities for growth in [the businesses] we already have."

Observation is the crux of Snider's growth; entrepreneurs don't necessarily harvest original ideas, he says.

"I didn't invent the arena," says Snider. "I just knew that we needed one in town. It wasn't an original idea, but it was an idea that the city needed."

Still, an entrepreneurial spirit has innate radar for solutions and can design ways to develop, adapt, fit, form and sell a concept to the market, Snider says. Essentially, his acute sense for demand and the innovative means of filling it molded a multibillion dollar arena management business that really picked up momentum in 1996 when Snider merged Specacor and Comcast Corp., selling 66 percent of Spectacor to Comcast.

Today, Comcast still owns 66 percent of the business.

Initially, this venture consisted of the Flyers, the Philadelphia 76ers, Wachovia Center, Wachovia Spectrum and the Philadelphia Phantoms minor league hockey team. Since then, the corporation joined with the Philadelphia Phillies to form Comcast SportsNet, one of the country's top-rated regional sports networks.

Comcast-Spectacor's most recent additions to the business play list include the Flyers Skate Zone, a series of regional ice skating rinks, and Global Spectrum, an international facilities management company. And the corporation provides all of the arena fixings through Ovations Food Services, Patron Solutions box office management, and event and customer communications divisions.

Snider says fans want more than a home-team win; he is providing them with an experience.

"The arena business has changed from just arenas to hospitality," he says. "It's almost like a combination of hotel management and entertainment. We have to cater to suites and box offices and make sure clients have a wonderful experience.

"They bring their clients and entertain in these suites and we, in turn, provide food, beverage and entertainment as necessary."

First-class service is just part of today's game, and winning arena management organizations serve up the finest fare possible for fans. These expectations have created business opportunities for Comcast-Spectacor -- more spokes reaching from this sports entertainment hub into new profit sectors.

"We manage a lot of facilities, and we are good at it," says Snider. "Our concessions and ticketing businesses keep growing."

Arena management possibilities represent a significant growth opportunity, Snider says. Careful management is the key to continued, controlled expansion, as are strong players who want nothing more than to win.

"You have to have a strong desire to win in the sports industry," he says. "You have to do everything in your power and within reason to win. At the same time, you must have financial responsibility and you need two-way loyalty in the organization -- loyalty to the organization's people and people who are loyal in return."

"Fish stink from the head"

Snider learned his first business lessons from his father. Working side-by-side in the family grocery store, young Snider picked up philosophies that shape Comcast-Spectacor's work culture today.

"My father was a man I looked up to tremendously," Snider says, pausing as he considers a bit of wisdom he quotes regularly to employees. "Fish stink from the head. In the grocery business, you know that the head is where the fish starts to rot."

In a greater sense, the supermarket mantra speaks to leading by example.

"It means an organization is only as good as the guys at the top," Snider says. "Managers have to set standards for everyone."

Company culture filters from the boardroom to the box office, says Luukko.

"We are big hall walkers," he says, explaining that visibility and approachability allow managers to reach an organization's field leads.

Locker-room talk sparks business ideas and cultivates a comfortable culture.

"The first quarter of Flyers games, we have a dinner with people of all levels in the company -- whoever is working that night," Luukko says. "We talk business, we poke fun at each other, we laugh."

Fostering a teamwork culture means leaving corporate doors open. As coach, Snider is a sounding board. He shows interest in employees -- in projects his managers oversee and in ideas that start as hallway chatter and continue as conference-room discussions. Snider leads by listening, and when he likes what he hears, he applauds, Luukko says.

"Ed is my greatest resource," he says. "When I have a deal I think is right and I'm excited about it but it's missing something, I can sit down with Ed and we'll brainstorm. Based on his experience, he'll ask, 'Did you look at it this way?' or 'How about if we tried that?'"

Luukko cites one of the first nuggets he gleaned from Snider.

"Once a deal becomes too complicated, it's really not a good deal," he says, pulling another memorable Snider one-liner from his repertoire. "We are in business to make money and to have fun."

That said, Snider says both characteristics - money and fun -- are why his employees stick around, and how he can recruit talented players. Teams execute strategies, he explains, reverting to his formula of fitting people into appropriate roles.

With players in position, Snider can enjoy the vantage point of watching employees provide animation to company strategies.

"Once you have the idea, you have to find the right people to execute it," Snider says. "Our people know they can grow with us -- the sky is the limit. That's how we get the best."

"...Who can say where the arena business is heading?"

Technology offers a home-team advantage for Comcast-Spectacor, and Snider figures advances will present new and exciting ways to bring Philadelphia sports to fans. Consider concessions, which has matured from yesterday's hot dogs and cotton candy to today's high-class catered fare.

Cable television, high definition TV and digital technology can essentially hot-wire a stadium.

"The way technology keeps advancing, who can say where the arena business is heading," Snider says. "We've gone from color TV to HDTV, which is now being used at most games to make you feel like you are there."

Broadcasting games on computers is another possibility. And with Internet access already available in suites, Snider says that perhaps the next step is connections at every seat.

Keeping up-to-date and constantly seeking ways to connect related businesses to the Comcast-Spectacor core will drive the company's growth, Snider says. Meanwhile, the company will stick to its game plan --providing fans a winning sports entertainment experience. And Snider has his bases covered.

Settled comfortably into the box seats in the game of business, he considers his coaching tactics -- his inspiration, his driving force.

"Entrepreneurs are people who not only have ideas but want to execute them," he says. "Make them happen."

How to reach: Comcast-Spectacor L.P, (215) 336-3600,

Hampshire is a free-lance writer in Cleveland, Ohio. She contributes monthly to Smart Business Philadelphia and Smart Business Cincinnati.

Thursday, 24 February 2005 08:43

The Nies file

Born: Cincinnati

Education: University of Cincinnati, bachelor's degree in marketing, master's degree in finance

First job: IBM

Recognitions: Profiled by the Smithsonian Institution's Division of Information Technology and Society as a software industry pioneer; recognized by former President Ronald Reagan as "the epitome of entrepreneurial spirit of American business;" Entrepreneur Of The Year Hall of Fame; Ernst & Young Entrepreneur Of The Year regional technology winner

Involvement: Served on board of the Federal Bank of Cleveland

Whom do you admire most in business and why?

I was lucky to get a job at IBM at the dawn of modern computing. They had a wealth of brilliant managers and executives, and there were several mentors that looked after me and helped me, including Bob Sales, Andy Fogarty and Terry Lachenbach, who rose to become president.

What is the most important business lesson you have learned?

To quote Socrates, the more I learn, the more I realize how little I know.

What has been your toughest business challenge?

Coping with success. Success leads to arrogance. Sir Edmund Hillary, who first climbed Mt. Everest, said, 'We don't conquer the mountain, we conquer ourselves.' You have to conquer yourself, and then you get your people to see that is their greatest challenge, too.

Wednesday, 26 January 2005 09:45

The Boscia File

Name: Jon Boscia

Born: Pittsburgh

Education: Point Park College, degree in psychology with minors in math and Spanish; Duquesne University, MBA finance and information technology; University of Pittsburgh, MBA

First job: Consolidated Natural Gas Service Co., office services. "The position was called a key operator -- putting toner in the printer, delivering mail and driving executives in the company car," he describes. "I wasn't allowed to talk to them then."

Involvement: Serves on boards for the Philadelphia Orchestra, Philadelphia Police Foundation, Hershey Foods and Temple University; member, Committee to Encourage Corporate Philanthropy; chairman, CEO Steering Committee on Financial Services for the American Council of Life Insurers

Whom do you admire most in business and why?

Peter Drucker's intellect and insight is incredible. He walks the line between tactical and strategic thinking and has an enormous ability to transition a business to be a bottom-up organization.

What is the most important business lesson you have learned?

All of my lessons come back to the value of employees and people. I cannot get beyond how important people are to the success of a corporation.

What has been your toughest business challenge?

Changing the company infrastructure and separating sales functions from manufacturing.

Describe your leadership style.

I am collaborative and I love and encourage responsible debate. I ask a lot of questions and delegate a lot of authority. Also, I have a high demand for excellence and accountability.

Wednesday, 20 October 2004 18:04

Universal truths

Alan Miller performs a routine check-up of Universal Health Services' corporate vitals. The balance sheet is healthy and kicking plenty of returns to investors.

Growth spurts are nourished by revenue that rises each year. The hospital management company's reputation is squeaky clean. And its backbone -- talented people -- supports a skeleton of 100 acute care, behavioral health, ambulatory surgery and radiation oncology centers.

"Business involves three keys: good people, access to capital and opportunities," says Miller, the health care giant's founder, president, CEO and chairman of the board. "If you have those ingredients, you will do well."

Miller figures he passes his own test with flying colors. He coaches his staff to succeed and provides a workplace where employees flourish, investors profit and business thrives, even in an economic landscape pitted with challenges.

Many independent hospitals struggle to fund technological upgrades, retain physicians in the face of costly malpractice suits and deflect rising insurance costs. Miller's chain approach, on the other hand, embraces strength in numbers. A national web of health centers shares best practices, enjoys purchasing clout and gains access to technological resources, allowing it to provide quality service at a profit.

"The key to any business is profitability," Miller says, a statement underscored by UHS' $3.6 billion revenue in 2003. "If you provide great service on an honest basis and take care of your patients, they will send you more business. If you have a lot of business, you can maintain a profitable profile, and then everything else rolls in line. You get good credit, you can buy additional facilities and you can raise money through equity markets."

UHS' facilities were founded on quality service, affordability and community relationships, Miller adds, illustrating a healthy business pyramid of sorts, with integrity and people at its foundation.

"But it all goes back to how well you do your job," he says.


Healthy choices

Miller is uncomfortable with any job that isn't well done. He is uncomfortable with adequate. When he helped found UHS in 1978, he shifted gears from the advertising world, where he worked at New York City firm Young and Rubicam.

His college roommate from the Wharton School at the University of Pennsylvania told him community hospitals represented a lucrative career path. At first, Miller wasn't so sure.

"During the transition, I came home and said to my wife, 'I don't know what I'm doing here. I went from knowing a lot to knowing practically nothing,'" he says. "But the basic business skills were there. And three years later, I ran the company."

Miller credits his military background for his orientation to the board room.

"The basic skills of communication, motivating people, leadership, building trust and having integrity are an integral part of someone's character and personality," he says. "You can apply these skills to any business."

With his experience as chairman of American Medicorp from 1973 to 1978, Miller wasn't a complete novice in the medical field. And heading up a health care chain like UHS was an enticing proposition for the driven businessman, a chance to fast-forward his career and pave paths for others.

"I was a young man, and I saw an opportunity to have equity and build a company," he says.

Miller didn't stall in the start-up of the company, purchasing four hospitals in Texas, Florida, Nevada and California right off the bat.

"We connected the dots and filled in the map," he says of the company's rapid expansion into suburban markets.

Success in the first hospitals earned UHS attention from investors, who noticed the management group's aggressive growth.

"If you do well with your first hospital, there are plenty of people out there who are anxious to back a high-quality management group," he says. "Just as we need [investors'] capital, they need us. They need to put their money to work effectively -- it's a two-way street. If you have a solid management team and you can communicate your goals and measure your performance, you will do well, people will believe in you and you will have a following."

Interest in the company ballooned and so did its business. Investors fed the organization, and UHS continued to perform, increasing revenue at an average of 11 percent each year. Miller reverted to his three basic principles.

"If you are a good management group, you won't have problems accessing capital," he says, referencing an auction four years ago when Charter Behavioral Health Systems LLC closed its doors. UHS purchased 13 of its hospitals for cash.

"Many of the other buyers were unable to pay cash; they wanted to give bank notes," Miller says. "They were on the phone calling their investors and venture capital groups trying to get investments."

Bidding closed at 4 a.m., and UHS walked out with the top facilities and no debt.

"There you go," Miller says. "That's good management and access to capital. The opportunity was there, and we capitalized on it."

Chain reaction

Access extends beyond board room buying power. Miller sets up a winning match by acquiring and building in markets where growth is a given.

"For the most part, the United States grows about 1 percent each year," he says. "Our markets grow at about 2 percent each year. We are well above the U.S. average; therefore, our markets will have more people, and that is what we are looking for."

UHS settles in suburban environments of all sorts: booming exurbs, crowded inner ring metro areas and planned communities, such as its most recent debut in Manatee County, Fla. -- Lakewood Ranch Medical Center.

The patient mix at its facilities varies depending on demographics, and UHS caters its facilities to communities' needs. Core services -- heart and lung care, for example -- are constants.

"We are all alike," Miller says, explaining why the chain model is effective. "We all have the same hearts and the same lungs. We are all subject to the same diseases and injuries, and we all give birth. Hospitals treat all of these, but we tailor the facilities, the services and the size and number of rooms and equipment based on the amount of business we expect the hospital to do in that market."

UHS constructed the 120-bed Lakewood Ranch facility -- whose opening Miller attended in late August -- with the option of expanding to 300 beds if necessary to meet demand. Ancillary areas, labs and emergency rooms can be super-sized to fulfill the area's forecasted population surge. This is just the type of growth UHS expects to model corporately, sticking to its pattern of steady increases.

But Miller is more satisfied with integrity than statistics. By opening the doors at Lakewood Ranch, he fulfilled his promise to the community. After planning, construction and preparation, he delivered health care to the area's families.

That matters.

"We are going to be members of that community," he says. "We know that we are going to do what we promise to do. Unfortunately, the world is such that when that happens, people are overwhelmed with the fact that you did what you said you were going to do. We don't change because times change."

Though simple and altruistic, this philosophy captures a key advantage of operating a hospital network. When times change for the worse in one community, business booms in another.

"You spread your risk around," Miller says. "It's like any investment portfolio. You have 20 stocks, and if one goes down and it is worthwhile and you hold on to it, you can still have money to pay your expenses until it comes back up."

Besides balance, there is sharing. A hospital in Washington, D.C., can learn from a facility in Laredo, Texas.

"We disseminate best practices so all hospitals can take advantage of our empire," he says.

Then there are financial rewards and cost savings associated with being part of the "in" group. UHS employs specialists for every arm of its operation, from construction and legal to accounting and purchasing. And having in-house help pays off.

"We have the economies of having all of these specialties in our organization," Miller says. "And we get purchasing economies."

Meanwhile, holding the No. 1 or No. 2 rank in every market it' is in positions UHS to secure competitive arrangements with insurance and equipment providers. Maintaining this status requires service -- and, of course, a job well done. Miller isn't interested in performing any other way.

"You have to provide great service, and you have to be able to attract a lot of business," he says. "Therefore, you have to have the latest in equipment and a very talented staff."


Key character

Miller glides through his team's accomplishments like a proud father rehashing his child's first steps.

"Many people have been here more than 20 years --you can go through the line," he says.

The 25-year-old company employs 30,000 people and has groomed a sizeable class of performers.

"We have people who are in charge of hospital groups who started out as assistants," he says. "The head of development has been with the company for 25 years -- he was our first employee, and he started out as a purchasing assistant."

The company's CFO climbed to his position from the accounting department. His treasurer started as a clerk. The head of the behavioral health division moved up from marketing.

"That is what the plan was all about," he says. "Give people room to grow the company, let people go as far as they can, and watch them develop. They can go as far as their talent carries them if they work hard and exhibit a solid character."

UHS' numbers back the story.

"If we did not have the best record over the last 12 years in terms of total return, you'd say, 'There are a lot of underperformers, and they are still working at the company -- big deal. Lots of companies have people who have been there for years, and they don't perform,'" he says. "But in our company, put together the profitability and employee longevity, and you have a collection of performers who produce the best results in our industry. They stay with the company."

Miller is a hands-off manager, but he believes in goals and measured performance.

"I work hard, and I'm always available," he says.

Show him integrity, and he lends his trust. Prove skills with results, and he offers reward.

"You have to believe in the people you hire," he says. "Provide them an avenue to grow."

He illustrates his point with an observation he made at a Villanova basketball game, where the coach was hassling a guard, spouting orders at him mid-game.

"I thought, 'This is not going to work,'" he says, laughing. "Do that in practice. Tell them what to do, show them what to do. But when it's time to play the game, you can't run along the sidelines."

Trust and integrity produce a winning record -- a sustainable brand. Miller notes that UHS' name hasn't changed since its inception, an exception in the health care industry.

"We are proud of our name and our record," he says. "When all is said and done, you want to have accomplished something with your career and life, and we all want to have that feeling that we have added measurably to the quality of people's lives in the community. That is a good feeling."

How to reach: Universal Health Services, (610) 768-3300 or

Friday, 20 August 2004 11:12

Appetite for advancement

Charles Pizzi's first taste of business wasn't in the bakery business. The president and CEO of Tasty Baking Co. whet his appetite for corporate reorganization and strategic development while serving on the Philadelphia Chamber of Commerce, where he served as president and CEO from 1989 until resigning in 2002 to accept his current position.

Under Pizzi's leadership, the chamber grew to one of the nation's largest, boasting more than 6,000 members. Pizzi tripled revenue, expanded reserves, broadened the chamber's portfolio of programs and established a for-profit subsidiary and a Council for University Presidents that includes 33 regional institutions.

What tempted him to take his business acumen to the food industry?

"Being the head of the chamber, we grew dramatically while I was there," he says. "I had a chance to look at various businesses, and I sat on some public boards of businesses, as well."

Tasty Baking Co. satisfied Pizzi's hunger to expand, restructure and repackage a solid brand.

"This is really a learning experience," he says. "I made sure to surround myself with people who are smart and who understand the business.

"One stock analyst said, 'What does he know about this business, and why was he picked?' Another said, 'You know, this guy has an interesting background, let's wait and see.' I think we've proven that if you are open-minded and ask a lot of question and have the right people around you, that is the key to success."

As business owners look ahead to the future, many of them are planning on how to transition out of their company. Given that a business owner’s greatest asset is generally his or her company, it’s important to understand the business’s real worth well before it’s time to exit. A proactive business valuation performed well before an ownership change can provide an owner with a roadmap for improving the bottom line, driving profit and increasing overall value over time. Ultimately, this means a more favorable payoff when the time comes to execute a succession plan. “To maximize business value, owners need to develop a strategy to build institutional value,” says Barry Worth, member and director of mergers and acquisitions, Brown Smith Wallace LLC, St. Louis. But aside from simply determining the company’s worth, an owner should dig deeper and work to understand the various components of a business valuation. What areas of the business are driving value and what parts are profitable? And just as important, what departments or product lines or people are not contributing to the bottom line? “A proactive business valuation is about looking at the value of the company, then reaching below and peeling off the layers to identify what components of the business are really driving value,” said Bill Willbrand, tax and accounting member, Brown Smith Wallace. Smart Business spoke with Worth and Willbrand about how a business valuation can serve as a strategic growth tool for your business. Why should a business undergo a business valuation years before an ownership change? By performing a business valuation well before initiating any sort of exit strategy, you can create a baseline, a planning document to use as a roadmap for building value. A valuation can help you focus on key components of the business, understand what areas of the business are really driving value and identify weak spots that are detrimental to the worth of a company. For example, a valuation may show that a certain product line is not actually contributing to the financial success of the company. This might be a surprise to owners, who never fully investigated the product line’s contribution from a value proposition perspective. Based on these findings, the company can set goals to eliminate or sell off the product line and focus its energies on areas of the business that have the greatest impact on profitability and long-term value. A business valuation forces you to really tease out value drivers and spoilers, and it gives you a baseline so you can develop a plan and begin to measure progress. How can a business valuation enhance shareholder value? Through a business valuation, a company can determine its true value drivers. Those might include key client relationships, location, proprietary technology or any number of critical success factors. A valuation illustrates where a company should focus its efforts in order to grow the value of the business and maximize dollars invested in growth. Simply put, investors want to know where to focus time, talent and capital, and a business valuation can highlight those promising areas. You wouldn’t throw money at a product that wasn’t a value-driver. Also, keep in mind, shareholders are the true owners of a business, so a valuation is a critical exercise for identifying corporate differentiators that deliver shareholder value. How can a business owner use a valuation to increase a company’s worth? A valuation can help you begin with the end in mind and create a plan to focus on enhancing areas of the business that promise profit. Once you identify areas of the business that improve profit, you can stop doing the things that don’t. For example, you could eliminate a product line in order to focus your company’s talent and capital on a product that will raise the overall value of the business. A valuation truly serves as a critical planning document that can help you make key business decisions in the areas of customers, people, process and finance. When these four components fall into place, a company has a balanced scorecard and is in the best position to improve its value. What are the keys to developing a value enhancement process? The valuation establishes a baseline and a better understanding of the key value drivers. These are different in every company, but there are three basic areas that affect the value of every company: people, systems and strategy. Management depth and quality affect a company’s value. A company can immediately improve the bottom line, and its overall value, by establishing sound contracts with key personnel. Second, financial and accounting systems are important to assess the value of a company. Third, a company that has vision and a plan to reach its goals is more valuable than one without such a focus. Simply performing a business valuation improves value because it gives owners a clear picture of where the company stands and what components will help it grow profitably. How does an owner get started with a valuation process? Seek out accredited individuals specializing in business valuation who know how to really dissect a business, analyze financial statements and project to the future. While maintaining their independence and objectivity, valuation professionals can apply their business knowledge and recommend steps you can take to improve the overall value of your business. BARRY WORTH is a member and director of mergers and acquisitions and turnaround consulting and BILL WILLBRAND is a member in tax and accounting at Brown Smith Wallace LLC. Reach Worth at (314) 983-1202 or Reach Willbrand at (636) 754-0200 or

With health care reform under way and economic pressure bearing down on businesses of all sizes, companies are combing their budgets to cull unnecessary expenses. One area that’s often overlooked is dependent eligibility for health care benefits.

On average, companies can save 3 to 8 percent on their health insurance costs by simply identifying and dropping ineligible participants, says Janet Beckmann, CPA, principal, risk services and data analysis practice leader at Brown Smith Wallace LLC, St. Louis, Mo. The key is to conduct a dependent eligibility verification audit to identify “eligibility creep” that can occur over time.

“Employers of all sizes will be taking a hard look at their health insurance plans and benefits as a result of health care reform. While they’re doing that, it’s a good time to perform an audit to ensure everyone on your plan has proper eligibility,” Beckmann says.

An independent firm can conduct a comprehensive, document-based audit that gathers data from employees to verify eligibility, says Larry Pevnick, CPA, CFF, member in charge of insurance and reinsurance services at Brown Smith Wallace.

“This is an opportunity for businesses to save money without reducing benefits to their employees, so it’s a win-win,” Pevnick says. “They can cut their budgets without touching a health care plan that employees value and need.”

Smart Business spoke with Beckmann and Pevnick about how dependent eligibility audits can result in significant savings for your company.

Why should employers conduct an audit?

Between health care reform and our current economy, employers are working hard to save costs anywhere they can. Some think that the only way to save money is to reduce the benefits they offer employees, but that’s not always the case.

By identifying dependents on their health insurance plans who are not eligible, companies can typically save 3 to 8 percent.

Knowing that business owners are focused on savings, health insurance brokers are also getting on the bandwagon to recommend their clients have a dependent eligibility verification audit performed.

What benefits do businesses realize from a dependent eligibility verification audit?

The biggest benefit is immediate cost savings, which can amount to hundreds of thousands of dollars when companies drop ineligible dependents from their plans. As a result, future claim costs are reduced, as well. Employers also gain a better understanding of their participant plan costs and have an opportunity to clean up their eligibility.

How often should an audit be performed?

That depends on the size and operation of the company. Large employers may want to perform an audit every two to three years. If one has never been performed, now is a great time to start. Audits should be performed more frequently for organizations with many part-time and/or transient workers because they are more likely to find a larger number of dependents who do not belong. Also, perform an audit any time there are major changes in operations, such as following an acquisition or merger, and after layoffs or reorganization.

How should an audit be conducted?

The key is to make sure employees are respected during the process because they will be asked to supply personal and other confidential documents to verify their eligibility for health insurance. Managers and those involved in the audit — which usually includes human resources and/or benefits administrators — should communicate clearly to employees, letting them know that everyone is being asked to furnish such information, no one is being singled out and all information will be kept confidential. Next, a third party that specializes in these audits will begin collecting data, including birth certificates, marriage licenses, tax forms, custody agreements, adoption certificates and other court-related documents that verify a dependent’s eligibility. A call center number gives employees an independent resource for asking questions, which is also a key to minimizing the involvement of management so the process remains unbiased, fair and efficient.

Look for a firm that will make the best use of technology to simplify the process and provide a complete audit. For instance, we perform an employee eligibility verification audit using data analysis tools to compare 100 percent of the employee master data set to eligibility files. Those are also compared to claims to pinpoint the exact dollar amount paid for ineligible participants. Those claim costs typically cannot be recovered. The process is about identifying future cost savings. Quantifying the results is helpful when prioritizing or justifying new processes and procedures for in-house eligibility verification going forward.

When is the best time to perform an audit?

Any time that is not a particularly busy time of year for employees. You may want to consider when open enrollment occurs and how employees will be affected if dependents are identified and dropped from the plan.

What should an organization consider when choosing a service provider to conduct an audit?

First, be sure the firm has the experience to staff the process and its goals are to reduce costs and save time. For instance, rather than paying for postage to send letters of request to employees for gathering documents, can the firm set up a website where employees can log on and see what documents they need to provide? Ask the firm how it will make the process respectful, confidential, efficient and fair. Communication is key during the entire audit process. The firm should be prepared to educate your employees so that everyone is comfortable with the process. The firm should also understand your key objectives, which typically include the importance to the company’s financial well being and maintaining the company’s current level of benefits.

Janet Beckmann, CPA, is principal, risk services and data analysis practice leader at Brown Smith Wallace. Reach her at or (314) 983-1254.

Larry Pevnick, CPA, CFF, is member in charge of insurance and reinsurance services. Reach him at or (314) 983-1247.

The employee benefits plan you offered five years ago may not suit your organization today. And with industrywide changes impacting 401(k) plans, businesses need a partner who can guide them through the process of designing and implementing flexible retirement plans.

“There have been big, sweeping changes in the industry over the last few years, and we can expect those to continue,” says Jeff West, first vice president of wealth management for Old Second National Bank, Aurora, Ill.

Since 401(k) plans were introduced in the early 1980s, the savings vehicle has revolutionized the retirement plan business and outpaced pension plans in assets, West says. The sheer amount of 401(k) assets — worth trillions of dollars — has prompted the need for greater oversight of these plans. At the same time, employers need employee benefits that can flex with their ever-changing companies, which offers a great opportunity.

“The key is to understand regulatory changes and ensure that your plan is compliant so employers and their work forces realize the full benefit of their plans,” West says.

Smart Business spoke with West about employee benefits plans and how industry changes are affecting the way plans are designed, administered and regulated.

What changes have occurred recently in the industry that affect profit-sharing plans?

There have been many updates recently, especially as more players are entering the profit-sharing field since the 401(k) has become such a popular plan. For example, providers must supply the plan sponsor with a Service Provider Document Disclosure. This is a tool for the fiduciaries of retirement plans to make sure plan fees are reasonable.

Because of different providers and different ways to get paid in the field, this disclosure levels the playing field so that businesses can see which fees fall into which buckets. It gives them a comparison tool so they can fulfill their fiduciary responsibility.

Another change is the electronic filing of plans’ Form 5500. This year, plan sponsors are required to obtain the credentials from the Department of Labor and file the Form 5500 electronically. Businesses should work closely with their providers to make sure that those 5500 reports are filed in a timely manner.

What common mistakes do employers make when administering employee benefits such as 401(k)s and other profit-sharing vehicles?

One is very simple, and that’s not following the signed plan document, which includes specific rules governing the plan. The plan document outlines when employees can participate in the plan, when they can withdrawal money, etc.

Many times, businesses simply don’t follow the rules. And if they make a mistake administering the plan, they need to fix it. Common errors are easily resolved through various programs available through the DOL that make it easy to report the issue, fix it and move on.

You don’t want to wait until an audit situation to clear up errors.

Why should companies re-evaluate their plan design and set clear objectives for their profit-sharing plans?

We see a lot of employee benefits plans that were set up years ago, and businesses have since changed.

For example, the work force may have shrunk, or the business could have developed into a new niche market, and what made sense a few years ago might not work today.

Be sure to review the plan on a regular basis — at least annually — and make sure the plan design matches your objectives. One company’s goal might be to ensure that the business owner is realizing the full benefits; another company might design a plan that will attract and retain workers.

Talk to a professional in the field about objectives and partner with someone who understands your business and employee benefits needs as they change.

How can employers build flexibility into their employee benefits plans?

Many employers use a prototype plan, which is a document that is approved by the Internal Revenue Service. Employers simply check the boxes on the document without careful review, assuming it’s a package deal.

But actually, this boilerplate legal document does contain quite a few decisions that companies can make that will build flexibility into the plan. This is why it’s a good idea to consult with an expert who can help guide the process so that your company gets exactly what it needs.

How can a company identify a firm to partner with that can provide employee benefits resources?

Find a partner with expertise who has dedicated resources. The 401(k) business has exploded in the last decade — firms see the assets and fee potential and want to jump into the business.

But it’s a complex market, and businesses should be sure that their vendors have the market insight and tools to steer them through the changing landscape.

Jeff West is first vice president of wealth management at Old Second National Bank in Aurora, Ill. Reach him at (630) 906-5500 or