Healthcare Business News

UPMC reports growth in volume, earnings

The gains come amid a contract dispute with insurer Highmark and complaints from SEIU.

By Beth Kutscher
Posted: April 4, 2014 - 2:45 pm ET

The UPMC system, which is engaged in a contract fight with its largest commercial payer, reported growth in its patient volumes and insurance business that led to improved earnings in the first half of its fiscal 2014.

The Pittsburgh-based, 13-hospital system reported operating income of $112 million (PDF) on revenue of $5.7 billion in the first half of its fiscal 2014, which will end in June. That's an increase from $85 million in operating revenue on $4.96 billion in revenue the previous fiscal year.

UPMC is in the last 12 months of its contract with health insurer Highmark, which last year acquired UPMC rival West Penn Allegheny Health System, Pittsburgh. The $1 billion deal created one of the largest integrated delivery networks in the country, the Allegheny Health Network, and heated up competition in the Pittsburgh market.

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Despite objections from Highmark—which has taken its fight to the state Legislature to force providers like UPMC to contract with “any willing insurer”—UPMC remains firm that it does not intend to renew its contract with Highmark. Highmark customers account for 20% of its patient service revenue (down from 21% in the first half of fiscal 2013).

Credit analysts in the last six months have downgraded the ratings on UPMC and Highmark because both sides stand to lose revenue in the turf war.

Yet in its most recent earnings report, UPMC said it saw a 10% increase in admissions and observation stays. The larger numbers were largely attributable to its midyear affiliation with Altoona (Pa.) Regional Hospital.

UPMC also said it saw an 11% increase in membership in its insurance services group, but most of the additional revenue was offset by sequestration. Members in UPMC's insurance plan accounted for 10% of patient service revenue in the first half of its fiscal year, up from 9% in the prior-year period. Other national insurers accounted for 7%, a 1 percentage point increase year-over-year.

Separately, UPMC is under pressure from the Service Employees International Union, which wants to organize its workers. The union last month organized a protest of 1,200 workers and other community members, claiming UPMC employees are so underpaid that they need to rely on food banks and public assistance programs.

The union also filed a complaint with the local National Labor Relations Board, citing “multiple unfair labor practice charges” at UPMC Presbyterian Shadyside. The SEIU is seeking multiple remedies, including access to distribute literature and speaking to UPMC employees.

UPMC said in its earnings report that it is unclear what the outcome and financial impact of the SEIU's charges will be.

Follow Beth Kutscher on Twitter: @MHbkutscher

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