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UPMC strengthens financials despite battles on multiple fronts


By Beth Kutscher
Posted: May 8, 2014 - 1:30 pm ET
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The UPMC health system continued to strengthen its financial position this year in a market that has seen bitter contract disputes and turf wars for patients.

The growth came largely through its insurance division, which is rapidly adding new members; its affiliation with Altoona (Pa.) Regional Hospital; and new revenue streams from outside ventures in the U.S. and abroad.

In a financial report for its fiscal third quarter, which ended March 31, the system reported that it had an operating margin of 2.1% (PDF) in the first nine months of its fiscal year, compared with 1.9% during the same period in fiscal 2013.

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The system reported a surplus of $553 million on operating revenues of $8.5 billion during the nine-month period, compared with a surplus of $417 million on $7.6 billion of revenue last year.

While total patient volume increased 9% year-over-year, the numbers received a boost from the addition of Altoona. Excluding the new affiliation, patient volume actually declined 1%.

UPMC competitor West Penn Allegheny Health System also demonstrated that it is starting to turn around its financials in an earnings report last month, as it booked higher revenue and a smaller operating loss. West Penn's 2013 acquisition by health insurer Highmark created one of the largest integrated delivery networks in the country, but it also raised the stakes for UPMC, creating a much more competitive insurance environment.

Pittsburgh-based UPMC is winding down the last year of its contract with Highmark and has refused to renew it for 2015, despite pressure both from the insurer and some state legislators. Highmark customers accounted for 19% of UPMC's patients in the first nine months of fiscal 2014, down 2 percentage points from the prior-year period.

In the meantime, it is building up its own insurance division, which exceeded 2.3 million members in the first nine months of the year, increasing 9%. However, operating income from the group decreased $1 million year-over-year as sequestration offset the gains in new membership.

Its international and commercial services division also profited from the sale of its investments in two companies: Intrexon, which brought in $38 million for UPMC, and BodyMedia, which brought in $6 million when it was sold to Jawbone.

UPMC, located in a state that did not expand Medicaid, did not mention any impact from healthcare reform in its report. Its Medicaid volume remained flat year-over-year at 15% and bad debt expense increased 4.5%.

Follow Beth Kutscher on Twitter: @MHbkutscher


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