Pittsburgh’s two major health systems reported greater profitability in their most recent earnings, despite increased competition and a bitter regional turf war.
UPMC, with 13 hospitals in Western Pennsylvania, reported an improved margin for the first six months of its fiscal 2015. Its operating margin increased to 3% (PDF) for the six-month period ending Dec. 31, up from 2% during the same period in the previous year.
Main rival West Penn Allegheny Health System also reported profit in the fourth quarter of 2014 as its financial performance continued to improve after its takeover by insurance giant Highmark.
Competition in the Pittsburgh market heated up in 2013 after Highmark purchased West Penn Allegheny to form one of the largest integrated-delivery networks in the country.
UPMC fought to allow its contract with Highmark to expire at the end of 2014, but opposition from the insurer and some state legislators ultimately led to a compromise that will preserve access to some services.
However, UPMC is becoming less dependent on revenue from Highmark patients. Its latest earnings report showed that Highmark accounted for 18% of its gross patient-service revenue in the first six months of the year, down from 20% in the prior-year period.
UPMC’s insurance division grew to 2.5 million members as of Jan. 1, and accounted for 10% of its patient-service revenue, the same as the previous year.
Most of the system’s revenue and patient growth came from its community and regional hospitals rather than the academic medical center. Inpatient volume was flat overall, but admissions and observation visits declined 3% at the academic medical center, while increasing 3% and 2%, respectively, at its community and regional hospitals.
Total outpatient revenue also was flat, declining 2% at the academic medical center but increasing 3% and 7%, respectively, at its community and regional hospitals.
In total, UPMC reported an operating surplus of $177 million for the period on $5.8 billion in revenue, compared with an operating surplus of $112 million on $5.7 billion in revenue in the prior-year period.
UPMC has continued to expand in the region. In September, it signed a letter of intent to buy Jameson Health System in New Castle, Pa., and plans to invest $70 million in new facilities and services over 10 years. The system last October also signed a letter of intent to buy Safe Harbor Behavioral Health in Erie, Pa.
West Penn Allegheny, meanwhile, posted operating income of $2.2 million on $453.7 million in revenue for the quarter, according to a financial statement filed with the Pennsylvania Insurance Department. The statement did not include a year-over-year comparison.
It had been operating in the red in prior quarters but its losses have narrowed since its Highmark takeover. For full-year 2014, West Penn’s operating loss was $13.3 million on $1.7 billion in revenue.
Follow Beth Kutscher on Twitter: @MHbkutscher
