The UPMC Health System, which has spent the past two years feuding with its largest commercial insurer, improved its financial standing in its fiscal 2015 by adding members to its own health plan.
The Pittsburgh-based network reported a 5.3% increase in operating revenue for the year ended June 30, which it attributed to growth in its insurance division as well as efforts to tightly manage costs. Admissions across its 21 hospitals declined 1%.
UPMC has been trying to sever ties with insurer Highmark since the company's 2013 acquisition of West Penn Allegheny Health System, a local rival. But it has faced push-back from both Highmark as well as legislators.
The two parties last year worked out a compromise that preserved access to certain services for Highmark members, but the tension remains.
UPMC's earnings report says it is owed about $170,000 for oncology services delivered under its Highmark contracts, and the system is now pursuing legal action. “UPMC believes that Highmark materially breached those contracts on or about April 1, 2014, by unilaterally reducing the rates reimbursed to UPMC for these services below the prevailing fee schedules provided for in the contracts,” according to the report.
UPMC also notified Highmark in April that it intends to end its Medicare Advantage contracts as of Jan. 1. However, the state intervened and a Pennsylvania court blocked the termination attempt. UPMC is now appealing that decision to the Pennsylvania Supreme Court.
In the meantime, UPMC is diversifying its payer mix. Highmark accounted for 15% of gross patient service revenue in fiscal 2015, down from 19% the prior year. The system's own insurance products accounted for 12% of revenue, a 2 percentage-point increase. Other national insurers composed 8%, up a percentage point.
UPMC's insurance enrollment increased 17.3%, year over year, to 2.7 million members.
In total, the system reported a fiscal 2015 operating surplus of $338 million on $12 billion in revenue compared with the prior year's operating surplus of $190 million on $11.4 billion in revenue. Its operating margin improved to 2.8% from the prior year's 1.7%.
UPMC, which has a history of investing in technology companies, also benefited from the June initial public offering of Evolent Health, a company it co-founded less than five years ago. The system converted its preferred shares to a 22.5% stake in Evolent's outstanding common stock, and recorded a $233 million gain in operating income.
In fiscal 2015, UPMC also invested another $20 million in new businesses.
Closer to home, it spent $392 million on capital expenditures, including a $70 million sports complex in Cranberry Township, Pa., that will serve as a practice rink for the Pittsburgh Penguins as well as the first medical facility to focus specifically on hockey-related injuries. The UPMC Lemieux Sports Complex opened this month.
The system in April also began construction of a new pediatric outpatient center on the campus of UPMC Hamot Women's Hospital in Erie, Pa., which is scheduled to open this year. And it formed a 10-year agreement that same month with the Fundacion Cardiovascular de Colombia to co-manage a cancer center that is expected to open next year in the Colombia city of Piedecuesta.
