The UPMC health system grappled with decreased patient volume at its hospitals as it entered fiscal 2016, and the decline overshadowed the membership growth in its insurance business. Rising expenses and large investment losses also depressed its financial picture.
The Pittsburgh-based network, which has both hospital and health plan divisions, is continuing to disentangle itself from Highmark, one of its largest nongovernment payers as well as a bitter rival since the insurer's 2013 takeover of nearby West Penn Allegheny Health System.
UPMC's first-quarter earnings report for the period ended Sept. 30 shows that Highmark members represented just 11% (PDF) of UPMC's patient revenue, down from 17% during the same period last year.
UPMC's own health plan continued to add members and covered 2.8 million people at the quarter's end, contributing 12% of its patient revenue, up from 10% in the year-ago period.
The operating margin in its insurance service division also increased to 1.4% from the prior-year period's 0.8%.
While its insurance segment was a bright spot, the health services division told another story.
UPMC reported a 3% decline in medical-surgical admissions in the quarter as well as a 2% decline in outpatient revenue per workday.
Its estimated market share in Allegheny County, which includes Pittsburgh, declined 1 percentage point to 60%, but the system maintained its 41% market share across 29 other counties in Western Pennsylvania.
The operating margin in UPMC's health services division fell to 2.3, compared with 4.2% in the first quarter of fiscal 2015. The earnings report attributed the decline to not only lower volume but a greater percentage of government payers and its continuing investment in physicians.
UPMC continues to await a decision from the Pennsylvania Supreme Court on whether it can terminate its Medicare Advantage contracts with Highmark as of Jan. 1. The system has sought to completely sever ties with the insurer, but has been blocked by political pressure and resistance from Highmark itself.
UPMC also reported that Highmark's unpaid balance for certain oncology services has increased to $188,000. The system is suing Highmark after alleging that the insurer breached its contract by reducing rates for certain cancer services. A decision is expected this month.
In total, UPMC reported an operating surplus of $72 million on $3.1 billion in revenue compared with an operating surplus of $93 million on $2.9 billion in revenue during the first quarter of fiscal 2015.
Losses on its investments totaled $291 million in the quarter, up from $42 million in the year-ago period.
“UPMC made no material changes to its asset allocation policies during the quarter and continues to have a long-term perspective with regard to its investment activities,” the system said in its earnings report.
