Even as UPMC reports solid revenue and volumes, the academic health system is working under a razor-thin operating margin that's getting slimmer by the year.
Pittsburgh, Pa.-based UPMC's operating margin was 0.9% in 2018, down from 1.6% in 2017 and continuing a years-long slide, according to year-end financial results posted Thursday. The system's operating margin was 2.4% in its fiscal 2016, down from 3.2% in fiscal 2015. When factoring in income tax and interest expense, UPMC's 2018 operating margin shrunk to 0%, down from 0.6% in the prior year.
UPMC's revenue grew 20% year-over-year in calendar 2018, while operating income declined 32.5% in that time. The not-for-profit system generated $166 million in operating income on $18.8 billion in operating revenue in 2018, compared with $246 million in operating income on $15.6 billion in operating revenue in 2017. Expenses grew 21% year over year, rounding out 2018 at $18.6 billion.
Like a growing number of its peers, UPMC saw a significant investment loss last year as the markets turned in the latter part of the year. The system lost $367 million on investing and financing activities in 2018, compared with a gain of $416 million in 2017. Despite that, the system said in its report it 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.
Kaiser Permanente in California, whose non-operating income plummeted 71% in 2018 year-over-year, takes a similar stance on the subject. Its treasurer told Modern Healthcare earlier this month it does not react to market volatility from one year to the next.
Partly because of that, UPMC's expenses exceeded revenues by $290 million in 2018, compared with revenues over expenses of nearly $1.3 billion in 2017.
On the volumes front, UPMC's hospital medical-surgical admissions grew 16% to 267,545 in 2018 over the prior year. Factoring in observation cases, psychiatric, rehabilitation and skilled nursing visits, volumes grew 14% year-over-year. Hospital outpatient revenue per workday increased 25% in that time, and physician service revenue per weekday grew 13%.
Emergency room visits increased 18.7% to 1.1 million, and the system delivered 762,457 home health visits, up 2% year-over-year.
UMPC generated operating earnings before interest, depreciation and amortization of $790 million last year, largely unchanged from 2017, when it was $789 million. UPMC spent $891 million on capital expenditures in 2018, up from $701 million in 2017.
Enrollment in UPMC's health plans swelled to nearly 3.5 million members as of Jan. 1. The system's insurance services revenue increased by $1.4 billion to $9 billion in 2018 year-over-year, driven by membership growth of more than 140,000.
UPMC is embroiled in multiple high-profile legal battles. It filed suit against Pennsylvania's Attorney General last week arguing his petition to compel the health system to negotiate with the Blues insurer Highmark Health violates federal laws. It's also joining a multi-state antitrust lawsuit accusing dozens of Blues plans of impeding competition.