Pittsburgh-based Blue Cross and Blue Shield insurer Highmark Health, which also includes hospital system Allegheny Health Network, reported record operating revenue and lower, but strong operating results across its business segments in 2018 as it focused on managing health plan costs, improving benefits for members, and investing in new care facilities and programs for patients.
"Our 2018 year-end financial results are strong and we believe it provides yet another proof point that our strategy is working," Highmark President and CEO David Holmberg said Tuesday during a call with reporters.
Highmark's operating revenue reached nearly $18.8 billion in the year ended Dec. 31, 2018, an increase of 2.8% over 2017. Its operating gain, meanwhile totaled $526 million, down 14.6%.
Its net income, was $570 million, almost half of what it was in 2017, when the company benefited from a one-time gain from the sale of part of its vision business.
But Highmark executives said that while 2017 was record year for operating gain and profit, and this year's results are more in line with expectations for a not-for-profit company. After years of bleeding money from selling plans on the Affordable Care Act exchanges, Highmark turned a profit in that business for the first time in 2017 after hiking premiums and narrowing its networks.
It further stabilized the cost of care in the ACA business in 2018 through care management programs and benefit designs that encouraged members to visit lower-cost care settings, and was able to lower prices as a result. Highmark serves about 105,000 ACA individual members, with 70% purchasing subsidized plans on the exchanges.
"Our objective is to really take the things we're doing to lower costs and pass them through in the form of a lower price to the consumer," Karen Hanlon, Highmark's chief financial officer and chief operating officer, explained.
In total, the Highmark health plan recorded operating results of more than $500 million. Its government business, which includes its ACA business, Medicare Advantage and Medicaid, reported operating earnings of $307 million, a decrease of 29% from 2017 results, while its commercial business turned in operating earnings of $203 million, down about 36%.
However, Highmark's integrated delivery system Allegheny Health Network's operating earnings improved to $39 million, up 34.5% over the previous year. Its operating revenue reached $3.3 billion, up 7%. Hanlon said the health system experienced a 2.4% increase in combined total discharges and observation, and a 4% increase in physician services. It also reduced the number of emergency room visits, thanks to the same-day primary care and specialty care appointments it began offering in 2017.
Highmark has been building up Allegheny Health Network to prepare for the end of its consent decrees with rival UPMC on June 30. When those consent decrees signed five years ago expire, UPMC hospitals planned to leave Highmark's network, threatening to leave some Highmark customers with higher costs or send them looking for new doctors. But last month, the Pennsylvania Attorney General Josh Shapiro sued to extend the consent decrees, and Highmark's Holmberg on Tuesday praised the move, saying it would allow patients more choice in where they get healthcare.
Highmark made $350 million of investments in Allegheny Health Network in 2018 to enhance value-based care. Most recently, it completed its joint venture with Geisinger Health System to improve population health through value-based payment models and construct a new facility in a rural part of the state. Among other projects, it is also building four new neighborhood hospitals, five community cancer care centers, an academic cancer care center and renovating emergency departments at its hospitals.
Highmark's other diversified businesses, which include dental, stop loss and vision companies, also reported operating earnings of $159 million, up 54.4% year over year, driven by strong performance in its dental and stop loss segments.
Highmark said it also reduced its corporate expenses, and strengthened its balance sheet, bringing its net assets to $6.7 billion, up $200 million over the previous year. Its cash and investments totaled $8 billion at year's end.
