Biggest health systems see steep investment losses in 2018

Twelve of the country’s largest not-for-profit health systems ended 2018 with $3.7 billion in collective investment losses last year in the stock market downturn that erupted out of political and economic fears. 

But as is typically the case, none of the massive systems indicated plans to withdraw from the equities market whatsoever. Their investment strategies match their long-term goals and entail staying the course regardless of what happens during an unsavory quarter. 

“You don’t sell when the market’s going down,” said Steven Shill, partner and national leader of the BDO Center for Healthcare Excellence & Innovation. “You hold, particularly if you have a specific objective in mind, which many of them do have.”

Among the country’s largest not-for-profit health systems by revenue—excluding those that haven’t yet filed their year-end 2018 financials—Kaiser Permanente took the biggest hit. The Oakland, Calif.-based system posted a $1.2 billion loss alone—a nearly $5 billion swing from its 2017 gain. And the stock market has already regained much of its losses so far in 2019.  

Compare that to 2017, when the same systems recorded $11.4 billion in investment gains, including Kaiser’s $3.6 billion and Ascension’s $1.9 billion.

UPMC, for example, has had the same asset allocation strategy for 20 years. It includes a 60% investment in the equities market, whereas most systems are probably less than 50%, said Tal Heppenstall, executive vice president and treasurer at the Pittsburgh-based system. Part of the reason is because UPMC is large enough that it doesn’t need the money today, he said.

“We put money in the stock market because we are pretty sure it’s going to be there for five years,” Heppenstall said. 

“As you probably know, 2017 was a strong year in the financial markets and as a result, investment portfolios such as the Cleveland Clinic’s saw strong returns. Our portfolio generated a return of approximately 12% during 2017. However, 2018 was a very different story in the financial markets with the year marked by significant volatility and poor returns. As such, our portfolio saw a loss of approximately 3% in 2018. The Cleveland Clinic manages a well-diversified investment portfolio, but that portfolio is invested in the broad market and will see its returns impacted by the overall direction of the financial markets.”

Steve Glass, CFO

Partners’ first-quarter fiscal 2019 reflects new accounting rules requiring investments to be measured at market value rather than at cost.

Rich Copp, spokesman

“Our second-quarter filing tells a story that many health systems like Trinity Health are very familiar with—that escalating labor and supply costs, increased payer denials and volatile investment markets, impacted bottom lines. Nonetheless, we realized a positive operating margin and we remain focused on our transformational people-centered care strategy—delivering high-quality, value-based care to the communities we serve.”

Ben Carter, CFO

“Investment returns were positive earlier in the year, but market volatility at the end of Q4 resulted in an overall net loss. Sutter Health is a long-term investor, with steady operating results and a conservative balance sheet. Our investment and pension portfolios remain well-diversified, with appropriate risk controls in place. We account for these year-to-year changes through thoughtful and measured planning. Through this long-term lens, we are able to fulfill our not-for-profit mission of improving health and wellness by using our resources sensibly and investing in our communities and integrated network to provide quality care to patients.”

Angie Sheets, spokeswoman

“There has been no change in our investment strategy. Rather, this is a reflection of the performance of domestic and international markets. After rising nearly 25% in 2017, the Dow declined by nearly 6% in 2018, with most of the losses coming in the last few months of the year. The markets have rebounded during the first two months of 2019.”

Nick Ragone, spokesman

“Like other health systems, PSJH was affected by the fourth-quarter downturn in the equities market. Non-operating losses for 2018 totaled $448 million for the year compared with gains of $777 million in 2017. With the market rebounding in the first quarter, PSJH is seeing positive investment returns thus far in 2019.”

News release

“The 2.6% stated return is the return on our main investment vehicle (which is a subset of total cash and investments). It is Mayo’s Long Term Fund only, not our total cash and investment position. Also, there are timing differences between this investment return and audited accounting conventions. There were no changes to the asset allocation guidelines from 2017 to 2018.”

Dusanka Anastasijevic, spokeswoman