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May 29, 2020 02:10 PM

UPMC attributes first-quarter operating loss to pandemic

Tara Bannow
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    AP

    The COVID-19 pandemic turned UPMC's already slim operating margin negative in the first quarter of 2020.

    The Pittsburgh, Pa.-based academic health system reported a $41 million operating loss in the quarter that ended March 31—a 0.7% loss margin—compared with an operating gain of $44 million in the prior-year period, a 0.9% operating margin.

    That doesn't include most of the damage from COVID-19. The effects of the pandemic didn't set in until the final two weeks of March. Just in that time, the health system said the volume reductions were significant, amounting to a $150 million decline in those two weeks alone.

    Patients who postponed surgeries before the crisis are now beginning to reschedule those procedures, Edward Karlovich, the system's interim chief financial officer, said in a statement.

    "With assurances that all our facilities are safe for all patients and staff, we are seeing our patients returning for their essential care that had been postponed and our current volumes are beginning to approach near-normal levels," he said.

    UPMC said although its insurance division expects to pay fewer medical claims in the latter half of March, it spent more on pharmaceuticals as members filled prescriptions in advance of stay-at-home orders.

    Despite the volume decline at the end of March, UPMC still managed to grow its operating revenue by nearly 9% in the first quarter of 2020 year-over-year, to $5.5 billion. Expenses grew at a faster clip, however, ballooning 10.6% to $5.5 billion.

    UPMC's hospital medical-surgical admissions and observation cases fell 4% in the first quarter year-over-year, and hospital outpatient revenue per workday increased 1% over the prior year. Physician service revenue per weekday decreased 3% in that time.

    Like other systems, UPMC suffered a significant investment decline as stocks reacted to COVID-19, driving $653 million in excess expenses over revenue in the first quarter, down from an excess of revenue over expenses of $289 million in the 2019 period.

    UPMC received $255 million in funds from the Coronavirus Aid, Relief, and Economic Security Act, which was shared across 92 of its facilities. Those payments will show up as "other operating revenue" in UPMC's results for the second quarter, subject to compliance with terms and conditions, the health system said. UPMC also received $800 million in accelerated Medicare payments from CMS.

    UPMC said it drew $700 million on its existing credit lines in response to the pandemic and issued a $300 million note through Wells Fargo in the first quarter. Since March 31, the health system opened additional credit lines, including a number of bank loans.

    UPMC's operating earnings before interest, depreciation and amortization was $130 million in the quarter, down 35% from $199 million in the prior-year period.

    UPMC's spending on capital expenditures fell 4.3% to $225 million in the first quarter.

    "Even in challenging times, UPMC will continue to re-invest back into its innovative, mission-driven programs and world-class facilities to ensure we are well-equipped and well-positioned for the increasing needs of our patients and our communities," Karlovich said.

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