Strong enrollment growth and a lower ratio of claims expenses across UPMC's insurance arm helped boost the Pittsburgh system's overall profitability in the first quarter of 2021.
Not-for-profit UPMC posted $288 million in operating income on $6 billion in revenue in the quarter ended March 31, 2021, a 4.8% margin. That's compared with just $15.6 million in operating income on $5.5 billion in revenue in the prior-year period, a 0.3% margin. The biggest revenue gain was in insurance enrollment, which jumped 7% year-over-year, even more than patient service revenue.
Much of the surplus was from $108 million in federal stimulus grants recognized in the recently ended quarter. But even without that, UPMC's operating income would still have been up significantly year-over-year at $180 million.
UPMC's newfound stability follows years of razor-thin operating margins that even slipped into loss territory at times.
The health system noted in its filing it's the largest medical insurer in Western Pennsylvania, totaling more than 4 million members. UPMC said the $82 million year-over-year increase in operating income on the insurance side was due to higher enrollment, lower administrative costs and continued health care service utilization management.
"It's a positive trend to be not only the provider of choice in our region but to also be the insurer of choice as well," Edward Karlovich, UPMC's chief financial officer, said on a call with reporters Friday.
Like other health plans, UPMC is benefiting from a combination of higher enrollment and members simultaneously putting off elective services during the COVID-19 pandemic, said Beth Wexler, vice president and senior credit officer with Moody's Investors Service.
Indeed, UPMC's insurance division healthcare spending ratio, the share of expenses dedicated to medical services for its members, declined year-over-year. As of March 31, 2021, that ratio was 85.9%, compared with 89.3% at the same point in 2020.
Wexler noted that insurance plans have proven to be a "natural hedge" for health systems like UPMC during the pandemic, as they've provided a steady source of claims revenue even as volumes dropped.
"That provides a boost to the profitability, at least temporarily, for the insurance side," she said. "It doesn't mean those services won't come back, but it pushes those costs down the line."
Pandemic-related job losses have also brought the less favorable trend of members shifting from commercial to government-sponsored plans. That's happening at Kaiser Permanente, for example, whose health plan membership is at 12.5 million.
Similarly, most of UPMC's membership growth was on the Medicaid side, which spiked 16.3% year-over-year. Medicare membership grew 3.7% in that time. Commercial membership, by contrast, dipped 5.3%.
Suzie Desai, a senior director with S&P Global Ratings, said health plans don't necessarily lose money on Medicaid the same way hospitals might, especially if they manage the plans well. She also noted that members probably aren't yet pursuing medical services at typical levels because of the pandemic.
On the volumes front, UPMC's Karlovich said the system continues to see improvement from the low points during the pandemic.
"Our hospitals are busy," he said.
Some of that care has moved outside of hospitals, however, Karlovich said. UPMC's outpatient revenue grew 8% year-over-year, and physician revenue grew 4% in that time. Inside the hospitals, total admissions and observation cases declined almost 4% year-over-year. Emergency room visits were down 16.5% in that time.