Nonprofit hospital titan UPMC's income eclipses record

Despite its tumultuous divorce from rival Highmark Inc., hospital titan UPMC hit a record level of cash-flow income over the past fiscal year and its health care plan membership grew significantly.

“This market has never been better,” Robert DeMichiei, UPMC's chief financial officer, told reporters Thursday in reviewing UPMC's financial performance for the period that ended June 30. “We've got very aggressive insurance competition, and we have very aggressive provider competition. That presence of true insurance competition drives lower rates, so the businesses are seeing rates that are flat to down. And in terms of provider competition, they're seeing upgraded facilities, they're seeing new specialists that are being brought in, and they're seeing new alternatives and new geographies.”

UPMC's operating revenue exceeded the $12 billion mark for the first time, which DeMichiei attributed to growth in insurance and health services.

Its cash-flow income, a barometer for financial performance and ability to generate resources for reinvestment, was $804 million, also a record. And its operating income skyrocketed to $338 million, up $148 million from the previous year.

The financial advances occurred even as net patient service revenue from Highmark patients fell 5 percent.

Highmark's formation of its own hospital system — North side-based Allegheny Health Network — kicked off a bitter fight with UPMC over renewing a reimbursement contract for in-network care of the insurer's members.

UPMC said it could not contract with a competitor in the hospital business.

The contract expired at the end of last year, making many of UPMC's doctors and hospitals out-of-network to Highmark members. A state-brokered consent agreement provided some Highmark members, such as seniors and those with chronic medical conditions, with in-network access to UPMC for five years. But many who were covered under a one-year transition period will have to find new doctors and hospitals in 2016.

“What you've seen starting in January was the transformation of the market,” DeMichiei said. “Although we've seen a decrease in the Highmark business as we expected, we've seen more than an adequate uptick in the UPMC health plan business and the national insurance business and also the Medicare and exchange business.”

UPMC's insurance plan grew 17 percent in the past year to more than 2.7 million members.

UPMC Treasurer Tal Heppenstall Jr. said its mix of insurance payers continues to evolve.

“The money that's going away isn't going away from UPMC; it's going away from Highmark,” he said. “The rumor that UPMC is going to lose a gazillion dollars because of the Highmark contract is just not going to happen.”

James McTiernan, area vice president for Arthur J. Gallagher & Co., an insurance brokerage and risk management services firm, said UPMC's financial statistics a year from now could be more telling.

“I don't think that their patient volume really changed that much,” he said. “Next year will be interesting.”

UPMC's hospital admissions and observations dropped about 1 percent from 287,373 to 284,839, and its outpatient revenue remained flat over the past fiscal year.

UPMC offered buyouts to 3,500 of its older workers in May to cut costs and now employs more than 60,500 — slightly down from 62,000 a year ago. The nonprofit remains Pennsylvania's largest nongovernmental employer. DeMichiei said about 1,000 people took the buyouts, which were extended to employees 60 and older with at least 10 years of service.

“If we can maintain stable employment with growth, then we become more efficient,” he said. “Doing more with the same.”

Ben Schmitt is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or bschmitt@tribweb.com.