News Column

UPMC earnings turn positive, but pressures mount

August 21, 2014

By Alex Nixon, The Pittsburgh Tribune-Review

Aug. 21--UPMC reversed losses in its most recent quarter, but the hospital giant's success in growing its insurance business is putting pressure on earnings.

The health plan, which grew 4 percent in the past year to 2.3 million members, including Medicare Advantage and behavioral health subscribers, is unable to raise premiums to match higher expenses because rival Highmark Inc. is keeping prices low to attract business.

The competition from Highmark is squeezing UPMC's profits, CFO Robert DeMichiei acknowledged on Wednesday in discussing the nonprofit health system's latest financial results. He noted that growth in health plan membership is slowing.

"UPMC continues to be financially and operationally strong in the still-evolving and challenging environment," DeMichiei said.

Highmark, the state's largest health insurer, is trying to hold onto business because its non-Medicare members will lose full, in-network access to UPMC doctors and hospitals on Jan. 1.

But DeMichiei said many Western Pennsylvania employers are offering employees a choice of health plans that includes full access to UPMC.

"Ultimately, yes, some people will choose to stay with Highmark," he said. "We're confident that employees are going to have choice so that they're not locked into the Highmark card."

While health plan membership is growing, yearly increases slowed in the past 12 months after spiking 17 percent and 16 percent in 2012 and 2013, respectively.

The insurance gains and strong hospital patient volume led to $14.3 million in operating income for the April-June quarter, a reversal from last year's $14.3 million operating loss.

Total revenue at the system, which includes the region's largest hospital network and second-largest health insurer, jumped 10 percent to $2.88 billion for the quarter ended June 30.

But pricing pressures aren't the only worries for UPMC's insurance division. DeMichiei said growth is being hampered by a change earlier this year to the Affordable Care Act that allowed some consumers and small employers to keep less robust plans. Insurers were expecting added business from people who would have been forced to change their coverage to comply with the law. DeMichiei said that has "frozen the middle and small commercial market."

In addition to an improved operating profit, UPMC reported better net income. The health system said net income was $14.2 million in the quarter, compared with a net loss of $57.2 million a year earlier.

The gain was the result of strong investment and financing income, which totaled $119.2 million.

UPMC also reported a one-time charge of $106 million related to its sale of an Irish medical center.

In April, UPMC said it sold its stake in Beacon Hospital in Dublin for a "nominal value." UPMC had been trying to restructure $138 million in debt, but the hospital's lenders sold the debt to Irish billionaire Denis O'Brien.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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Source: Pittsburgh Tribune-Review (PA)

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