Pittsburgh-based UPMC’s operations are $313 million in the red (-2.2% operating margin) halfway through 2024, the integrated nonprofit system reported in a Thursday filing.
The 42-hospital system’s performance includes $88 million related to a restructuring reportedly tied to a wave of layoffs announced in April.
Still, the remaining $225 million operating loss (-1.6% operating margin before restructuring costs) is a downturn from last year’s $15 million gain (0.1% operating margin) and largely the result of higher utilization and pharmaceutical costs for UPMC’s insurance business.
After gains from investing and financing activities, the system managed to land in the black with a $16 million net income attributable to controlling interests across six months. It had logged $150 million this time last year.
Total operating revenues across six months rose 4.8% to $14.5 billion, with the health services and insurance services divisions logging year-over-year increases of 6.1% and 3.4%, respectively.
First-half total operating expenses, on the other hand, grew 6.5% year over year to $14.7 billion (excluding restructuring costs). While the health services group logged a 5.1% rise in expenses, insurance services’ grew by 8.1%.
High volumes and utilization—which have proven to be a trend industrywide this quarter—played key roles in the numbers from both sides of the organization.
The health services division, for instance, credited the patient census alongside dipping contract labor expenses for its $72 million improvement (excluding restructuring costs) over last year’s operations. Inpatient activity was up 2% compared to the first half of 2023, average outpatient revenue per workday was up 10% and average physician revenue per weekday rose 7%.
For the insurance services division, where operating income fell by $312 million (excluding restructuring costs), UPMC’s medical expense ratio for the trailing 12 months rose from June 30, 2023’s 85.8% to 90.5% at the same time this year.
“The increase in [medical expense ratio] is primarily due to the rise in surgical volumes, significant case mix shifts and rise in provider rates, which have driven up medical trends across several product lines,” the system wrote in its financial filing. “Additionally, pharmacy costs have risen due to increased utilization within Medicaid, primarily within GLP-1 drugs.”
UPMC also noted that its insurance services division membership has fallen 8% since last year, largely due to Medicaid redetermination with the end of the COVID-19 public health emergency.
UPMC noted capital expenditures totaling $435 million year to date, at the center of which is its work on expanding UPMC Presbyterian into “the largest healthcare building in Pittsburgh’s history.”
Additionally, in early June, the organization finalized its acquisition of the two-hospital Washington Health System. UPMC has committed to $300 million of investments over 10 years into those campuses.
UPMC is among the country’s largest nonprofit health systems with $27.7 billion of reported revenue across 2023. It also logged a $198 million operating loss in 2023 but just a $31 million net loss.
As of June 30, UPMC reported 98 days of cash on hand, 11 days less than where it started the year.
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