A jump in expenses whittled away UPMC’s strong start to 2023 and left the nonprofit at a narrow $15 million operating gain (0.1% operating margin) for the first six months of the year, according to financial documents.
The Pittsburgh-based system reported an $85.8 million operating loss (-1.2% operating margin) for the three months ended June 30, down from the second quarter of 2022’s $31.5 million gain (0.5% operating margin).
A $151.4 million gain from investments helped blunt its bottom-line change in net assets (without donor restrictions) to just -$10.2 million for the quarter. Year to date, a $394.6 million gain on investments pushed the system to a $177 million rise in net assets (without donor restrictions).
“While UPMC’s financial results for the first six months of 2023 reflect the ongoing challenges in the post-pandemic health care environment—including increased costs to deliver high-quality care—UPMC remains strongly positioned as one of the nation’s leading integrated health systems and the region’s most preferred provider and insurer,” the integrated nonprofit wrote in a release.
UPMC’s Health Services division fueled the fire with a $94 million operating loss across six months. The provider segment of UPMC has seen a 2% year-over-year increase of inpatient volumes, a 9% rise in outpatient revenue and a 9% increase in physician service revenue. Payer mix was roughly equivalent to that of the prior year’s first half.
However, the segment’s 9.8% year-over-year rise in operating revenue was met by a 9.5% increase to last year’s already substantial operating revenues, the latter of which included a 6.6% increase in salaries, professional fees and benefits as well as a 15.3% spike in supplies, purchased services and other general expenses.
Insurance Services, meanwhile, has logged a $109 operating income across six months, down somewhat from the previous year’s $183 million gain “due primarily to increased utilization across several insurance division products as patient volumes increased,” the system wrote in its release. The organization also highlighted an 11% year-over-year increase in membership as of June 30 but noted than its trailing 12-month medical expense ratio had inched up to 85.8% as of midyear.
UPMC’s announcement underscored hundreds of millions in strategic capital investments that aim to meet rising demand for care in ambulatory settings across its regions.
“UPMC’s $363 million in capital expenditures for the year’s first six months are aimed at supporting the right level of patient-centered, high-quality, cost-effective care in the right places,” Edward Karlovich, executive vice president and chief financial officer of UPMC, said in the release. “Capital projects include major construction and improvements at UPMC facilities in Central and North Central Pennsylvania, the new UPMC Mercy Pavilion, UPMC Presbyterian and expansions and enhancements across the health system.”
UPMC is among the largest nonprofit health systems in the country. It comprises 40 hospitals and 800 clinical locations alongside its insurance plans and other offerings. Like others, it faced a “difficult” fiscal 2022 with $238 million of operating income and net losses of over $1 billion.
The higher volumes across its provider and payer divisions do fall in line with the second-quarter reports of other major healthcare organizations. Kaiser Permanente and Mass General Brigham—fellow nonprofits that lean on an integrated care model—both saw higher patient service revenues but increased expenses due to additional medical claims.