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Highmark reports record half-year performance

Wes Venteicher
| Thursday, Aug. 17, 2017, 1:00 p.m.
Highmark Health reported an operating gain of $505 million for the first half of 2017, continuing its rebound from years of losses driven by its Affordable Care Act marketplace plans.
Highmark Health reported an operating gain of $505 million for the first half of 2017, continuing its rebound from years of losses driven by its Affordable Care Act marketplace plans.

Highmark Health on Thursday reported an operating gain of $505 million for the first half of the year, accelerating its rebound from heavy losses of recent years.

The nonprofit attributed the gain to improved performance of its government lines of business, including the Affordable Care Act marketplace plans that drove the losses, and to improved performance of Allegheny Health Network hospitals.

Highmark Health was formed in 2013 as the parent company to insurer Highmark Inc. and the hospital network, which it created the same year. The company's net gain for the first six months of 2017 was $535 million, a number the company's executives told reporters Thursday was higher than any reported by Highmark Inc. since its formation in 1996.

Highmark CEO David Holmberg said the numbers demonstrate “continued and steady growth, financial strength and stability.”

Following annual losses from 2013 through 2015, Highmark Health reached positive financial performance for the first time in 2016, when it reported an operating gain of $64 million.

Driving the losses were health plans the insurer sold on the Affordable Care Act's individual insurance marketplace, which launched in 2014. Highmark lost more than $1 billion on the plans in Pennsylvania, West Virginia and Delaware after setting some of the lowest premiums in the country for the plans and then finding that people who bought them had higher medical bills than the insurer expected.

Highmark hiked premiums and scaled back counties where it sold the plans for 2017, and is breaking even on the plans for 2017, said Deborah Rice-Johnson, president of Highmark Health Plan and Highmark Inc.

Highmark expects to break even on the plans again in 2018, when it has requested rate increases in Pennsylvania of up to about 20 percent, Rice-Johnson said.

“Rate increases are developed actuarily based on care costs we think we'll be exposed to,” she said. “Certainly as we have improved our ability to manage these members more effectively, that's had an impact on our care costs.”

Overall for the half-year, Highmark reported a gain of $284 million for its government business and $196 million for its commercial business.

The seven-hospital Allegheny Health Network reported an operating gain of $13 million for the half-year, following a 2016 operating loss of $39 million.

Patient volumes and more efficient operations drove AHN's improvement, AHN Chief Financial OfficerJeff Crudele has said.

AHN started offering same-day doctor visits in January and heavily advertised the program. Among the 85,000 same-day appointments it has scheduled since then, more than 17,000 were new patients, according to the network.

About 270,000 patients have transferred records from UPMC hospitals to AHN hospitals, said Karen Hanlon, executive vice president and chief financial officer of Highmark Health, while about 135,000 have transferred records the other direction.

Holmberg said the insurer's recent sale of Davis Vision to New York-based investment firm Centerbridge Partners will further accelerate Highmark's investment in AHN and in other community health systems. Neither Highmark nor Centerbridge has disclosed the sale price.

Highmark Health has invested about $70 million in the hospital system this year, adding to the approximately $1 billion it has invested in the system since 2013.

The company plans another $300 million in investments in AHN and other health systems this year and anticipates $500 million more in investments next year.

Holmberg said a recent decision by the Pennsylvania Insurance Department to allow Highmark to more freely invest in the health system will help speed up growth.

He cited a finding in a report that a consultant prepared for the department that determined, “Competition in the Western Pennsylvania health care market is alive and well.”

Wes Venteicher is a Tribune-Review staff writer. Reach him at 412-380-5676, or via Twitter @wesventeicher.

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