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UPMC sees potential for growth in insurance business

| Friday, May 15, 2015, 12:01 a.m.

Hospital giant UPMC sees greater opportunity for revenue and profit growth from its health insurance business than its medical services division as it siphons off more subscribers from Highmark Inc., the state's largest health insurer.

The nonprofit health system experienced a “minimal” financial hit to its hospitals and doctor offices in the January-March quarter, officials said, as a broad reimbursement contract that gave Highmark commercial members unfettered in-network access ended Dec. 31.

UPMC is threatening to cancel a similar contract for Highmark's 182,000 Medicare Advantage members in Western Pennsylvania at the end of this year.

Robert DeMichiei, UPMC's chief financial officer, told reporters Thursday that he expects seniors to leave Highmark to keep in-network access to UPMC. When they do, he said, they will find more choices of plans and better rates.

“It's change; it's different,” he said. “But it's not actually a negative.”

While revenue from its medical services was flat at $1.4 billion in the quarter, the third in its July-June fiscal year, revenue from insurance services jumped 16 percent to $1.4 billion, compared with the same quarter last year, on strong growth of subscribers to UPMC Health Plan.

Its total health plan membership reached 2.6 million as of March 31, up from 2.3 million a year earlier.

Highmark had 5.3 million members at the end of last year. Highmark has said it held a 60 percent share of the 29-county region's health insurance market as of January, down from 63 percent a year earlier. The decline was driven by a loss of 150,000 employer-group members who were concerned about keeping discounted access to UPMC.

“It's easy to make the conclusion that we have much more opportunity to grow” health plan membership by taking market share from Highmark, DeMichiei said.

Highmark and state officials have said UPMC is not allowed to end its contract for Medicare Advantage customers because they are guaranteed access under terms of a state-brokered consent agreement UPMC and Highmark signed last year.

Gov. Tom Wolf and Attorney General Kathleen Kane have asked a state judge to make UPMC renew the contract. UPMC responded in a filing this week that the agreement allows the cancelation.

Total revenue at UPMC in the quarter was $3 billion, up 7 percent from $2.8 billion in the same quarter last year.

Income from operations was $20.2 million, down by 68 percent from $64.1 million a year earlier. The biggest factor in the decline was a one-time gain of $38 million a year ago from the sale of its stake in technology company Intrexon.

Net income, which includes gains from investing, was $64.3 million, down 38 percent from $102.9 million a year ago.

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

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