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Allegheny

UPMC revenue up $2.5 billion compared to last year

Natasha Lindstrom
| Wednesday, Nov. 21, 2018, 12:03 a.m.
The UPMC sign sits atop the U.S. Steel Tower in downtown Pittsburgh.
Nate Smallwood | Tribune-Review
The UPMC sign sits atop the U.S. Steel Tower in downtown Pittsburgh.

UPMC took in $2.5 billion more in the first nine months of 2018 than it did over the same period last year, buoyed by steady growth in its insurance arm, the nonprofit health system’s latest financial documents show.

The 22 percent increase in operating revenue — up to nearly $14 billion through September — comes as UPMC officials move on ambitious expansion plans and confront what Chief Financial Officer Rob DeMichiei described as Western Pennsylvania’s most competitive health care marketplace “in years, if ever.”

The health care integrated delivery and financing system headquartered in Downtown Pittsburgh’s U.S. Steel Tower is focused on maintaining steady growth while coming up with ways to innovate and meet shifting consumer demands as competition intensifies, DeMichiei said.

“As we look out two years and five years, we are preparing for this new era of consumerism. We are looking at the national insurers increasingly becoming providers as well,” DeMichiei said.

“The costs have to come down, the price points have to be lower, the consumer experience has to be exceptional.”

Operating revenue for the first nine months of this year totaled $13.9 billion, up 22 percent from $11.39 billion at the same time in 2017, according to UPMC’s unaudited quarterly financial documents released Wednesday.

The nonprofit health care system — which must pump profits back into operations, investments and community benefits — reported a net income of $264 million through September, up from $97 million in early March, the quarterly financial statements show. Operating income totaled $190 million.

Capital expenditures over the same period amounted to $648 million, including major construction projects at UPMC hospitals and facilities in Jameson, Susquehanna and Ebensburg. The nonprofit spent $14 million through September on acquisitions and funding business ventures, including technology and tools to improve the experiences of clinicians as well as patients and caregivers.

DeMichiei said UPMC aims to “disrupt” the health care market akin to how Uber’s ride-share service upended the model used by traditional taxi companies.

“Health care is seeing the same disruption, and so we’re trying to disrupt ourselves and be in front of it,” DeMichiei said. “We are very cognizant at looking at our costs, our footprint, how we deliver care, where we deliver care — does it have to be a physical location as opposed to telemedicine?

”We have all these products that are catering towards the new consumer relationship with a health care provider and what is that going to be, and so that’s going to be our challenge going forward.”

The nonprofit’s enterprise and business investment arm is supporting about 100 projects in its pipeline, with about 20 making it to commercial viability thus far, mostly involving digital innovation and medical information technology.

UPMC’s earnings before interest, depreciation and amortization, or EBIDA — a measure of its financial performance and ability to generate resources for reinvestment — was $658 million through September, up from $585 million the same time last year.

Its largest gains came from its insurance arm.

After a decade of nearly doubling in size, UPMC boasts that it is Western Pennsylvania’s largest health insurer, with about 3.4 million members.

UPMC Health Plan took in $1 billion more in its first three quarters of 2018 than the same period last year, up to $6.7 billion through September, documents show. The increase was driven by an influx of 156,000 new insurance plan members.

“So, as the membership has grown the revenues have grown, and we’ve had relatively stable medical expense ratios, and so that’s where most of the profitability growth has come from, the insurance side,” DeMichiei said.

He expects significant gains in UPMC’s Medicare Advantage membership next year, with two weeks left before the open enrollment period ends.

The June 30 expiration of a 2014 consent decree between UPMC and one of its top Western Pennsylvania rivals, Highmark, has forced Highmark-insured seniors who wish to continue accessing UPMC doctors and facilities to rethink their coverage options. Starting July 1, UPMC will not accept Highmark’s Medicare Advantage patients unless they pay for their treatment in full in advance. Traditional Medicare and supplemental coverage such as Medi-Gap will be accepted at any location, as will contracted national alternatives such as Aetna, United Health and Cigna.

UPMC’s provider arm spans 40 hospitals, 600 doctors’ and outpatient offices and more than 85,000 employees, making UPMC Pennsylvania’s largest employer outside the government. More than 4,800 doctors are employed by UPMC and more than 5,800 are affiliated with it.

Last year, UPMC announced a $2 billion investment in three new specialty hospital additions targeted for completion over the next five years. The “hospitals within a hospital” will be built on the campuses of UPMC Presbyterian in Oakland, UPMC Mercy in Uptown and UPMC Shadyside. Mercy will be the first hospital to to break ground this spring.

Natasha Lindstrom is a Tribune-Review staff writer. You can contact Natasha at 412-380-8514, nlindstrom@tribweb.com or via Twitter @NewsNatasha.

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