With insurance margins still thin, UPMC's health services recovery headlines 9-month $1.2B net income

Although year-over-year revenues improved across the board, increasing healthcare utilization buoyed one side of the University of Pittsburgh Medical Center's business while reining in another. (Getty/Joecho-16)

The University of Pittsburgh Medical Center (UPMC) saw rising revenues across its business divisions and a nine-month net income of $1.2 billion, well above the $263 million it had recorded by this time last year.

According to financial documents released Tuesday, total operating revenues for the nonprofit system landed at $18.3 billion for the nine-month period ended Sept. 30, 2021, up from $16.9 billion at the same time last year.

Much of the increase can be attributed to its health services division, which posted $9.7 billion in net patient service revenue and total operating revenue of $10.8 billion. Those respective totals had landed at $8.5 billion and $9.7 billion last year.

Inpatient activity increased 5% year over year as volumes “have now generally rebounded to near pre-COVID-19 levels,” the system wrote. Outpatient activity as measured by average revenue per workday was also up 17% compared to the nine months of 2020 and are on the rise from earlier quarters of this year thanks to higher volumes.

Despite higher revenue, UPMC’s insurance services business is still battling the slimmed-down margins it reported at the end of this year's second quarter.

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The division’s insurance enrollment revenue reached $9 billion for the first nine months of 2021, bolstering a $425 million year-over-year jump in total operating revenues to nearly $9.7 billion. Total membership in the group’s plans as of Sept. 30 was 4.06 billion, up from 3.89 billion at the same time last year.

Still, the insurance services group’s spending continues to rise as members’ utilization increases, now reaching an 86.5% healthcare spending ratio for the trailing 12 months. This is a 0.6% increase over the end of the second quarter but still below pre-pandemic rates.

Both the health and insurance divisions weren’t immune to the growing expenses being felt across the industry.

For the former, total operating expenses grew from $9.7 billion to $10.2 billion year over year, with increases spread across employee compensation as well as supplies and purchased services. This translated to an operating income of $642 million, up from last year’s $35 million, and an operating margin of 5.9% that also improved on last year’s 0.4%.

UPMC’s insurance unit saw total expenses rise year over year from nearly $8.8 billion to $9.5 billion, although these were largely driven by an additional $664 million in insurance claims expenses. Operating income decreased year over year from $362 million to $156 million, as did the division’s operating margin from 4% to 1.6%.

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Nine-month total operating expenses across the organization landed at more than $17.5 billion, up from last year’s more than $16.5 billion.

Organization-wide operating income rose year over year from $397 million to $798 million, for an operating margin of 4.4%.

Pittsburgh-based UPMC is among the country’s largest nonprofit health systems. It runs more than 40 hospitals and over 700 other clinical locations in addition to its UPMC Health Plan and innovation and investment division.

UPMC noted that it has recognized $213 million in federal COVID-19 relief funding during 2021 and as of Sept. 30 has $207 million of deferred payments remaining.

“Although volumes have generally rebounded to near pre-COVID-19 levels, UPMC and its subsidiaries have and expect to continue to experience some impact on operations as a result of the COVID-19 pandemic,” the system’s management wrote.

UPMC had relied on major gains from its insurance business through 2020 to help offset pandemic-driven patient service revenue shortfalls. The system reported $1 billion in earnings for the full year on the back of a $405 million boost in profits for the insurance division, which grew by 4 million members.