UPMC has joined the list of nonprofit systems with thin operating margins and hundreds of millions of net losses due to a down investment market.
The Pennsylvania-based organization reported Tuesday nearly $12.5 billion in total operating revenues and over $12.4 billion in total operating expenses during the first half of 2022, yielding a net operating income of $82 million (0.7% operating margin).
Year over year, those numbers reflect a 2.5% increase in revenues, a 6.7% increase in expenses and an 86.4% plummet in operating income following the prior year’s 5% operating margin.
The negative pressure on operations came from the provider side of UPMC’s business. Its six-month operating margin fell $577 million compared to the year prior for a $101 million loss.
“The decline is primarily the result of the continued effects of COVID-19 on patient volumes, as well as cost growth due to employment, staffing and other operating expenses caused by conditions in the labor and supply markets,” UPMC management wrote in its filing. “Additionally, CARES Provider Relief Funds, [American Rescue Plan] and employee retention credit funding recognized in the current year was $170 million lower than the first six months of 2021.”
UPMC said in the filing that its medical-surgical admissions and observation visits fell 8% year over year, although outpatient and physician activity (measured by average revenue per workday) were up 6% and 3%, respectively. Payer mix remained roughly similar to the prior year.
The insurance side of UPMC increased its six-month operating income by $54 million compared to the prior year. Although trailing 12-month medical expense ratios from 85.9% to 87.1% year over year, the measure is trending downward due to the system’s volume trends.
“The effects of COVID-19 continue to have impacts on member utilization of medical services, resulting in favorable medical expense ratio compared to the prior year,” management wrote.
Outside of operations, UPMC reported an $866 million loss from its investment and financing activities in the first half of the year, fueling a net loss of $844 million. The nonprofit had gained $531 million from its investments and logged nearly $1.1 billion in net income during the first half of 2021.
“UPMC continues to have a long-term perspective with regard to its investment activities,” management wrote.
As of the quarter’s June 30 end, UPMC had almost $8.9 billion in total cash and investments as well as 112 days of cash on hand. These were also down from last year’s $10.7 billion total and 148 days of cash on hand.
Although investment losses and heightened expenses have been ubiquitous across nonprofit systems, UPMC joins the cadre of major players—such as Mayo Clinic and Kaiser Permanente—that managed to record positive operations during the most recent period.
Others like Sutter Health, Mass General Brigham and Providence were not so fortunate and reported operating losses in the tens to hundreds of millions alongside hardships in the investment markets.