UPMC's operations down $177M at 9 months as care delivery costs, claims payouts mount

UPMC’s operations dipped into the red this quarter as volumes and its associated care delivery costs and insurance claims continue to climb.

The Pittsburgh-based integrated nonprofit system reported Tuesday a $191 million operating loss (-2.8% operating margin) and a $421.8 million change in net assets (without donor restrictions) for the three months ended Sept. 30. During the same time a year prior, UPMC had logged $114.5 million in operating income (1.8% operating margin) and a $272.6 million drop in its net assets (without donor restrictions).

The organization is now sitting at a $176.5 million operating loss (-0.9%) year to date despite its strong start to 2023. Its bottom line reflects a $244.7 million net decline over nine months.

In a release announcing the financial results, UPMC Executive Vice President and Chief Financial Officer Frederick Hargett stressed that the system is “staying to true its commitments” surrounding capital investments ($517 million year to date) despite industrywide workforce challenges and other headwinds.

“We continue to drive improvements and innovation in how we serve our patients, insurance members and communities to meet the growing demand from those who are increasingly seeking care from UPMC,” he said.

Nine-month total operating revenues reached $20.6 billion, which is up 9.3% from last year. Operating revenues within UPMC’s health services division rose 8.1% year over year to $11.8 billion, while its insurance services division bumped operating revenues up 11% to $11.4 billion. Total operating expenses across the same divisions rose 9.1% to $12.1 billion and 14% to $11.2 billion.

In management commentary on the nine-month numbers, UPMC’s health services division saw a 3% year-over-year increase in inpatient volumes, a 9% rise in outpatient revenue per workday and an 8% gain in physician service revenue per weekday. Its salaries, professional fees and benefits expenses rose 6.7% year over year while supplies, purchased services and other general expenses increased by 13.8%.

The insurance services division reported total membership of 4.4 million. That number has declined from the 4.5 million of prior quarters this year but is still up 1% year over year.  Management attributed the bump to a product expansion that was somewhat offset by “anticipated” Medicaid disenrollments due to redetermination.

The payer business also saw its nine-month insurance claims expenses rise 14.7% over last year, while its trailing 12-month medical expense ratio has steadily increased over 2023 to 86.3%.

UPMC’s investing, financing and enterprise portfolio took a hit in the most recent quarter. Together, these items drove a $147.2 million loss during the quarter but remain up $128.9 million year-to-date as opposed to the $1.2 billion hole those efforts had dug this time last year.

UPMC is among the largest nonprofit health systems in the country. It comprises 40 hospitals and 800 clinical locations alongside its insurance plans and other offerings. Like others, it faced a “difficult” fiscal 2022 with $238 million of operating income and net losses of more than $1 billion.