Dive Brief:
- UPMC reported increases in revenue and net income in the first quarter of 2019, according to earnings documents released Friday. Revenue ticked up 10% to $5.1 billion, from $4.6 billion in the first quarter of 2018. Net income came in at $289 million compared to $97 million in 2018.
- Higher pensions and increased investment in physicians were behind a drop in operating income for the quarter, reported at $52 million down from $92 million in 2018.
- Fitch downgraded UPMC's debt rating from A+ to AA- on Friday, but the agency's outlook for the nonprofit remains stable.
Dive Insight:
UPMC continues to face challenges with operating margin growth. The health system's operating margin was 1% in the first quarter, down from 2% in the first quarter of 2018. UPMC ended 2018 with decreases in this particular metric, finishing the full year with a 0.9% operating margin compared to 1.6% in 2017.
Expenses have also gradually increased for the nonprofit. Total operating expenses grew to $5 billion in the first quarter of 2019, up from about $4.5 billion in the same period last year.
The Fitch downgrade was primarily due to lower liquidity and investment losses from 2018.
Two of the biggest challenges facing nonprofits in the future, according to Fitch, will be nontraditional competitors such as Amazon and a shrinking payer mix, the result of more patients aging into Medicare.
Enrollment in UPMC's health plan grew 3% year over year, while hospital admissions decreased 2%. Revenue from UPMC's outpatient facilities grew 8%.
A separate Fitch report issued at the end of March opined that the worst of financial headwinds may be over for nonprofit health systems. Profitability is still expected to decline, but not nearly as much as in recent years, which saw steep volume declines and tightening margins. Fitch Senior Director Kevin Holloran said hospitals able to balance Medicare reimbursements will fare well.
UPMC's potential move into a new market could help its bottom line. The Pittsburgh-based nonprofit is in talks to acquire Western Maryland Health System. The Cumberland, Maryland-based nonprofit is a small health system anchored by a 200-bed hospital.
UPMC is also grappling with issues involving Blue Cross Blue Shield system Highmark, which the health system has been legally obligated to contract with for the past few years. That relationship will end in June, but UPMC's refusal to re-sign a new consent decree with Highmark spurred a lawsuit from Pennsylvania Attorney General Josh Shapiro. A failed attempt from UPMC to join a years-long antitrust suit in Alabama challenging the way Blues plans operate followed shortly after.
A federal judge in Alabama struck down the system's attempts to enter the lawsuit in April. A week later, the health system's lawsuit against Shapiro was dismissed.