UPMC, a prominent 42-hospital network, reported a significant $313 million operating loss for the first half of the year, marking a stark reversal from the $15 million gain recorded during the same period last year. This downturn is attributed to escalating insurance costs and restructuring expenses, including an $88 million charge linked to recent layoffs.
Despite the substantial operating loss, UPMC managed to achieve a $16 million net income attributable to controlling interests, a notable drop from last year’s $150 million net income. This was largely due to gains from investment and financing activities.
The health system’s total operating revenue for the six-month period rose by 4.8% to $14.5 billion, with the health services and insurance services divisions contributing year-over-year increases of 6.1% and 3.4%, respectively. However, total operating expenses surged 6.5% year-over-year to $14.7 billion, driven by a 5.1% increase in health services costs and an 8.1% rise in insurance services expenses.
High patient volumes and increased utilization were key factors influencing the financial results. The health services division benefited from a 2% increase in inpatient activity, a 10% rise in average outpatient revenue per workday, and a 7% increase in average physician revenue per weekday. This division reported a $72 million improvement in operations, excluding restructuring costs.
Conversely, the insurance services division faced a $312 million decline in operating income, excluding restructuring expenses. The medical expense ratio for this division increased from 85.8% in June 2023 to 90.5% this year, driven by higher surgical volumes, case mix shifts, rising provider rates, and increased pharmacy costs, particularly for Medicaid and GLP-1 drugs.
UPMC’s insurance division also experienced an 8% decrease in membership, largely due to Medicaid redeterminations following the end of the COVID-19 public health emergency.
The health system has invested $435 million year-to-date, focusing on expanding UPMC Presbyterian into what is expected to be the largest healthcare facility in Pittsburgh. Additionally, UPMC completed its acquisition of the two-hospital Washington Health System in early June, committing $300 million in investments over the next decade.
As one of the largest nonprofit health systems in the U.S., UPMC reported $27.7 billion in revenue for 2023 and faced a $198 million operating loss, with a net loss of $31 million. As of June 30, the system had 98 days of cash on hand, a decrease of 11 days from the start of the year.
