Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Upmc Sees a Drop in Operating Income

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Upmc Sees a Drop in Operating Income

Article excerpt

Despite increases in patient volume, operating revenue and health plan membership, Pittsburgh health system UPMC saw its operating income drop to $187 million in the fiscal year that ended June 30, its lowest total since 2008.

CFO Robert DeMichiei said the downward pressure this past year was due to four primary factors: a $22 million reduction in state and federal payments; a $28 million increase in depreciation expense; a $62 million increase needed to recruit and retain physicians; and overall inflation.

As a result, UPMC saw its operating margin fall from 3.6 percent in fiscal 2012 to 1.8 percent, which Mr. DeMichiei described as "adequate for reinvesting, but it's not optimal."

In a changing health care environment, "This is the new normal," he said, adding that "we're on a constant quest for productivity and cost efficiencies. It's a quarterly rhythm, it's a daily rhythm."

The actual operating income amount was even lower -- $132 million -- because UPMC took a $55 million non-cash expense in the fourth quarter when the health system agreed to meet its full $100 million over 10 years commitment to the Pittsburgh Promise scholarship fund, regardless of whether annual fundraising targets are met.

The region's largest health system has been making adjustments, reducing positions in administration and finance while adding jobs in growth areas such as its health plan and information technology.

UPMC Health Plan saw a 15.6 percent increase in membership in fiscal 2012 and now has 2.22 million members. That includes 469,000 commercial members, an 11.1 percent increase over the previous year. "It's almost all coming from Highmark," said UPMC spokesman Paul Wood.

Pittsburgh-based Highmark is the region's dominant health insurance provider.

"We think the employers get it. They are offering alternatives to Highmark," said Mr. DeMichiei during the health system's quarterly financial statement announcement Thursday at its corporate headquarters in the U. …

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