UPMC touts plans to expand beyond Pa. amid near-record earnings

September 1, 2018 GMT

Fresh off two of its best earnings quarters in years, UPMC is moving on ambitious plans to expand its health care provider and insurance arms across Pennsylvania and into neighboring states, the nonprofit system’s chief operating officer said Thursday.

“We’re running out of room in Pennsylvania,” said Leslie Davis, UPMC’s executive vice president and chief operating officer of its health services division. “When you think about how close (UPMC) Hamot is to New York, how close (UPMC) Jameson is to Ohio, how close (UPMC) Altoona is to western Maryland ... we see ourselves growing more and more over the next few years.”

UPMC -- a $19 billion nonprofit health care integrated delivery and financing system headquartered in Downtown Pittsburgh’s U.S. Steel Tower -- reported $176 million in operating income for the first six months of 2018, up 30 percent from $135 million the same time last year, newly filed data reported to state regulators show. Operating revenue for the first half of this year totaled $9.25 billion, up 27 percent from $7.52 billion at the same time in 2017.

The nonprofit health care system -- which must pump profits back into operations, investments and community benefits -- reported a year-to-date net income of $116 million, up from $97 million in early March, the quarterly financial statements show.

Chief Financial Officer Rob DeMichiei attributed UPMC’s improved financial position to a combination of growth into new markets and facilities, efficiency and cost-savings moves, and increased revenues from outpatients, admissions, doctors and insurance plans.

In the first six months of 2018, hospital admissions and observations were up 23 percent compared to the same time last year, the statements show. UPMC’s earnings before interest, depreciation and amortization -- a measure of its financial performance and ability to generate resources for reinvestment -- was $483 million, up 25 percent from $387 million in 2017.

Last year, UPMC announced a $2 billion investment in three new hospitals in Pittsburgh focused on cancer, organ transplants, heart and vision care and targeted for completion in 2022. The hospitals will be built on the campuses of UPMC Presbyterian in Oakland, UPMC Mercy in Uptown and UPMC Shadyside. Mercy will be the first hospital to to break ground.

After a decade of nearly doubling in size, UPMC is Western Pennsylvania’s largest health insurer, with about 3.4 million members -- but executives emphasized Thursday that they plan to become “more economic and efficient” in greater Pittsburgh while expanding at faster speeds elsewhere. The system also spans 40 hospitals, 600 doctors’ and outpatient offices and more than 85,000 employees, making UPMC Pennsylvania’s largest employer outside the government. More than 4,600 doctors are employed by UPMC and more than 5,800 are affiliated with it.

Next month marks the one-year anniversary of UPMC’s acquisition of the Pinnacle health system in central Pennsylvania, among several new affiliations in recent years contributing to increased revenues and patient reach, Davis said. He pointed out that central Pennsylvania now accounts for about one-third of UPMC’s health services revenues.

Earlier this year, rate requests filed with the Pennsylvania Department of Insurance showed that UPMC planned to sell Affordable Care Act plans for the first time in counties such as Cumberland, Dauphin, Lancaster, Lebanon and York.

Looking forward, Davis said UPMC likely will be pursuing new ventures in places such as New York, Maryland and Ohio as well as more communities throughout Pennsylvania -- with the exception of greater Philadelphia, which she described as a “very, very difficult” market for health care providers.

Expansions will take the forms of building new facilities -- particularly in underserved, rural areas -- as well as making acquisitions and joint ventures and affiliations, such as equipping partners with capital investments and more physicians, Davis said. UPMC plans to recruit both internally and externally as it creates new executive positions to oversee regional markets.

Amid backlash from critics questioning its rapid growth, Davis said UPMC officials will listen to and learn from potential partners to determine the specific needs and concerns of the populations and places they serve.

“It’s not just about getting bigger. It’s really about doing the right thing in each of these communities,” Davis said.

UPMC generated about $84 million in operating income in the second quarter of 2018, down slightly from $92 million in the first three months of the year. Aside from one especially strong quarter in 2015, officials said the past two quarters demonstrated UPMC’s best financial performances since 2011.