Chief financial officer says UPMC is holding its own

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UPMC is well positioned going into the final four months of its contract with insurer Highmark, its top financial officer said Wednesday, as the Pittsburgh health giant continues to gain share in a shrinking market.

“We’ve been preparing for this for five years,” said chief financial officer Robert DeMichiei, instituting cost management initiatives, investing in outpatient facilities, reinvesting in its infrastructure, and recruiting and retaining physician practices.

Mr. DeMichiei’s comments came at a quarterly media briefing at the UPMC corporate headquarters in the U.S. Steel Building, Downtown, to announce the health system’s unaudited financial results for the fiscal year ending June 30.

Operating in “an extremely hypercompetitive market,” he said, the health system is experiencing “either growth or we’re holding our own” in key metrics.

UPMC’s operating income for fiscal 2014 was $190 million, up $3 million from a year earlier, while operating revenue grew from $10.2 billion to $11.4 billion.

Operating earnings before interest, depreciation and amortization were $644 million, compared with $611 million in fiscal 2013.

Both patient admissions and observations grew the past year, despite the shrinking market regionally.

Physician revenue was $1.3 billion in 2014. Outpatient revenue was just under $9 million, compared with $7.7 million a year ago.

UPMC Health Plan membership also is up, with 2.3 million people insured through the plan compared with 2.1 million a year ago.

UPMC did end up with a 1.7 percent operating margin, prompting Mr. DeMichiei to remark, “We would like to do — and we need to do — better.”

Wednesday’s year-end financial report covers the last full year of UPMC’s in-network contract with the region’s major insurer, Highmark.

UPMC has rebuffed any consideration of renewing the contract now that Highmark has set up a competing health system, the Allegheny Health Network.

Highmark submitted a post-UPMC transition plan to the Pennsylvania Insurance Department on July 30. That plan is still under review.

With time drawing down on the contract, Mr. DeMichiei said the continued uncertainty and questions about Highmark members’ access to UPMC physicians and facilities will sway employers and individuals to move either to UPMC Health Plan or one of the national insurers under contract with UPMC.

“We’re confident that employees are going to have choice, so they’re not going to be locked in a Highmark card.”

Correction (Posted Aug. 21, 2014) An earlier version of this story gave an incorrect figure for physician revenue.

Steve Twedt: or 412-263-1963.

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