Highmark reports $186 million operating loss for 2013

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In its first companywide financial statement since reorganizing its corporate structure and launching its own hospital network, Highmark Health reported a $186 million operating loss for 2013.

Meanwhile, its provider arm Allegheny Health Network saw a $107 million loss across its seven hospitals.

Highmark Health is the newly organized parent of both Highmark Inc., which handles health insurance and related businesses, and the Allegheny Health Network, Highmark’s year-old hospital system.

In an annual audited financial report released Monday, the parent company said it recorded $15.8 billion in total revenues for the year, including $1.07 billion in net patient service revenue, against $15.98 billion in expenses.

Affecting the organization’s bottom line, according to Highmark, was a one-time $311 million “goodwill impairment charge” related to its acquisition a year ago of the West Penn Allegheny Health System.

West Penn Allegheny is now part of the larger Allegheny Health Network.

The systemwide operating loss is unfamiliar territory for Highmark’s family of companies; the last time Highmark saw an operating loss was more than a decade ago, in 2002.

And just as in 2013, it was Highmark’s aid for a struggling hospital system that helped put the company in the red in 2002. Back then, the insurer took a $118 million one-time charge to help UPMC and Jameson Health System buy the now-defunct St. Francis Health System hospitals. That charge, plus an operating loss at its dental division, meant Highmark reported a $83.4 million net loss in 2002.

Before then, operating in the red was commonplace for Highmark — from 1996, the year Highmark was created via the merger of Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield, through 2002, the company reported operation losses in most years.

Since then, it’s posted a string of profitable years, buoyed by growth in its diversified for-profit divisions, including dental, vision and reinsurance units.

Karen Hanlon, Highmark Health’s senior vice president of finance, said in a statement that Highmark Inc. — the insurance division — is “well capitalized,” adding “the numbers appear to show a drop in net income, but that is because of the assets we acquired from our affiliation from the Delaware health plan in 2012.”

As for Allegheny Health Network — which, in addition to West Penn Allegheny, includes St. Vincent Medical Center in Erie and Jefferson Regional Medical Center — Ms. Hanlon said the $107 million loss falls between the “best case” and “worst case” scenarios projected by Highmark when it sought approval from the Pennsylvania Insurance Department to purchase West Penn Allegheny.

The results for Highmark Inc., meanwhile, “was a little bit below” projections, she said, “because of the competitive environment in the health plan business” as well as the roll-out of national health care reforms. Those reforms come with a cost for insurers in the form of more heavily regulated individual health plans and a variety of taxes and fees for insurers, built into the new health law.

For example, Highmark will owe about $133 million toward an annual health insurer fee this year, part of a total $8 billion to be contributed by all health insurers apportioned to each insurer by way of its national market share.

Despite the new costs and regulations, other large insurers appear to be managing to stay in the black during the early months of the new health insurance exchanges associated with the Affordable Care Act. Their successes, relative to Highmark’s operating loss, demonstrate the financial risk involved in launching a health network and absorbing the debt of the West Penn Allegheny Health System.

Wellpoint, Aetna, Cigna, Humana and UnitedHealth Group all issued promising first-quarter earnings numbers, with most crediting better-than-expected Obamacare enrollment as one of the driving factors. Humana shares, in fact, hit a 52-week high on May 12, while Aetna and UnitedHealth are also showing robust year-to-date returns.

Highmark added about 130,000 new health insurance enrollees through the Obamacare exchanges, and despite the newly competitive local health insurance market, the insurer reported it had retained 95 percent of its customers as of Dec. 31, 2013.

That share was holding near 90 percent this year for upcoming July renewals. “We feel good about that cycle,” Ms. Hanlon said.

Aside from the $107 million loss, Allegheny Health Network “has made progress in strengthening its financial position,” said Ms. Hanlon, noting the $120 million in capital expenditures last year for a new surgery center in Monroeville, construction of a health and wellness pavilion in Wexford, and the expansion of clinical services throughout the network.

The parent company also reported a surplus of nearly $6 billion.

Steve Twedt contributed to this report.

Bill Toland: btoland@post-gazette.com or 412-263-2625. First Published June 2, 2014 9:01 AM

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