UPMC's operating income fell to $85 million for the last six months of 2012, a drop from the $220 million it took in for the same period in 2011, and its operating margin for the last three months of the year fell to four-tenths of one percent, down from 3.3 percent in 2011.
Given the growing pressure from all directions to lower health costs, the results were not entirely unexpected, said UPMC's chief financial officer, Robert DeMichiei, at the health system's quarterly media briefing Downtown on Wednesday.
"This is going to be the new normal."
Mr. DeMichiei said $42 million of the decrease in operating income was due to one-time adjustments, but most of it -- nearly $90 million -- resulted from a combination of lowering insurance rates due to competition and money spent by UPMC to recruit and retain physicians.
Some of the decrease is good news for the region, he added, as the newly-competitive local insurance market has kept in check both premiums and hospital use -- and thus revenue for insurers such as UPMC Health Plan.
But another part of the "new normal" comes from lower reimbursement payments in programs such as Medicare and Medicaid. Those are bound to go even lower because of the trend toward classifying more hospital stays as outpatient observations, which reimburse on average only 20 percent as much as an inpatient admission even though both may involve a patient staying overnight in a hospital bed receiving treatment.
So while UPMC is treating more patients, patient revenues aren't reflecting that. "Our hospitals are full, but the revenues are flattening," Mr. DeMichiei said.
That doesn't mean the region's largest employer is hurting financially. Its operating revenue for the last six months of 2012 approached $5 billion; its investment portfolio is now valued at $3.9 billion; it has an AA- credit rating; and membership in the UPMC Health Plan has grown 22 percent to more than 2 million members.
But with diminishing reimbursements and uncertainties to how national health care reform will play out, Mr. DeMichiei said, "We are trying to be as efficient as possible."
Steve Twedt: email@example.com or 412-263-1963.