UPMC Health Plan said it earned $28.3 million last year, a milestone that put it solidly in the black for the first time since the University of Pittsburgh Medical Center founded it as part of a defensive strategy nearly six years ago.

When UPMC's plan got started, critics, including the region's largest health insurer, Highmark Inc., suggested that the fledgling managed care plan would have a tough time making a go of it.

Not only were provider-sponsored plans faring poorly elsewhere, but Western Pennsylvania employers had never substantially embraced any of the insurance plans that didn't offer access to all of the region's hospitals.

The health plan's latest results seem to defy the early skepticism.

Its $28.3 million profit in 2003 represented a sharp turnaround from the previous year, when the insurance subsidiary lost $5.7 million. For the same period, the health plan's revenue grew to $1.2 billion, nearly 37 percent from $876.3 million reported in 2002.

Prior to 2002, UPMC's health insurance subsidiary had either lost money or operated slightly above break-even.

Its mere survival makes it "an anomaly," said Gerard Anderson, director of the Johns Hopkins Center of Hospital Finance and Management. "There are very few provider-sponsored health plans left and even fewer based at academic medical centers."

Among academic medical centers that either folded their health plans or sold them were Johns Hopkins, the University of Pennsylvania and the Cleveland Clinic, Anderson said.

A rash of hospitals and physicians nationally entered the health insurance industry in the mid-1990s with the advent of managed care. The intention of most was to offset payment concessions insurers forced them to take for providing medical services by having a foot in the business that was expected to profit from them. Many also worried about losing patients to health care providers that had allied themselves with insurance partners.

At the time that it started its health plan, UPMC said it was a defensive strategy, designed not only to offset discounts but also to ensure that its sprawling hospital and physician network maintained its share of patients at a time when managed care insurers also were curbing admissions and expensive specialty care and were threatening to steer patients to the most efficient providers.

Two years ago, the Oakland giant used its foothold in managed care to wrest higher payments from Highmark in contract talks during which it threatened to shut the insurer's subscribers out of its hospitals and doctors offices.

There had been speculation that UPMC, which in the past has entertained offers for the insurance subsidiary, would sell the insurance business after those talks. Although the speculation still surfaces from time to time, the Oakland giant has continued to build the business.

Many hospital- or physician-sponsored health plans failed because of the inherent conflict of interest between providing medical services and paying for them.

Many that failed simply couldn't juggle that conflict under which insurers want to pay less and curb expensive care and hospitals want to receive higher payments and see greater use of their services, said Anderson at Hopkins.

"What probably saved [UPMC Health Plan] and those [other provider-sponsored health plans] that survived is that in the past four years we've been having 10 percent to 15 percent increases in premiums while providers haven't been getting those kinds of increases," he said.

After years of battling for market share, "All of the health insurance industry has essentially raised prices to be profitable."

UPMC's health plan attributed part of its gains to higher premiums. It also said its enrollment rose 11 percent.

Local analysts said the enrollment gains all but certainly came at Highmark's expense, because Health America, the region's third-largest health plan after UPMC, also posted enrollment gains last year.

In contrast, Highmark saw its enrollment slump 9 percent last year.