UPMC earnings drop for quarter

Operating expenses, labor costs to blame

Operating income at hospital and health insurance giant UPMC fell 76% to $196 million for the first nine months of the year from $800 million during the same period last year, reflecting a decline in admissions, as well as higher labor costs and capital expenditures at the 40hospital system.

The losses from the system’s core service lines pushed down the Pittsburgh-based health care giant’s operating margin to just 0.4% from 3.7% a year ago.

And UPMC is not alone in seeing a decline: the median year-to-date operating margin index for hospitals was -0.1% in September — the ninth straight month of negative actual operating margins in the U.S., according to Kaufman Hall, a Chicago-based health care consultant.

Health systems have been challenged over the past few years by a crush of patients as the pandemic hit, which increased admissions while also forcing delays in higher profit services such as elective surgeries. At the same time, a tight

labor market and demand for nurses and medical staff pushed up salaries.

Even as elective surgeries have returned, the labor market nationally continues to be strained and unemployment rates low.

Revenue from core services provided by UPMC in the first nine months of the year rose to $18.8 billion for the nine months, up from $18.3 billion a year ago, while hospital admissions slipped 8% to 241.9 million, the health system reported. Capital expenditures rose 27% to $701 million.

“Conditions in the labor and supply markets resulted in cost growth in employment, staffing and other operating expenses in excess of revenue growth,” according to the health system.

Among the capital projects underway is the $1.5 billion UPMC Presbyterian Hospital in Oakland, which won’t open until 2026, and UPMC Mercy Pavilion, Uptown, costing in excess of $500 million and scheduled for opening to patients in early 2023.

In July, UPMC also opened four outpatient care centers in Murrysville, Westmoreland County, and Bradford, Montgomery, and Williamsport, Pennsylvania.

Just as many investors nationally have been hit by turmoil in the stock and bond markets, UPMC investments took a hit during the period with a loss of $1.2 billion. The health system said it “continues to have a longterm perspective with regard to its investment activities.”

Excess revenue over expenditures — a financial cushion for nonprofits like UPMC that is called “profit” in for-profit accounting — fell to a loss of $1.1 billion in the last nine months compared to a gain of $1.2 billion a year ago.

UPMC’s insurance arm generated $400 million in operating revenue for the nine months while operating losses from UPMC’s Health Services division totaled $204 million. UPMC Insurance Services division has 4.3 million members, which includes ancillary products and third-party health plan administration.