Health care is ailing in the Pittsburgh area, with each of the region’s biggest health systems reporting significant operating losses last year.
Even though Western Pennsylvania’s biggest systems are nonprofit, the losses at UPMC, Highmark’s Allegheny Health Network and Independence Health System are worrisome because of the outsized impact medical care has in the region’s economy, providing jobs for more than 480,000 people in Pittsburgh and the seven-county surrounding region.
Highmark Health’s Allegheny Health Network, which makes up about half of the enterprise’s total workforce of 42,000 and about one-fifth of operational revenue, on Monday reported a loss from operations of $172.7 million for 2023, marking the fourth consecutive year of operational red ink for the 14-hospital system. The loss was 4.4% lower than the $180.7 million loss in 2022.
Since 2020, AHN has piled up losses totaling $610 million, 30.5% of Highmark’s total $2 billion investment in the system since its acquisition in 2013.
On Monday, Highmark Health CFO Carl Daley attributed AHN’s loss to inflation and higher labor costs driven by the national shortage of nurses.
AHN’s operating revenue for 2023 was $4.7 billion, up from $4.4 billion in 2022 while patient volume overall, emergency room visits and other indicators of utilization all rose, according to Highmark.
Within the past year or so, eight AHN executives have left or been reassigned. CFO James Rohrbaugh, who left in December, was among the departures and so was Louise Urban, a registered nurse who had almost 32 years at AHN hospitals. Most recently, Ms. Urban served as COO.
Another two AHN employees were among 182 people let go a week ago throughout the Highmark footprint in four states as the staff downsizing continued.
“We have been going through a complete business transformation,” COO Karen Hanlon said during a conference call Monday.
Highmark hired 6,100 people in 2023, increasing the enterprise’s total workforce by 2% despite the layoffs, she said.
But Highmark President and CEO David Holmberg would not rule out further workforce cuts.
“Periodically, healthy companies will make some adjustments,” he said. “You have to continue to innovate.”
UPMC, the biggest of the region’s hospital systems, recently reported a loss from operations of $198 million for 2023, which was down from a gain of $162 million in 2022. The loss came despite an 8% gain in revenue from core operations to $27.7 billion and a 3% increase in inpatient activity to 84,918 for the year.
UPMC blamed the loss on higher costs for labor and supplies.
Reacting to news of health system losses at southwestern Pennsylvania, state Sen. Judy Ward, R-Blair, said she learned recently that UPMC Altoona Hospital, which is in her district, had gone through some organizational changes.
“I am guessing that is an effort to right the ship,” Ms. Ward said. “We need to continue to provide quality health care and I’m not sure if layoffs is the way to go.”
UPMC Insurance Services’ division took a hit last year with a 4% decline in enrollment to 4.29 million, down from a peak of 4.5 million in March 2023, which contributed to a $388 million loss for the year. Membership in behavioral health services took the biggest hit with an 11% decline in membership to 1.32 million while enrollment in commercial health plans fell 3.51% to 562,847.
As of Dec. 31, UPMC had $9.5 billion in cash and investments.
Notably, UPMC’s medical-surgical market share as of June 30 shrunk throughout Pennsylvania when compared to a year ago, down to 57% in Allegheny County from 60%; 43% in the 29-county region of Western Pennsylvania from 44%; and 26% in the central part of the state from 27%.
Previously, Independence Health System, reported a loss of $71.4 million during its first year of operation as a five-hospital system. Butler Health System had an operational loss of $17 million for the six months ending Dec. 31 while Excela Health posted a loss from operations of $15 million for the same period.
IHS’ total revenue for the 12 months wasn’t immediately available. The system’s fiscal year ends June 30.
The losses at Pittsburgh’s health systems buck a national trend, which has pointed to a gradual recovery in the industry, said Harold Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, a consultant with offices Downtown. Moreover, the city’s two health care giants are blended organizations, selling both health insurance and running hospitals, so it’s unclear how earnings from one corporate arm affects the other.
“Highmark can pay AHN more in insurance reimbursement or they can cover its losses,” he said. “It may well make a whole lot more sense to cover its losses, which could be part of a longer term strategy.”
Also, it’s important to remember that AHN was bleeding money, teetering on bankruptcy before the system was acquired by Highmark 11 years ago, he said. The losses might be acceptable to expand health care options in the region and hold down costs through market competition.
As the red ink spilled last year at area health systems, jobs in the sector in the seven-county Pittsburgh metropolitan region were increasing, up up 4.1% to 480,100 jobs in January compared to 460,100 jobs a year ago, including hospitals, nursing homes and doctors’ offices, according to the state Department of Labor & Industry.
Kris B. Mamula: kmamula@post-gazette.com
Ford Turner contributed to this report: fturner@post-gazette.com
First Published: March 18, 2024, 3:27 p.m.
Updated: March 19, 2024, 7:43 p.m.
