Big payers ranked by Q3 profits

The nation’s largest payers have filed their third-quarter earnings reports, revealing which grew their profits the most year over year.

1. UnitedHealth Group: $5.3 billion
The company’s third quarter earnings increased over 28 percent year over year. Total net earnings in 2022 are $15.7 billion, an increase of 16.2 percent from $13.5 billion in 2021.

2. Cigna: $2.8 billion
The company’s third quarter earnings increased over 70 percent year over year. Total net earnings in 2022 are $5.5 billion, an increase of over 29 percent from $4.2 billion in 2021.

3. Elevance Health: $1.6 billion
The company’s third quarter earnings increased over 7 percent year over year. Total net earnings in 2022 are $5.06 billion, an increase of nearly 2 percent from $5 billion in 2021.

4. Humana: $1.2 billion
The company’s third quarter earnings decreased over 21 percent year over year. Total net earnings in 2022 are $2.8 billion, a decrease of over 4 percent from $2.9 billion in 2021.

5. Centene: $738 million
The company’s third quarter earnings increased over 26 percent year over year. Total net earnings in 2022 are $1.4 billion, an increase of over 89 percent from $748 million in 2021.

6. CVS Health: $3.4 billion losses
The company’s third quarter losses are attributable to an opioid legal settlement. Total net earnings in 2022 are $1.9 billion, a decrease of over 71 percent from $6.6 billion in 2021.

10 health systems with strong finances

Here are 10 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings and Moody’s Investors Service.

1. Advocate Aurora Health has an “AA” rating and a stable outlook with Fitch. The health system, dually headquartered in Milwaukee and Downers Grove, Ill., has a strong financial profile and a leading market position over a broad service area in Illinois and Wisconsin, Fitch said. The health system’s fundamental operating platform is strong, the credit rating agency said. 

2. Allina Health System has an “AA-” rating and a stable outlook with Fitch. The Minneapolis-based system is the inpatient market share leader in a highly competitive market and has a strong relation with payers in the market, Fitch said. Alliana’s financial profile is strong, the ratings agency said. 

3. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful, highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base.

4. Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based health system has a broad geographic footprint as one of the five largest Catholic health systems in the U.S., a good payer mix and a leading or near-leading market share in eight of its eleven markets in the U.S., Fitch said.

5. Bryan Health has an “AA-” rating and stable outlook with Fitch. The Lincoln, Neb.-based health system has a leading and growing market position, very strong cash flow and a strong financial position, Fitch said. The credit rating agency said Bryan Health has been resilient through the COVID-19 pandemic and is well-positioned to accommodate additional strategic investments. 

6. Deaconess Health System has an “AA” rating and stable outlook with Fitch. The Evansville, Ind.-based system has a leading market position in its primary service area and a favorable payer mix, Fitch said. The ratings agency said it expects Deaconess’ operating EBITDA margins to improve and stabilize around 10 percent by 2023, reflecting strong volumes and focus on operating efficiencies.

7. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics, a leading market position and an expanding operating platform in its service area, Fitch said. The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic. 

8. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based health system has shown consistent year-over-year increases in market share and has a solid liquidity position, Fitch said. 

9. Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The Salt Lake City-based health system has exceptional credit quality, which will continue to benefit from its leading market position in Utah, Moody’s said. The credit rating agency said the health system’s merger with Broomfield, Colo.-based SCL Health will also give Intermountain greater geographic reach.

10. Yale New Haven (Conn.) Health has an “AA-” rating and stable outlook with Fitch. The health system’s turnaround efforts, brand recognition and market presence will help it return to strong operating results, Fitch said. 

For hospitals, ‘difficult decisions’ loom after 9 months of negative margins

The third quarter brought little relief to hospitals in what is shaping up to be one of their worst financial years. 

Kaufman Hall’s October National Hospital Flash Report — based on data from more than 900 hospitals — found slightly lower hospital expenses in September did not outweigh lower revenue across the board, with decreases in discharges, inpatient minutes and operating minutes.

The median year-to-date operating margin index for hospitals was -0.1 percent in September, marking a ninth straight month of negative operating margins and a dimmer outlook for their climb back into the black by year’s end. 

Kaufman Hall noted that expense pressures and volume and revenue declines could force hospitals to make “difficult decisions” about service reductions and cuts. 

“Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. “Without a positive margin there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future.”

Purported Medicare profits spark criticism of North Carolina hospitals’ charity care spending

Drawing on a report published by the North Carolina State Health Plan for Teachers and State Employees, a recent Kaiser Health News article shines a light on the lack of transparency in financial reporting of not-for-profit hospitals’ community benefit obligations.

The report claims many North Carolina hospitals—including the state’s largest system, Atrium Health—show profits on Medicare patients in their cost report filings, while at the same time claiming sizable unrecouped losses on Medicare patients as a part of their overall community benefit analyses.

The Gist: These kind of reporting discrepancies draw attention to the controversial issue of whether not-for-profit hospitals provide sufficient community benefit to compensate for their tax-exempt status, which was worth nearly $2 billion in 2020 for North Carolina hospitals alone. 

Greater transparency around charity care, community benefit, and losses sustained from public payers could go a long way toward shoring up stakeholder support for not-for-profit institutions at a time when their political goodwill has deteriorated. Hospitals should be proactive on this front, as political leaders increasingly train their sites on high hospital spending in the current tight economic environment. 

UPMC’s operating income sinks 86% in first half of year

UPMC reported higher revenue in the first half of this year than in the same period of 2021, but the Pittsburgh-based health system’s operating income declined year over year, according to financial documents released Aug. 23. 

UPMC reported revenue of $12.5 billion in the first six months of this year, up from $12.2 billion in the same period of 2021. 

Expenses also increased year over year. UPMC reported operating expenses of $12.4 billion in the first half of this year, up from $11.6 billion a year earlier. Expenses increased across all categories, including supplies and salaries and benefits. 

“Throughout 2022, the continued effect of COVID-19, along with conditions in the labor and supply markets have resulted in cost growth in employment, staffing and other operating expenses in excess of revenue growth,” UPMC management wrote in the financial filing

The health system ended the first half of this year with operating income of $81.9 million, down 86 percent from $604.6 million in the same period last year. UPMC’s operating margin was 0.7 percent for the first half of this year, compared with 5 percent in the same period last year. 

UPMC reported a net loss of $844.1 million in the first half of this year, compared to net income of $1.1 billion in the same period of 2021. The system’s loss from investing and financing activities totaled $865.9 million in the first two quarters of 2022, compared to a gain of $531.1 million in the same period a year earlier.

Advocate Aurora Health is down $601M year to date as it gears up for Atrium Health megamerger

While Advocate Aurora Health’s year-to-date operating income sits at $51.2 million, $666 million in investment declines weigh heavy on its bruised bottom line.

Following a tight first quarter, Advocate Aurora Health managed to grow its operating margin but still landed negative due to $400 million in investment losses during the quarter ended June 30, according to financial filings.

The 27-hospital nonprofit—which pending regulatory review slated to merge with Atrium Health in one of the year’s biggest hospital transactions—reported a $48.7 million operating income during its second fiscal quarter of 2022 (1.7% margin).

This is up from the $2.5 million (0.3% margin) it scraped out earlier this year but well below the $213.7 million (6.5% margin) of Q2 2021.

Revenues for the quarter increased 1.5% year over year to more than $3.5 billion. While patient service revenue and other revenue both grew by tens of millions, capitation revenue declined slightly due to a shift in overall membership mix and a 6.1% dip in capitated lives, the system wrote in its filing.

Discharge volumes fell 7.7% year over year during the most recent quarter, as did home care visits by 7.6%. The system saw increases compared to the previous year among its observation cases (11.6%), hospital outpatient visits (2.1%) and physician visits (7.1%).

Advocate Aurora’s expenses grew at a faster rate, at 6.7% year over year during the second quarter. The increase was led by a 10.2% jump in salaries, wages and benefits payouts, which the system said was fueled by a blend of higher nurse agency costs, higher merit and premium pay for clinical care and volume-driven demand for more full-time equivalent employees.

The nonprofit saw last year’s investment gains largely upended, recording a $400 million net loss during the quarter compared to the $571.6 million gain of the prior year’s equivalent quarter.

The shortfall dragged Advocate Aurora’s net income to a $347.6 million loss for the quarter. It had logged a $545.6 million gain the previous year.

Looking at six-month numbers, the health system reported $7.1 billion in total revenue and $7 billion in total expenses for an operating income of $51.2 million. Year-to-date investment losses landed at $666 million, bringing the organization to a $600.8 million net loss.

Advocate Aurora was formed in 2018 from the merger of nonprofits Advocate Health Care and Aurora Health Care. It treats 2.6 million unique patients, employs 75,000 people and logged just under $14.1 billion in total revenue across 2021 and a net income of more than $1.8 billion.

Should its merger plans go through, Advocate Aurora and Atrium Health would control 67 hospitals and $27 billion of combined revenues across six states. The deal is anticipated to close before the end of the year, according to the earnings filing.

The system’s latest numbers will come as no surprise in light of similar quarterly reports from Advocate Aurora’s nonprofit contemporaries.

Investment struggles and increased expenses were reported across the board, although not every major system was able to keep operations in the black. Mayo ClinicKaiser Permanente and UPMC were among those on the stronger side of the scale while Sutter HealthMass General Brigham and Providence each reported tens to hundreds of millions in operational losses.

Fitch Ratings warned last week that these sector-wide challenges are unlikely to vanish during the remainder of the year. As such, the agency has downgraded its outlook for the nonprofit hospital industry from “neutral” to “deteriorating.”

Henry Ford Health reports negative operating margin

Detroit-based Henry Ford Health ended the first half of this year with an operating loss, according to financial documents released Aug. 15. 

In the first two quarters of this year, Henry Ford Health reported revenue of $3.41 billion, up from $3.36 billion in the same period a year earlier. Net patient service revenue and healthcare premium revenue were up year over year. The health system attributed the increase in patient service revenue to higher pharmacy and outpatient volume. 

After factoring in expenses, which grew 4.4 percent year over year, the health system ended the first six months of this year with an operating loss of $74.77 million and an operating margin of -2.2 percent. Henry Ford Health reported operating income of $19.29 million in the first half of 2021. 

Henry Ford Health’s nonoperating loss totaled $272.53 million in the first six months of this year, which was primarily attributed to a significant loss on investments. In the first half of 2021, the health system reported nonoperating income of $134.65 million.

Henry Ford Health closed out the first half of this year with a net loss of $347.98 million, compared to a net income of $153.18 million in the same period of 2021.

Profits climb for major insurers as hospital volumes drop in Q2

All but two of the seven largest insurers saw profits climb in the second quarter as hospital operators continued to struggle with weak volumes and higher labor costs.

The nation’s top health insurers again raised financial targets for the year as revenues climbed on increased membership, while some signs indicated demand for medical services was tepid.   

All but two of the seven largest insurers saw profits climb in the second quarter compared with the prior-year period, as many saw a key metric for medical spending decrease. 

Many of the largest insurers saw profits climb in the second quarter

Industry observers have been closely watching for signals of pent-up demand as many patients delayed care amid the varying spikes in COVID-19 cases. 

That didn’t seem to materialize in the second quarter as insurance executives didn’t report a surge in care. Almost all insurers saw their medical loss ratios either decline or remain the same from the second quarter last year.   

Executives at Cigna, one of the nation’s largest insurers with nearly 18 million members, said there were fewer surgeries, fewer emergency room visits and fewer people admitted to the hospital in the second quarter compared to the prior-year period. 

Direct COVID-19 costs were also better-than-expected, Cigna executives told investors on the second-quarter earnings call. As fewer Cigna patients sought medical care, net income climbed 6% to $1.6 billion.

Cigna wasn’t alone in reporting lighter patient volumes

UnitedHealthcare, the insurer arm of UnitedHealth Group with more than 51 million members, reported a lower level of COVID-19 patient care and said usage of some medical services still fell below pre-pandemic levels, including pediatrics and the emergency department. UnitedHealth’s net income increased to $5.1 billion. 

Humana also noticed a dip in members utilizing medical services, noting fewer Medicare members were admitted to the hospital in the quarter. Humana’s net income also climbed 18% to $696 million.  

Q2 performances led insurers to raise their financial expectations for the full year. 

“The lower utilization trends and lack of COVID-19 headwinds seen to date, give us confidence in raising our full year adjusted [earnings per share] guide,” Humana CFO Susan Diamond said on a call with investors.

On the other hand, the nation’s for-profit hospital chains reported fewer admissions and a dip in profits as they continued to deal with labor and other expenses amid record high inflation. 

“U.S. hospitals and health systems are now halfway through an extremely challenging year,” Kaufman Hall said in a recent report that showed six consecutive months of negative operating margins.

Fitch Ratings revised its ratings outlook to negative from stable for Community Health Systems following the hospital chain’s second-quarter results. 

Fitch said the revision reflects “significant increases in labor costs and weakness in volume” throughout the first half of the year.

Nonprofit hospital operators have also faced challenges in the first half of the year.  

Both Kaiser Permanente and Sutter Health reported net losses in the second quarter of the calendar year as expenses grew and investment income declined.

Sutter Health’s rising expenses and rough investments yield a $457M net loss for Q2 2022

Updated on Aug. 5 with comments from Sutter Health.

A $457 million net loss for the quarter ended June 30 has brought Sutter Health even deeper into the red for 2022, according to new financial filings.

The Sacramento-based nonprofit health system brought in $3.49 billion in total operating revenues from the quarter, down slightly from the prior year’s $3.51 billion.

At the same time, the system’s operating expenses grew from $3.41 billion in the second quarter of 2021 to $3.55 billion in the most recent quarter, driven by $30 million and $151 million year-over-year increases in salaries and purchased services, respectively. The latter includes the increased professional fees being felt by labor-strapped systems across the country.

These led the system to report a $51 million operating loss for the quarter as opposed to the $106 million operating gain from last year’s equivalent quarter.

“Poorly” performing financial markets also took a toll on Sutter’s numbers. The system’s quarterly investment income dipped from $251 million to $56 million from 2021 to 2022. A $495 million downward change in net unrealized gains and losses on its investments was also a stark reversal from the prior year’s $270 million increase.

The new numbers cement what was already looking to be a tricky year for Sutter Health, which had previously reported a $184 million net loss for its opening quarter.

Despite a 1.5% year-over-year operating revenue increase to $7.05 billion for the opening six months, a 1.7% year-over-year operating revenue bump places the system’s year-to-date income at $44 million (0.6% operating margin), slightly below last year’s $57 million (0.8% operating margin).

However, market struggles through both quarters and a $208 million loss tied to the disaffiliation of Samuel Merritt University now has Sutter sitting at a $641 million net loss for the opening half of 2022. The system was up $825 million at the same time last year.

Sutter’s finances have stabilized, but our year-to-date numbers show we still have more affordability work ahead as we strive to best position Sutter Health to serve our patients and communities into the future,” the system wrote in an email statement. “We are grateful for our employees and clinicians who have worked diligently over the last several years to help bring our costs down—at the same time managing through the pandemic and continuing to provide high-quality, nationally recognized care.”

Sutter noted in the filing that it is or will be in labor negotiations with much of its unionized workforce, as 43% of its contract agreements have either expired or will be running their course within the year.

The filing also included notice of a handful of legal matters that have yet to be resolved. These include an antitrust verdict in favor of Sutter that is being appealed by the plaintiff, a lawsuit regarding an alleged privacy breach of two anonymous plaintiffs and two separate class-action complaints regarding employee retirement plan funding, among others.

“The organization continues to face financial headwinds like inflation and increased staffing costs, as evidenced by our near breakeven operating margin,” Sutter said in a statement. “Even still, we are encouraged that independent ratings agencies have recently acknowledged our efforts to date. In the second quarter, Moody’s, S&P and Fitch all affirmed the system’s existing ‘A’ category bond ratings.”

Much of Sutter’s pains are being felt across the industry. A recent Kaufman Hall industrywide report showed only marginal relief from expenses and middling non-COVID volume recovery through June, while a Fitch Ratings update on nonprofit hospitals warned that these challenges and broader inflation pressures will likely weigh down the sector through 2022.