Pittsburgh-based UPMC’s operating income hit $100.4 million in the first quarter — up from $50.4 million in the prior year period — due to increased patient volumes, the growth of its insurance division and equity earnings in its investment in CarepathRx.
UPMC said quarterly results were partially offset by reduced pandemic-related funding and increased labor costs. First-quarter revenue increased 12 percent year over year to $6.9 billion and expenses rose 11 percent to $6.8 billion.
Year over year, UPMC’s admissions and observations increased 6 percent, while its health plan grew by almost 500,000 members to 4.5 million. UPMC attributed the 12 percent jump to the expansion of its behavioral health and Medicaid programs in eastern Pennsylvania.
“While meeting strong patient preference for care to be provided more conveniently in ambulatory settings closer to home, UPMC’s outpatient revenue increased 9 percent compared to a year ago,” CFO Edward Karlovich said in a May 25 news release. “Our patient volumes continue to shift from inpatient to outpatient settings.”
After including the performance of its investment portfolio and other nonoperating items, the 40-hospital system reported an overall gain of $187.3 million, compared with a loss of $226.2 million in the first quarter of 2022.
Fitch Ratings Senior Director Kevin Holloran dubbed 2022 the worst operating year ever and most nonprofit health systems reported large losses. However, the losses are shrinking and some systems have even reported gains during 2023 so far.
Cleveland Clinic reported $335.5 million net income for the first quarter of the year, compared with a $282.5 million loss over the same period in 2022. The health system reported revenue of $3.5 billion for the quarter. Cleveland Clinic has 321 days cash on hand, which puts it in a strong position for the future.
Boston-based Mass General Brighamreported $361 million gain for the second quarter ending March 31, which is up from a $867 million loss in the same period last year. The health system reported quarterly revenue jumped 11 percent year over year to $4.5 billion. The system’s quarterly loss on operations was down significantly this year, hitting $8 million, compared to $183 million last year.
Renton, Wash.-based Providence reported first quarter revenues were up 5.1 percent in 2023 to $7.1 billion, and operating loss is also moving in the right direction. The system reported $345 million operating loss in the first quarter of 2023, down from $510 million last year.
All three systems cited ongoing labor shortages and labor costs as a challenge, but are working on initiatives to reduce expenses. Cleveland Clinic and Mass General Brigham reported operating margin improvement to nearly positive numbers.
Kaiser Permanente, based in Oakland, Calif., also reported operating income at $233 million for the first quarter of the year, an increase from $72 million operating loss over the same period last year. The system is focused on advancing value-based care for the remainder of the year and its health plan grew more than 120,000 members year over year.
Even more regional systems are stemming their losses. SSM Health, based in St. Louis, went from a $57.4 million loss for the first quarter of 2022 to $16.5 million quarterly loss this year. Revenue increased 13.3 percent to $2.5 billion for the quarter, with increased labor expenses and inflation on supply costs continuing to weigh on the system.
UCHealth in Aurora, Colo., also reported a first quarter income of $61.8 million and revenue of more than $5 billion.
Not every system is seeing losses decline. Chicago-based CommonSpirit Health, which reported larger operating losses in the first quarter year over year, hitting $658 million and $1.1 billion for the nine-month’s end March 31. The system was able to reduce contract labor costs, but still finds hiring a challenge and spent time last year recovering from a cybersecurity incident.
Hospitals face a long road to financial recovery from the pandemic as inflation persists and labor shortages become the norm, but movement in the right direction is welcome.
Renton, Wash.-based Providence has reported a $345 million operating loss in the first quarter on revenue of $6.8 billion.
While revenues were up on the same period in 2022, expenses also rose 5.1 percent to total $7.1 billion. The operating loss compares with a $510 million loss in the first quarter of 2022.
Improving non-operating income, mainly from investment returns, helped mitigate the net loss to $117 million compared with an $840 million net loss in the same period last year, excluding the disaffiliation of Newport Beach, Calif.-based Hoag.
The 51-hospital system reiterated it is taking a number of initiatives to reduce some of its costs under its Destination Health 2025 Recover and Renew plan. One of those prime areas of focus is reducing staffing costs, particularly in regard to contract labor, which continues to be a challenge for Providence.
“With current labor shortages, the use of premium labor, including the number and wage rate of agency nurses, continues to be significantly higher than in previous years,” management said in its filing. “Several initiatives are underway to reduce those expenses in combination with increasing core productivity.”
Providence is also undergoing portfolio management reassessment to try and improve efficiencies and save costs, according to the filing.
The system, which had $7.8 billion long-term debt as of March 31, provided $563 million in community benefit in the first quarter, up from $412 million in the same period of 2022.
“Together, we will continue meeting the health care needs of our communities, no matter how challenging the environment gets, and will ensure the mission of Providence thrives for years to come,” Rod Hochman, MD, Providence president and CEO said in the filing.
The Cigna Group beat investor expectations and reported a 10 percent growth in membership year over year, according to the company’s first quarter earnings published May 5.
“Our strong results in the first quarter demonstrate how our company continues to execute well, while also introducing innovative, market-leading solutions that improve clinical outcomes, affordability and transparency for the benefit of those we serve,” Chair and CEO David Cordani said.
Total revenues in the first quarter were $46.5 billion, up 6 percent year over year.
Evernorth revenues rose 8 percent year over year to $36.2 billion. The insurance side of the business, Cigna Healthcare, reported first-quarter revenues of $12.8 billion, up 13 percent from the previous year.
In the first quarter, net income was $1.3 billion, up 6 percent year over year.
The company’s medical loss ratio was 81.3 percent in the first quarter, compared to 81.5 percent during the same period last year.
As of March 31, Cigna had 19.5 million total medical members, up 10 percent year over year.
For 2023, the company projects revenues of at least $188 billion. Full-year adjusted income from operations is projected to be at least $7.36 billion, or at least $24.70 per share.
Using data from Kaufman Hall’s National Hospital Flash Report, as well as publicly available investor reports for some of the nation’s largest nonprofit health systems, the graphic above takes stock of the current state of health system margins.
The median US hospital has now maintained a negative operating margin for a full year. Some good news may be on the horizon, as the picture is slightly less gloomy than a year ago, with year-over-yearrevenues increasing seven points more than total expenses.
However, the external conditions suppressing operating margins aren’t expected to abate, and many large health systems are still struggling.
Among large national non-profits Ascension, CommonSpirit Health, Providence, and Trinity Health, operating income in FY 2022 decreased 180 percent on average, and investment returns fell by 150 percent on average, compared to the year prior.
While health systems’ drop in investment returns mirrors the overall stock market downturn, and is largely comprised of unrealized returns, systems may not be able to rely on investment income to make up for ongoing operating losses.
Renton, Wash.-based Providence suffered its third credit downgrade in less than three weeks when Moody’s revised a rating on bonds the 51-hospital system holds to “A2” from “A1.”
Such a rating reflects an expectation margins will remain weak in 2023. The outlook is negative.
The move follows similar actions by Fitch Ratings March 17 and S&P Global March 21 amid an anticipated multiyear process of financial recovery.
Capital expenditure for Providence is expected to be restricted after the completion of a couple of major projects this year to effect “margin recovery,” Moody’s said.
Providence reported a $1.7 billion operating loss in 2022.
Walgreens’ growing U.S. healthcare segment is continuing to bolster the retail health chain’s financial performance. The business, which includes value-based provider VillageMD, recorded $1.6 billion in sales in the second quarter, an increase of $1.1 billion from last year.
VillageMD sales were up 30%, including a boost from its recent acquisition of medical group Summit Health. Specialty pharmacy Shields Health Solutions grew sales 41%, while at-home care provider CareCentrix’s sales were up 25%.
Thanks in part to a jump in revenue in its healthcare segment, Walgreens’ results beat Wall Street expectations even as profit declined more than 20% amid lower COVID-19 vaccine volumes and test sales, higher salary costs, opioid litigation charges and costs associated with its $3.5 billion investment in its Summit acquisition.
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Walgreens has been working to expand its business scope beyond pharmacies to more consumer-centric healthcare, and has acquired a number of companies to build out its growing U.S. healthcare division.
In its earnings results for the second quarter ended Feb. 28, the business reported gross profit of $32 million, as income from Shields and CareCentrix was offset by VillageMD expansion costs. VillageMD added 133 clinics compared to the second quarter last year.
“With the closing of VillageMD’s acquisition of Summit Health, [Walgreens] is now one of the largest players in primary care,” CEO Roz Brewer said in the company’s earnings release on Tuesday.
VillageMD also acquired a Connecticut-based medical group in March for an undisclosed amount. That group, called Starling Physicians, operates more than 30 primary care and multi-specialty practices across the state.
Starling “will contribute heavily to revenue and EBITDA growth in the second half of 2023,” said Walgreens CFO James Kehoe on a Tuesday morning call with investors. “Overall, the primary care business and the specialty care business is doing really, really well.”
Despite the recent deals, Walgreens is moving beyond its peak investment period in healthcare, management said on the call. VillageMD, for example, plans to concentrate growth and investments in specific markets where it can be “hyper-relevant” moving forward, according to Walgreens President John Standley.
Sacramento, California-based Sutter Health crossed the finish line strong but ultimately wrapped up 2022 with a $249 million net loss, a substantial decline from the $1.1 billion profit of 2021.
A $628 million dip in investment income, a $578 million decrease in net unrealized gains and losses on investments and the $208 million disaffiliation of Samuel Merritt University all contributed to the nonprofit’s year-over-year decline.
Still, the tally is a $289 million improvement over the $538 million net loss the system had reported at the year’s nine-month mark.
The loss was also blunted by a 12-month operating income of $278 million—a bump over the $199 million operating income of 2021 and a feather in Sutter’s cap at a time when several other major nonprofit systems are reporting hundreds of millions in operating losses.
“Our operating financial performance has put Sutter in a position to reinvest more within the system, which can help support even higher quality, equitable healthcare for patients throughout California,” CEO and President Warner Thomas said in a press release.
Sutter’s total operating revenues rose 3.9% year over year to $14.8 billion in 2022. This was just ahead of the 3.3% increase to $14.5 billion in total operating expenses. The system wrote in a release that “like other healthcare organizations around the country,” it was not immune from inflationary pressures on expenses like wages and benefits or supplies.
However, the strong results of its 2021 financial recovery initiative and patient volumes “returning to near-2019 levels by year’s end” give Sutter “a stable base to invest in the future,” the system said.
Renton, Wash.-based Providence had its second downgrade in less than a week amid higher expenses that helped lead to steeper-than-expected losses and an expectation of a multiyear recovery.
The rating downgrade from “A+” to “A” applies to the system’s long-term rating as well as to various bonds it holds, S&P Global said March 21. The outlook is negative.
“The negative outlook reflects our view of the steep operating losses that management must address over the next year to put the organization on a path to better cash flow and break-even margins,” S&P said.
The rating downgrade follows a similar move by Fitch March 17.
Positive fundamentals such as its diversified services and robust strategic plan, as well as its leading market positions in all seven of its regionally centered markets, stands Providence in good stead, S&P added.
Providence, a 51-hospital system, recently reported a fiscal 2022 operating loss of $1.7 billion.
Here are 14 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings, Moody’s Investors Service and S&P Global.
1. Ascension has an “AA+” rating and stable outlook with Fitch. The St. Louis-based system’s rating is driven by multiple factors, including a strong financial profile assessment, national size and scale with a significant market presence in several key markets, which produce unique credit features not typically seen in the sector, Fitch said.
2. Berkshire Health has an “AA-” rating and stable outlook with Fitch. The Pittsfield, Mass.-based system has a strong financial profile, solid liquidity and modest leverage, according to Fitch.
3. ChristianaCare has an “Aa2” rating and stable outlook with Moody’s. The Newark, Del.-based system has a unique position with the state’s largest teaching hospital and extensive clinical depth that affords strong regional and statewide market capture, and it is expected to return to near pre-pandemic level margins over the medium term, Moody’s said.
4. Cone Health has an “AA” rating and stable outlook with Fitch. The rating reflects the expectation that the Greensboro, N.C.-based system will gradually return to stronger results in the medium term, the rating agency said.
5. Harris Health System has an “AA” rating and stable outlook with Fitch. The Houston-based system has a “very strong” revenue defensibility, primarily based on the district’s significant taxing margin that provides support for operations and debt service, Fitch said.
6. Johns Hopkins Medicine has an “AA-” rating and stable outlook with Fitch. The Baltimore-based system has a strong financial role as a major provider in the Central Maryland and Washington, D.C., market, supported by its excellent clinical reputation with a regional, national and international reach, Fitch said.
7. Orlando (Fla.) Health has an “AA-” and stable outlook with Fitch. The system’s upgrade from “A+” reflects the continued strength of the health system’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market, Fitch said.
8. Rady Children’s Hospital has an “AA” rating and stable outlook with Fitch. The San Diego-based hospital has a very strong balance sheet position and operating performance and is also a leading provider of pediatric services in the growing city and tri-county service area, Fitch said.
9. Rush System for Health has an “AA-” and stable outlook with Fitch. The Chicago-based system has a strong financial profile despite ongoing labor issues and inflationary pressures, Fitch said.
10. Salem (Ore.) Health has an “AA-” rating and stable outlook with Fitch. The system has a “very strong” financial profile and a leading market share position, Fitch said.
11. TriHealth has an “AA-” rating and stable outlook with Fitch. The rating reflects the Cincinnati-based system’s strong financial and operating profiles, as well as its broad reach, high-acuity services and stable market position in a highly fragmented and competitive market, Fitch said.
12. UCHealth has an “AA” rating and stable outlook with Fitch. The Aurora, Colo.-based system’s margins are expected to remain robust, and the operating risk assessment remains strong, Fitch said.
13. University of Kansas Health System has an “AA-” rating and stable outlook with S&P Global. The Kansas City-based system has a solid market presence, good financial profile and solid management team, though some balance sheet figures remain relatively weak to peers, the rating agency said.
14. Willis-Knighton Health System has an “AA-” rating and stable outlook with Fitch. The Shreveport, La.-based system has a “dominant inpatient market position” and is well positioned to manage operating pressures, Fitch said.
HENRY KOTULA 