Pennsylvania's largest insurer and newest integrated delivery network operator took a financial loss for the second year in a row, but that may actually help if scrutiny of its nonprofit status continues.
With a new CEO, a first year of ACA exchanges and a second year owning the once bankrupt Allegheny Health Network, Highmark maintains that it finished 2014 "strong and stable," with an operating loss of $178 million but growing revenues, $6.5 billion in cash and investments and $5.4 billion in reserves.
"We remain financially strong and stable and we are pleased with our top line growth given the increasingly competitive environment we faced last year," said David Holmberg, the president and CEO.
In unaudited financial statements, the Pittsburgh-based parent of Blue Cross insurers in Delaware, Pennsylvania and West Virginia reported a net loss of $83 million after investments, an improvement over 2013's $134 million net loss. Meanwhile, operating revenue grew 6 percent to $16.8 billion, and membership held steady at 5.3 million, despite western Pennsylvania's largest provider, the University of Pittsburgh Medical Center, leaving the Highmark network and drawing away some employer groups in the process.
Highmark's $83 million loss was primarily a result of a "one-time accounting action related to the collectibility" of the risk corridor payments for exchange plans, a part of the ACA's market stabilization program. Not factoring that in, the insurer estimates that it would have had an operating loss of $23 million.
Highmark's exchange plans enrolled some 345,000 consumers across the three states. CFO Karen Hanlon said that "most, if not all" of the risk corridor payments will be recovered this year. Booking the uncertainty as a loss was "an appropriately conservative accounting approach," she said.
Highmarks core health insurance business broke even, and its for-profit Diversified Business unit of non-health vision, dental and reinsurance subsidiaries performed profitably. "The breadth of our diversified businesses is what sets us apart from our competitors, and it's important to underscore that one-third of our revenue came from businesses other than our health plan," said Holmberg , who took over as CEO last spring. "In 2014, the financial stability provided by that diversity enabled us to invest more than $500 million across the enterprise to help us exceed customers' expectations, support our social mission, and continue to build Highmark Health into an integrated healthcare delivery and financing system that is leading the change in healthcare."
In western Pennsylvania, much of Highmark's future is linked with the success of the Allegheny Health Network, the seven hospital system formerly called West Penn Allegheny. When Highmark saved the system from bankruptcy in 2013, UPMC refused to renew a network contract with Highmark plans--leaving greater Pittsburgh as region where residents are essentially choosing between two hospital systems for their healthcare.
In the second year of Highmark's ownership, Allegheny Health Network's operating losses declined to $37 million, an improvement from a $402 million loss in 2013 (which included a $311 million one-time "impairment charge"). It's not clear if Allegheny Health Network will end this year fully in the black, but it is positioning itself to compete with UPMC as the purveyor of advanced, high quality healthcare.
Among other initiatives, the Allegheny health Network has set up a clinical trial collaboration with Baltimore's John Hopkins Medicines, and is marketing new treatment options like radiofrequency ablation procedure for pre-cancerous Barrett's esophagus and western Pennsylvania's first robotic-assisted hip and knee surgeries. The health system also recently opened the massive Wexford Health and Wellness Pavilion, a clinic and retail space in suburban Pittsburgh where people can visit a specialist, get a lab test, pick up medications and attend a cooking or exercise class.
A cloudy future for nonprofit giants
Between the health system's trajectory, Pennsylvania expanding Medicaid eligibility and Highmark's strong reserves and premium pricing, analysts like Standard & Poor's expect Highmark to turn a profit in the coming years. But the company's nonprofit status still remains a long-term uncertainty, after year's of infighting with UPMC, high executive pay, workforce reductions and premium hikes.
"Highmark Health of Pittsburgh surely is keeping close watch on the Golden State," wrote the Tribune Review editorial board, referring to California's decision to levy state income taxes on Blue Shield of California, a nonprofit brethren. "The question for Highmark Health in Pittsburgh--which sought double-digit 2015 rate hikes for individual policies, paid six executives $1 million-plus in 2013 and has reserves of about $4 billion itself--is if it can defend its case for continued nonprofit status," the Tribune Review wrote.
In 2013 and 2014, Highmark laid off 160 finance, sales and IT staff in its insurance business and 262 in mostly administrative and middle management positions at the Allegheny Health Network. while former Highmark CEO William Winkenwerder, MD, earned $4.2 million in total compensation in 2013 and five other executives took home at least a million. At UPMC, a $10 billion nonprofit enterprise with a for-profit health plan, CEO Jeffrey Romoff received $6.6 million in total compensation in 2012, along with 30 others paid more than one million.
The organizations are still major employers with good-paying jobs. Highmark employs 20,000, Allegheny Health Network 17,000 and UPMC 60,00. But public perceptions about healthcare nonprofits acting like corporations is bound to remain a problem, as middle income consumers continue paying a sizable chunk of their take-home pay for healthcare.
On one public interest front, though, Highmark has recently made what it touted as a community-focused investment that could actually lose money. With $350,000 from Highmark and $150,000 from its foundation, Allegheny Health Network recently opened an urgent care center in Braddock, Pennsylvania, an impoverished industrial town up the Monongahela River from Pittsburgh.
The clinic is the first major in-town healthcare provider for Braddock's 2,100 residents since 2010, when UPMC closed a local community hospital. Since then, "residents have had to travel as far away as McKeesport or the city of Pittsburgh for their urgent care needs," said Highmark president Deborah Rice-Johnson. "The Braddock Urgent Care Center will fill a major gap in healthcare services for residents of the borough and surrounding communities."