Highmark’s increased hospital costs offset insurance profits

The insurance arm of Highmark Health boosted the integrated health system’s finances during the first six months of the year amid investment losses, inflation and rising labor and supply costs.

Pittsburgh-based Highmark posted a net loss of $174 million on operating income of $13 billion for the first two quarters, the not-for-profit company announced Tuesday.

Highmark Health Plan generated the majority, or $11 billion, of the company’s revenue and accounted for more than $450 million in operating profit driven by the closing of insurer Health Now and the acquisition of the remaining 50% of Gateway Health Plan last year. The insurance operation, which has 6.8 million members in four states, also benefited from a drop in usage earlier in the year during the omicron COVID-19 surge, Chief Operating Officer Karen Hanlon said. The insurance division also drove the company’s performance in the first quarter.

“As capacity opens up and becomes available, we’re confident we’ll see utilization return closer to pre-pandemic levels,” Hanlon said. “But I don’t believe it’s going to be an overnight thing. It will be a little more gradual as some of the staffing challenges are addressed.”

Provider capacity challenges could affect Highmark’s Medicare Advantage star ratings for next year, Hanlon said. The company’s 256,000 Medicare Advantage members rated their plan experience lower than in previous years, Hanlon said.

The Centers for Medicare and Medicaid Services eased star reporting requirements for Medicare Advantage plans for the past two years as part of pandemic relief, leading to a record number of insurers receiving the highest ratings on the five-point scale. Cigna and Centene also recently said they expect their star ratings to drop once CMS resumes its pre-pandemic rating methodology. The new results are set to be released before Medicare open enrollment, which begins Oct. 15, but CMS has not said how it will calculate the estimates for this year.

“It’s difficult with the access issues that are out there within the provider community,” Hanlon said. “The insurance customer, of course, does not distinguish between, ‘what did the insurance company do and help me?’ and ‘What is the provider doing and helping me?’ when they are filling out surveys. Questions about accessibility are challenged across the industry.”

Highmark’s Allegheny Health Network health system benefited from a slight increase in patient visits, with outpatient enrollments excluding vaccinations up 12%, physician visits up 3%, emergency room visits up 13% and births with 6%. Discharges and observations from hospitals fell by 2%, however.

Inflation and rising costs for labor and supplies led the 14-hospital chain to report $2 billion in revenue and a loss before interest, taxes, depreciation and amortization of $71 million.

“Some of the macroeconomic factors – labor and supply chain challenges, inflation – we will deal with them just like any other provider system,” said Chief Financial Officer Saurabh Tripathi. “Investment markets are so volatile that it is difficult to predict tomorrow, let alone the year. But we have a very strong balance sheet and a very strong investment portfolio, so we’re not worried about short-term losses.”

Highmark’s diversified business arm, which includes HM Insurance Group’s stop-loss business, United Concordia Dental insurance and enGen technology operations, added another $100 million to the company’s operating profits.

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