Highmark’s rising hospital costs offset insurance profits

Highmark Health’s insurance unit boosted the integrated health system’s finances in 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 revenue of $13 billion for the first two quarters, the for-profit company said 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 purchase of the remaining 50 percent 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 COVID-19 omicron surge, Chief Operating Officer Karen Hanlon said. The insurance division also supported 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 will happen overnight. It will be a bit more gradual as some of the staffing challenges are worked out.”

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 has eased reporting requirements for star Medicare Advantage plans for the past two years as part of pandemic relief, resulting in 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 after CMS resumes its pre-pandemic rating methodology. The new scores are due to be released before Medicare open enrollment begins Oct. 15, but CMS has not disclosed how it will calculate this year’s ratings.

“It’s difficult with the access issues that exist in the provider community,” Hanlon said. “The insurance customer, of course, doesn’t differentiate between ‘What did the insurance company do and how did it help me?’ and ‘What did the provider do and how did it help me?'” when they fill out surveys. Access issues are challenges across the industry.”

Highmark’s Allegheny Health Network Health System benefited from a slight increase in patient visits, with non-vaccination outpatient registrations up 12%, physician visits up 3%, emergency room visits up 13% and births increased by 6%. However, discharges and observations were down 2%.

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

“Some of the macroeconomic factors — the labor and supply chain challenges, inflation — we will face them just like any other supplier system,” said Chief Financial Officer Saurabh Tripathi. “Investment markets are so volatile that it is difficult to predict the next day, 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 unit, which includes HM Insurance Group stop-loss business, United Concordia Dental insurance and enGen technology operations, added another $100 million to the company’s operating income.

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