Highmark’s rising hospital costs offset insurance gains

Highmark Health’s insurance arm 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 suffered a $174 million net loss on operating revenue of $13 billion for the first two quarters, the not-for-profit company reported Tuesday.

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

“As capacity opens up and becomes available, we’re certain that we will see utilization move back closer to pre-pandemic levels,” Hanlon said. “But I don’t believe that will be an overnight thing. It’ll be a little bit more gradual as some of the staffing challenges get addressed.” 

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

The Centers for Medicare and Medicaid Services relaxed Medicare Advantage plans’ star reporting requirements for the past two years as part of pandemic relief, which led 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 decline once CMS resumes its pre-pandemic scoring methodology. New scores are set to be released ahead of Medicare open enrollment, which begins Oct. 15, but CMS has not disclosed how it will calculate ratings 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, doesn’t distinguish between, ‘What did the insurance company do and help me with?’ and ‘What’s the provider doing and helping me with?’ when they’re filling out surveys. Questions around access are challenged across the industry.” 

Highmark’s Allegheny Health Network health system benefited from a slight increase in patient visits, with outpatient registrations excluding vaccinations up 12%, physician visits up 3%, emergency room visits up 13% and childbirths up 6%. Inpatient discharges and observations were down 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—the labor and supply chain challenges, inflation—we will be facing those just like every other provider system,” Chief Financial Officer Saurabh Tripathi said. “The investment markets are so volatile, it’s hard to predict the next day, let alone the year. But we have a very strong balance sheet and very strong investment portfolio, so we are not worried about short-term losses.”

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