Strong consolidated operating improvement of $202 million over previous year; Affordable Care Act business remains challenging despite significant financial improvement; Allegheny Health Network continues steady progress in turnaround effort
PITTSBURGH (Sept. 23, 2016) — Today, Highmark Health announced financial results for the first six months of 2016, reporting an excess of revenue over expenses of $36 million. Excluding the one-time 2015 gains associated with the net assets acquired through the merger with Blue Cross of Northeastern Pennsylvania and realized gains from the sale of strategic investments, the 2016 results represent an improvement of nearly $200 million over the prior year. This progress is primarily a result of actions taken to improve performance in the Affordable Care Act (ACA) book of business, strong performance in the commercial health plan business, and the ongoing turnaround of Allegheny Health Network. The organization invested nearly a quarter of a billion dollars in our core and growing businesses during the first half of the year, and maintains $6.0 billion in cash and investments and net assets of $5.3 billion.
Period ended June 30
|Allegheny Health Network||(17)||(19)|
|HM Health Solutions||1||4|
|Parent & Other||(116)||(116)|
|Operating gain (loss)||31||(171)|
|Net investment income||86||268|
|Net assets acquired of NEPA||||229|
|Excess of revenue over expenses before income taxes||85||289|
|Income tax provision||49||68|
|Excess of revenue over expenses||$36||$221|
|* Certain 2015 amounts have been reclassified to conform to the 2016 presentation.|
Highmark Health also reported an operating gain of $31 million, which was $202 million ahead of the previous year. The improvement in the results is attributable to reduced losses in the government health plan business, which includes small business, ACA exchange products, Medicaid and Medicare Advantage. The Health Plan's commercial market continued to experience strong customer retention and financial stability, and Highmark Health's diversified businesses, including dental, vision and stop loss, delivered a solid performance.
"Despite the growing competition, marketplace challenges and headwinds we face, we continue to improve our competitive position in the markets in which we operate as well as our consolidated and individual business unit financial performance," said David L. Holmberg, Highmark Health's president and chief executive officer. "We remain focused on the execution of our multi-year business strategy and on our transformational journey to get healthcare right by re-configuring a new, integrated health coverage and care model that redefines the consumer experience and that will work better for everyone."
"Highmark Health has been working aggressively to address the challenges we reported at year end 2015 in the ACA book of business and at Allegheny Health Network, and we have seen some benefits of our actions in 2016," added Karen Hanlon, executive vice president and chief financial officer. "Operating revenue for the first half of the year was $9.266 billion, continuing our steady consolidated and cumulative top-line growth of nearly $2.6 billion during the last two-and-a-half years. This keeps us on a path to achieve nearly $1 billion annual, year-over-year operating revenue growth for the third-consecutive year and to become an $18 billion-plus organization, based on consolidated revenues, by year-end."
The Health Plan business reported an operating gain of $80 million for the period ended June 30, correcting the prior year loss of $146 million. This performance is driven by a substantial improvement in the government business — which includes Medicare, Medicaid, the ACA programs and small group business — of $211 million and continued strong operating results in the commercial business of $126 million, an improvement of $15 million over the prior year. ACA losses through June 30 total $68 million. The Health Plan retained strong membership in Pennsylvania, Delaware and West Virginia with 5.2 million policyholders. Despite continued competitive market pressures, July renewals were comparable to the prior year.
Highmark Health's diversified businesses maintained a very strong performance, achieving combined earnings of $83 million. HVHC Inc., which includes Visionworks' retail operations, manufacturing and distribution facilities, and Davis Vision reported revenues of more than $800 million and an operating gain of $61 million through June 2016. United Concordia Dental continued to focus on growth in 2016, securing the 5-year, $2.9 billion Tricare Dental Program contract, which is scheduled to begin in May 2017. United Concordia experienced improved financial performance through the first six months of the year, delivering $13 million in operating gains, an improvement of $9 million over the prior year. Highmark Health's stop loss business, HM Insurance Group (HMIG), reported an operating gain of $9 million, which is in line with the prior year. The company continues to have both strong new sales and favorable margins in its core stop loss business.
Highmark Health's portfolio of insurance businesses serves more than 50 million members nationwide.
Allegheny Health Network continued to deliver improved income and earnings, recording a mid-year operating loss of $17 million, which is a slight improvement over the prior year. Allegheny Health Network's financial performance improved significantly in the second quarter as a result of ongoing efforts to strengthen operations across the organization. Total revenue for the quarter exceeded projections by $24.2 million, with net income of $1.9 million and operating income of $1.1 million, which was $10 million better than projections.
AHN's improved performance was driven by the organization's comprehensive plan to increase revenue and strengthen its financial position through improved operational efficiencies, more effective revenue cycle management, improved patient access to our facilities and programs, and more favorable contracting with supply chain vendors, among other initiatives. Outpatient volumes continue to exceed previous year results, growing by 2.5 percent, while total discharges through six months remained steady year over year.
These improved financial results were achieved despite continued pressure on the system's turnaround due to investments of almost a quarter of a billion dollars in our core and growing businesses during the first half of the year, including $110 million in capital investments in AHN's facilities, physician organization, and technology such as the EPIC platform through June 30.
HM Health Solutions, Highmark Health's information technology services company that currently supports several Blue Cross Blue Shield plans in multiple states on state-of-the-art technology platforms, reported an operating gain of $1 million through June 30.
Through services provided to Independence Blue Cross, and the implementation of the other commercial contracts, HM Health Solutions anticipates servicing 9.8 million members on the Enterprise Health Solution platform by 2018. The collaboration between existing health plan partners enables the continued evolution of an industry leading platform.
Highmark Health, a Pittsburgh, PA based enterprise that employs more than 35,000 people nationwide and serves 50 million Americans in all 50 states, is the third largest integrated health care delivery and financing system in the nation. Highmark Health is the parent company of Highmark Inc., Allegheny Health Network, and HM Health Solutions. Highmark Inc. and its subsidiaries and affiliates provide health insurance to 5.2 million members in Pennsylvania, West Virginia and Delaware as well as dental insurance, vision care and related health products through a national network of diversified businesses that include United Concordia Companies, HM Insurance Group, Davis Vision and Visionworks. Allegheny Health Network is the parent company of an integrated delivery network that includes eight hospitals, a community-based network of physician organizations, and a group purchasing organization, ambulatory surgery centers, and health and wellness pavilions in western Pennsylvania. HM Health Solutions focuses on meeting the information technology platform and other business needs of the Highmark Health enterprise as well as unaffiliated health insurance plans by providing proven business processes, expert knowledge and integrated cloud-based platforms. To learn more, please visit www.highmarkhealth.org.