PITTSBURGH (Aug. 17, 2017) Highmark Health today announced financial results for the first six months of 2017, reporting an excess of revenue over expenses of $535 million and an operating gain of $505 million, both representing a nearly $500 million improvement over prior year. Pre-tax results of $581 million were $496 million ahead of prior year.
These financial results were driven by continued improvement in the government health plan book of business, strong performance in the commercial and senior health plan businesses, significant operational improvements at Allegheny Health Network, and continued solid performance by the diversified businesses, which include dental, vision, and stop loss.
Total consolidated revenues were essentially flat, declining by $100 million to $9.1 billion through June 30, 2017, due to purposeful enrollment reductions as a result of efforts to manage growth. Highmark Health continues to reflect a strong financial profile, with net assets of $5.8 billion, a 12 percent increase over December 2016, and nearly $7.0 billion in cash and investments as of June 30, 2017.
"The dramatic turnaround of the health plan business, continued positive financial results at Allegheny Health Network, and recent decision of the Pennsylvania Insurance Department to modify the conditions of the 2013 Order that created Allegheny Health Network, combined with the anticipated proceeds from the sale of a portion of our vision business, have strengthened our competitive position and put us in the strongest possible position to sustain our managed growth and accelerate the implementation of our transformation strategy," commented David L. Holmberg, Highmark Health's president and chief executive officer. "While we still have a tremendous amount of work to do, we believe our recent track record of positive earnings is a strong indicator that the investments we are making to provide enhanced access to high-quality, affordable care are the right ones and that our strategy is sound."
"Highmark Health delivered its strongest financial performance for the six-month period ending June 30 since the formation of Highmark in 1996," added Karen Hanlon, executive vice president and chief financial officer. "We are encouraged by the progress of AHN's financial stability, including volume growth, which was driven by increased accessibility to the Network's services in the region through new facilities, program expansion, enhanced customer services, and growing numbers of aligned employed and independent referring physicians in the market. Robust health plan efforts to help transition members to Allegheny Health Network in western Pennsylvania before the end of the consent decree also contributed to the health system's progress. It is important to note that this is organic volume growth rather than through acquisition in a market that overall continues to see volume declines."
The Health Plan reported an operating gain of $480 million for the period ended June 30, delivering an improvement of $399 million over prior year. The Health Plan's performance was driven by a turnaround of $329 million in the government business. This segment which includes our Medicare Advantage, ACA, Medicaid, and small group segments has rebounded strongly from the ACA performance that drove losses in 2015 and depressed performance in 2016. The Health Plan is in a favorable financial position, where pricing more accurately reflects the cost of providing care for this community of members.
Highmark's commercial business continued to deliver strong results through disciplined pricing, value-based customer initiatives that produced lower medical costs, and administrative expense control. The commercial business gain totaled $196 million for the first six months of the year, an improvement of $70 million from last year.
Health plan membership remains strong at nearly 5 million members through June 30 while July 2017 renewal rates are comparable to prior year across our core markets in Pennsylvania, Delaware, and West Virginia, reaching 96 percent. Highmark remains the largest commercial health plan in the tri-state region and the largest commercial health plan in Pennsylvania.
Highmark's diversified business combined earnings declined moderately year over year to $95 million, largely attributable to continued soft sales results experienced across the entire retail sector since mid-2016 as well as an increased incident of claims in our stop loss business in 2017.
HVHC, the vision business, reported an operating gain of $41 million, a decrease of $24 million year over year as it continues to battle the retail trend and works to drive volume to its Visionworks stores.
Highmark Health's stop loss business, HM Insurance Group (HMIG), reported an operating gain of $7 million, which is a decline of $13 million year over year. This performance was driven primarily by an increase in high dollar stop loss claims consistent with the challenges the entire stop loss industry is facing.
The diminished performances at HMIG and HVHC were offset by strong performance in our dental business, United Concordia Dental, which delivered an operating gain of nearly $47 million, an increase of $27 million year over year. This was driven primarily by strong commercial margins and new strategic relationships that leverage the value of United Concordia Dental's extensive network.
Highmark Health's portfolio of insurance businesses serves more than 50 million policy holders nationwide.
Allegheny Health Network's results year to date through June 30 represent the organization's best financial performance since its inception, contributing $13 million in operating gains, an improvement of $26 million year over year. The system reported an excess of revenue over expenses of $28 million year-to-date, an improvement of $47 million over prior year.
Allegheny Health Network's strengthened results were driven by top line growth of 10 percent year over year, attributable to continued volume growth and improvement in the amount earned under government and commercial quality incentive programs.
Other key measures related to financial health, such as days cash on hand and EBITDA, also improved considerably year over year.
Counter to regional market trends, AHN's inpatient volume continues to grow, even as the health network aggressively seeks to limit hospital admissions and total inpatient days by better managing chronic conditions, reducing hospital readmissions, and shifting patients away from the hospital and the emergency room when clinically appropriate and into more cost effective outpatient clinical settings. Year over year total inpatient volume increased 2.3 percent over 2016, and physician office visits increased by 3.5 percent.
HM Health Solutions, our Information Technology Services company, which currently supports several Blue Cross Blue Shield plans in multiple states, continues to deliver on its goal of lowering costs to serve health plan members on its state-of-the-art technology platforms and delivered an operating gain of $5 million.
In the past three years, HM Health Solutions has grown the membership it serves by 77 percent to 9.6 million members.
The first six months of 2017 for HM Health Solutions focused on the remaining transition of a large Blue Plan and on building capabilities to onboard two new customers and a new business segment later in the year.
Highmark Health experienced a $50 million improvement in corporate and other expenses over prior year. This was driven by reduced costs associated with the nearing completion of several technology implementations, including EPIC and capabilities to support new HM Health Solutions customers.
|(in millions)||Period ended June 30,|
|Allegheny Health Network||(13)||(13)|
|HM Health Solutions||5||1|
|Corporate & Other||(88)||(138)|
Operating gain (loss)
|Net investment income||111||86|
|Non-operating income (expense)||(2)||(8)|
|Net assets acquired of NEPA||||249|
|Excess (deficit) of revenue over expenses before income taxes||581||85|
|Income tax provision||46||49|
|Excess (deficit) of revenue over expenses||$535||$36|
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.