UPMC wasn’t the only multibillion-dollar U.S. health system that got hundreds of millions of dollars in pandemic-spurred federal relief, and then went on to rake in more money in 2020 than it did pre-pandemic.

It’s not merely thanks to hefty bailouts and slowly rebounding hospital coffers that UPMC and other complex organizations managed to end 2020 in the black. The reasons behind each booming health system’s operating gains are varied — and in UPMC’s case, include a significant spike in its insurance plan revenue.

“These large health systems that also have an insurance arm to them, if you just look at their hospital division performance, you would see that they’re challenged like everyone else,” said John Sphon, CEO of Excela Health, which runs three hospitals and outpatient centers in Westmoreland County but does not have an insurance arm. “Most have had a negative margin as well.”

Still, the past year proved that well-capitalized systems with diversified revenue sources like UPMC can weather a crisis like covid without foundering financially, and even thrive.

Meanwhile, droves of smaller, cash-strapped hospitals are drowning in debt, confronting credit downgrades and grappling with unexpected losses, or barely breaking even. Nearly 50 U.S. hospitals either closed for good or filed for bankruptcy last year.

The clashing outcomes have critics questioning whether Congress should do more to ensure emergency aid goes where it’s needed most.

Bailed-out health giants get ‘richer’

UPMC’s 40-hospital system was highlighted in a recent news report, by The Washington Post and Kaiser Health News, for being among large health systems nationwide that boasted 2020 operating gains after receiving large shares of the $178 billion doled out to hospitals via the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. Others cited were Baylor Scott & White Health based in Dallas, Texas; AdventHealth in Altamonte Springs, Fla.; and NYU Langone Health in New York.

Headlined “Some of America’s wealthiest hospital systems ended up even richer, thanks to federal bailouts,” the report analyzed a few key financial metrics of more than a dozen health systems, including net assets and profit margins.

In an accompanying graphic, the report identified UPMC as among at least eight major hospital systems that had operating gains last year, and among five that still might have churned a profit even after deducting their federal cash aid.

“As the crisis crushed smaller providers,” says the teaser introducing the report, “some of the nation’s richest health systems thrived, reporting hundreds of millions of dollars in surpluses after accepting huge grants for pandemic relief.”

RELATED: UPMC to get $1 billion in federal aid after hard hit from coronavirus pandemic

Indeed, UPMC officials credit $460 million in CARES funding with helping to fund covid-related expenses and offset some of the losses on its provider side. The organization as a whole ended 2020 with a record-high $23.1 billion in total revenue — up $2.5 billion from 2019 — and $836 million in operating income.

Hospital systems like UPMC would have lost money, however, if not for their insurance and other business arms or other financial advantages over traditional hospital operators.

Why some thrived in 2020, others scraped by

A Tribune-Review analysis of four differing types and sizes of Western Pennsylvania-based financial organizations — UPMC as well as three others not named in the Washington Post/KHN report: Highmark, Excela Health and St. Clair Health — showed that none of the federal bailouts received locally were enough to cover pandemic-spurred hospital losses.

More than half of UPMC’s $836 million gain came from one-time revenue infusions: the December sale of its pharmacy business, Chartwell, amounted to a $201 million gain; and an accounting change related to contributions to the University of Pittsburgh amounted to a $250 million gain.

When looking strictly at its Health Services Division, UPMC made $418 million — but, after subtracting federal aid and one-time gains not related to hospitals, UPMC’s hospital and physician arm would have posted a $100 million loss.

Similar trends held true for UPMC’s Pittsburgh-based rival, Highmark— which, like UPMC, controls both provider, insurance and other business arms and boasts net assets approaching $9 billion.

After three years in the black, Highmark’s 13-hospital arm, Allegheny Health Network, reported a $136 million operating loss for 2020. But Highmark Health Plan reaped a $400 million operating gain. The insurance boost led Highmark to reach $18 billion in total revenue in 2020, including an operating gain of $490 million — more than double the $241 million gain reported in 2019.

Excela Health, St. Clair and independent hospitals don’t have insurance plan revenue to rely on.

“Owning an insurance company is the counterbalance to having a provider arm, because when one goes up the other goes down, and vice versa,” Excela Chief Financial Officer Thomas Albanesi said. “For those of us who don’t have an insurance arm, it just (goes) one way.”

Excela, whose fiscal year runs from July through June, posted a $29.2 million loss on June 30, 2020, with financial disclosure documents citing a steep drop in patient volumes, procedures and lab and diagnostic testing as the main driver. From July through December, as restrictions eased and volumes began to bounce back, Excela recorded a $14.7 million operating profit, mostly because of CARES funding. The Greensburg-based system received $42 million in CARES aid to cover 2020 and 2021.

With so much lingering uncertainty, officials are bracing for a potentially rough next six months or longer before netting a profit.

“The margins for hospitals for the most part will be negative or very minimal, if at all,” said Sphon, who remains concerned over how long it will take to get Excela’s patient volumes back to pre-covid levels. “Hospital systems like ours are going to be depressed, and it’s going to be a very challenging year ahead.”

St. Clair Health, which operates St. Clair Hospital in Mt. Lebanon, received $7.9 million in CARES Act money — “which was helpful, but only partially mitigated lost revenue and higher expenses caused by the pandemic,” St. Clair Chief Financial Officer Richard Chesnos said.

From March through June, even after including the CARES grant, St. Clair had an operating loss of $6.3 million.

RELATED: Highmark boasts $490M operating gain in 2020 — better than pre-pandemic

Systems such as Mayo Clinic benefit from another advantage — a more profitable payor mix.

Less than half of Mayo Clinic’s patients are on government-funded health plans, which typically pay out claims at much lower rates than commercial payors. Increasing their mix of commercial patients was a strategic move cited by Mayo Clinic executives in 2017.

In contrast, Medicare and Medicaid patients make up 65% of UPMC’s patient mix, and closer to 68% of patients at Excela Health.

Mayo Clinic did so well last year that its leaders decided to give back nearly half the federal cash aid it received. After ending 2020 with a $728 million surplus, or a 5.2% margin, the system returned $156 million of its $338 million grant.

UPMC and other local health leaders with unspent CARES Act funds said they still need any leftover money to pay for persisting needs and pandemic-related challenges.

Federal assistance in the form of CARES Act grants and deferred payments — though welcomed during covid spikes — “wasn’t that big of a help” from a year-end operating margin perspective, according to Highmark Chief Financial Officer Saurabh Tripathi. The bulk of the $300 million in assistance awarded to Highmark aimed to offer immediate liquidity via advances on reimbursements and must be repaid.

Deciding how to prioritize hospital relief

The ability for well-resourced companies to withstand the covid crisis has some observers calling on policymakers to be more thoughtful when determining award amounts and recipients.

“A lot of the funding helped the wealthy hospitals at a time, especially in New York, when safety-net hospitals were hemorrhaging,” Colleen Grogan, a University of Chicago health policy professor, told the Washington Post/Kaiser Health News. “We could have tailored it to hospitals we knew were really suffering and taking on a disproportionate amount of the burden.”

The first rounds of CARES money were distributed somewhat haphazardly, with at least $14 billion going out without taking into account the profitability and net assets of recipients. Data analysts found that wealthier hospitals with higher-paying patients got a disproportionate share. Subsequent rounds were targeted at higher-need hospitals that serve populations such as children, the poor and areas with few options and critical needs.

This past fall, industry advocates pushed back against attempts to further alter the disbursement formula, with hospital advocates cautioning policymakers not to make knee-jerk changes or punish health systems that are run more efficiently and have less debt.

“From our perspective, they stumbled initially in how they disbursed funds, simply because they were trying to get money out the door very quickly, and when you’re doing anything quickly you can make mistakes,” Albanesi said. “To their credit, though, in the second and third round of funding, which came much later, they tried to give make those of us who sort of got the short end of the stick on the first round more whole.

”So they caught up eventually in getting the pandemic relief out there in a somewhat fair fashion.”

Pushing for long-term revenue solutions

Leaders across the nation’s increasingly complex hospital landscape remain wary of more needs and challenges arising in coming months, with no clear end to the pandemic in sight and covid-19 hospitalizations again on the rise.

At Excela’s hospitals, the daily covid-19 patient census has jumped from the high teens to low 20s last week to 35 as of Friday; however, officials say plenty of intensive care unit beds remain open. So far, even with the recent uptick, far fewer patients are relying on ventilators than during last year’s peaks.

Chesnos acknowledged that St. Clair Hospital certainly could benefit from more aid.

Albanesi similarlysaid he’d welcome any additional coronavirus relief.

But he’d rather have Congress and regulators take a hard look at increasing government insurance plan pay rates on a permanent basis to provide long-term stability to hospitals, particularly those serving poor and rural residents.

“The pandemic funding is much appreciated, and has helped us get somewhat close back to where we were,” Albanesi said. “Our big concern is the level of Medicare and Medicaid funding prospectively.

“If our volumes stay below those pre-pandemic levels, being paid at the same rates is going to leave us way short,” Albanesi said. “Because our fixed costs don’t go away just because volumes go down.”

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