UPMC Unaudited Quarterly Disclosure - FOR THE PERIOD ENDED JUNE 30, 2019 - UPMC.com
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UPMC Unaudited Quarterly Disclosure FOR THE PERIOD ENDED JUNE 30, 2019
UPMC Unaudited
Quarterly Disclosure
FOR THE PERIOD ENDED JUNE 30, 2019
TABLE OF CONTENTS
Introduction to Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management’s Discussion and Analysis
Consolidated Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidating Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Operating Component Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Revenue and Operating Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Key Financial Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Asset and Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Utilization Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Debt Covenant Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Unaudited Interim Condensed Consolidated Financial Statements
Review Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Statements of Operations and Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The following financial data as of June 30, 2019 and for the three and six month periods ended June 30, 2019 and 2018 is derived
from the interim condensed consolidated financial statements of UPMC. The interim condensed consolidated financial statements
include all adjustments consisting of a normal recurring nature that UPMC considers necessary for a fair presentation of its financial
position and the results of operations for these periods. The financial information as of December 31, 2018 is derived from UPMC’s
audited consolidated financial statements. Operating and financial results reported herein are not necessarily indicative of the
results that may be expected for any future periods.
The information contained herein is being filed by UPMC for the purpose of complying with its obligations under Continuing
Disclosure Agreements entered into in connection with the issuance of the series of bonds listed herein and disclosure and
compliance obligations in connection with various banking arrangements. The information contained herein is as of and for the
three and six months ended June 30, 2019. Digital Assurance Certification, L.L.C., as Dissemination Agent, has not participated in
the preparation of this Unaudited Quarterly Disclosure, has not examined its contents and makes no representations concerning
the accuracy and completeness of the information contained herein.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019
INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS
PERIOD ENDED JUNE 30, 2019
UPMC, doing business as the University of Pittsburgh Medical Center, is one of the world’s leading Integrated Delivery and
Financing Systems (“IDFS”). UPMC is based in Pittsburgh, Pennsylvania and primarily serves residents across the Commonwealth
of Pennsylvania. We also draw patients for highly specialized services from across the nation and around the world. UPMC’s 40
hospitals and more than 700 clinical locations comprise one of the largest nonprofit health systems in the United States. UPMC
has three major divisions: Health Services, Insurance Services, and UPMC Enterprises.
We are committed to providing the communities that our hospitals, outpatient centers and other health care facilities serve, as
well as our insurance members, with high quality, cost-effective health care while continuing to grow our business and execute
on our mission to provide Life Changing Medicine. As the stewards of UPMC’s community assets, we are guided by our core
values of integrity, excellence, respect and teamwork. These values govern the manner in which we serve our communities and
are embedded in the execution and delivery of Life Changing Medicine.
UPMC continues to make significant investments in equipment, technology, education and operational strategies designed
to improve clinical quality at our hospitals and outpatient centers. As a result of our efforts, UPMC Presbyterian Shadyside is
consistently ranked on the U.S. News & World Report Honor Roll of America’s Best Hospitals while UPMC Children’s Hospital of
Pittsburgh is currently ranked 8th on the Honor Roll. Investments in our operations and continued capital improvements are
expected to become increasingly important as the competitive environment of the market and changes to health care nationally
continue to progress and change the landscape of patient care and reimbursement. We build new facilities, make strategic
acquisitions, and enter into joint venture arrangements or affiliations with health care businesses — in each case in communities
where we believe our mission can be effectively utilized to improve the overall health of those communities.
By continually evolving and refining UPMC’s world-class financial processes, we focus on achieving optimal financial results that
support the continued development of our organization, as well as ongoing investment in the future of Pennsylvania. We are
committed to achieving these objectives with unyielding commitments to transparency in reporting and disclosure, enterprise-
wide integration, and ongoing process improvement.
The purpose of this section, Management’s Discussion and Analysis (“MD&A”), is to provide a narrative explanation of our
financial statements that enhances our overall financial disclosures, to provide the context within which our financial information
may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of
operations and cash flows.
Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations,
with dollar amounts expressed in thousands (except for statistical information). MD&A should be read in conjunction with the
accompanying unaudited consolidated financial statements.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 1MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars in millions)
Financial Results for the Six Months Ended June 30 2019 2018
Operating revenues $ 10,190 $ 9,253
Operating income $ 93 $ 176
Operating margin 0.9% 1.9%
Operating margin (including income tax and interest expense) 0.0% 0.9%
Gain (loss) from investing and financing activities $ 279 $ (41)
Excess of revenues over expenses $ 372 $ 116
Operating EBIDA $ 407 $ 483
Capital expenditures $ 496 $ 429
Reinvestment ratio 1.58 1.39
Selected Other Information as of June 30, 2019 December 31, 2018
Total cash and investments $ 6,970 $ 6,856
Unrestricted cash and investments $ 5,271 $ 5,098
Unrestricted cash and investments over long-term debt $ 906 $ 1,059
Days of cash on hand 96 101
Days in net accounts receivable 46 39
Average age of plant 8.9 8.7
Operating revenues for the six months ended June 30, 2019 increased $937 million, or 10%, as compared to the six months ended
June 30, 2018. Operating income for the six months ended June 30, 2019 decreased $83 million over the same period. Operating
earnings for the six months ended June 30, 2019, before interest, depreciation and amortization totaled $407 million, and excess
of revenues over expenses was $372 million. As of June 30, 2019, UPMC had $7.0 billion of cash and investments.
For the six months ended June 30, 2019:
• Hospital medical-surgical admissions and observation cases decreased 2% compared to the prior year.
• Hospital outpatient revenue per workday increased 7% compared to the prior year.
• Physician service revenue per weekday increased 9% from the comparable period in the prior year, and
• Enrollment in UPMC’s Insurance Services grew to more than 3.5 million members as of June 30, 2019.
UPMC’s gain from investing and financing activities, excluding UPMC Enterprises activity, for the six months ended June 30, 2019
was $352 million. UPMC continues to have a long-term perspective with regard to its investment activities.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 2MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
BUSINESS HIGHLIGHTS
In March 2019, the Western Maryland Health System (“WMHS”) Board of Directors signed a non-binding letter of intent with
UPMC to pursue an affiliation agreement that would integrate WMHS into the UPMC system. A full affiliation would offer Allegany
County, Maryland and the surrounding areas access to enhanced health care services, leverage UPMC’s clinical expertise and give
the hospital system improved ability to recruit more top doctors to the area. Since February 2018, WMHS and UPMC have been
working together successfully under a clinical affiliation. Both parties continue to engage in additional due diligence, research, and
discussions to work toward a definitive agreement. This process is subject to customary regulatory review and is targeted for
completion by early 2020.
In May 2019, UPMC announced the formation of a telemedicine-enabled company called Infectious Disease Connect (“ID
Connect”), to help hospitals address a nationwide shortage of physicians specializing in infectious diseases (“ID”). Backed by the
world-class ID expertise of UPMC, the new company aims to improve outcomes while reducing transfers and keeping patients in
their own communities for treatment. UPMC’s network of hospitals has been providing ID services to patients via telemedicine for
the past five years, demonstrating that this service can reduce patient transfers to tertiary facilities, reduce health care-associated
infections, improve patient outcomes and decrease antibiotic misuse. ID Connect is a portfolio company overseen by UPMC
Enterprises, UPMC’s innovation and commercialization division. The company’s addressable market includes more than 4,000
U.S. acute care hospitals with fewer than 300 beds. Initially, the new company is staffed by UPMC ID physicians who continue to
serve UPMC and five non-UPMC hospitals in Pennsylvania and surrounding states. But as ID Connect grows into new markets, it
will be hiring additional physicians to provide patient consultations, as well as expertise in antimicrobial stewardship and infection
prevention and control.
In June 2019, UPMC Children’s Hospital of Pittsburgh was recognized as one of the top pediatric hospitals in the country, earning
8th position on the annual U.S. News & World Report Honor Roll of America’s Best Children’s Hospitals. Nationally, UPMC Children’s
Hospital is ranked for excellence in all 10 clinical specialty areas and is among the top 10 hospitals in five specialties. In July 2019,
UPMC Presbyterian Shadyside was one of only 21 hospitals in the nation included on the U.S. News & World Report Honor Roll of
America’s Best Hospitals. UPMC was ranked #15 nationally, and #1 in Pennsylvania. This year marks UPMC’s 20th year for inclusion
on the Honor Roll, improving its ranking in six clinical specialties compared to last year.
In June 2019, UPMC announced that it had reached an agreement with Highmark to enter into a long-term contract to provide
Highmark members with the in-network access to the UPMC physicians and facilities they desire — not only in greater Pittsburgh
and Erie, but across western Pennsylvania. This agreement includes an extension of the UPMC Children’s and UPMC Western
Psychiatric agreements and provides for UPMC in-network access at the highest benefits levels. Over the past decade, the
insurance market in western Pennsylvania has transformed into a highly competitive, multi-insurer, pro-consumer market with
some of the lowest costs in the nation. In that same time, UPMC continued to invest in the world-class medicine and research that
makes UPMC the indispensable provider of health care throughout Pennsylvania.
Construction of the new UPMC Memorial Hospital was completed and opened to patients on August 18, 2019. The new hospital
is located in West Manchester Township in York, Pa., and replaced the old UPMC Memorial Hospital that was also located in York
County. Built from the ground up, the new hospital is a state-of-the-art, 102-private-patient-room facility equipped with an
integrated electronic record system to provide new and expanded specialty services, including acute and emergency medical care,
advanced cardiology and vascular services, obstetrics, chronic disease management, and surgical services. The hospital has five
levels within 220,000 square feet. Next to the hospital is a new 120,000-square-foot, five-level UPMC Outpatient Center, offering
ambulatory surgery, outpatient imaging, a sleep lab, infusion center, offices for specialty care providers, community meeting rooms,
and more.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 3MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2019 (in millions)
Health Insurance
Revenues: Services Services Eliminations Consolidated
Net patient service revenue $ 5,541 $ – $ (1,126) $ 4,415
Insurance enrollment revenue - 4,957 – 4,957
Other revenue 556 341 (79) 818
Total operating revenues $ 6,097 $ 5,298 $ (1,205) $ 10,190
Expenses:
Salaries, professional fees and benefits $ 3,381 $ 219 $ (14) $ 3,586
Insurance claims expense – 4,559 (1,126) 3,433
Supplies, purchased services and general 2,405 424 (65) 2,764
Depreciation and amortization 299 15 – 314
Total operating expenses 6,085 5,217 (1,205) 10,097
Operating income $ 12 $ 81 – $ 93
Operating margin % 0.2% 1.5% – 0.9%
Operating margin % (including income
(1.1%) 1.3% – 0.0%
tax and interest expense)
Operating EBIDA $ 311 $ 96 – $ 407
Operating EBIDA % 5.1% 1.8% – 4.0%
Six Months Ended June 30, 2018 (in millions)
Revenues:
Net patient service revenue $ 5,304 $ – $ (1,004) $ 4,300
Insurance enrollment revenue - 4,239 – 4,239
Other revenue 508 258 (52) 714
Total operating revenues $ 5,812 $ 4,497 $ (1,056) $ 9,253
Expenses:
Salaries, professional fees and benefits $ 3,168 $ 183 $ (13) $ 3,338
Insurance claims expense – 3,796 (1.004) 2,792
Supplies, purchased services and general 2,321 358 (39) 2,640
Depreciation and amortization 294 13 – 307
Total operating expenses 5,783 4,350 (1,056) 9,077
Operating income $ 29 $ 147 – $ 176
Operating margin % 0.5% 3.3% – 1.9%
Operating margin % (including income
(1.8%) 4.0% – 0.9%
tax and interest expense)
Operating EBIDA $ 323 $ 160 – $ 483
Operating EBIDA % 5.6% 3.6% – 5.2%
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 4MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
Health Services
UPMC Health Services Division (“Health Services”) includes a comprehensive array of clinical capabilities consisting of hospitals,
specialty service lines (e.g., transplantation services, woman care, behavioral health, pediatrics, cancer care and rehabilitation
services), contract services (emergency medicine, pharmacy and laboratory) and 4,900 employed physicians with associated
practices. Also included within Health Services are supporting foundations and UPMC’s captive insurance programs. Hospital
activity is monitored in four distinct groups: (i) academic hospitals that provide a comprehensive array of clinical services that include
the specialty service lines listed above and serve as the primary academic and teaching centers for UPMC and are located in Pittsburgh;
(ii) community hospitals that provide core clinical services mainly to the suburban Pittsburgh, greater Erie, and the greater Altoona
populations of Pennsylvania; (iii) regional hospitals that provide core clinical services to certain other areas of western and central
Pennsylvania; and (iv) pre- and post-acute care capabilities that include: UPMC HomeCare, a network of home health services, and
UPMC Senior Communities, the facilities of which provide a complete network of senior living capabilities in greater Pittsburgh and
surrounding counties. Health Services also includes international ventures which aim to bring new revenue streams into UPMC’s
domestic operations. International ventures currently include ISMETT, a transplant and specialty surgery hospital in Palermo, Italy,
that has performed more than 2,200 transplants since its founding in 1999, a hospital system located in Ireland, a contract to
provide remote second-opinion pathology consultations for patients in China and Singapore, a national oncology treatment and
research center in Kazakhstan, as well as the Advanced Radiosurgery Center of Excellence at San Pietro FBF Hospital in Rome.
Health Services operating revenues of $6.1 billion increased $285 million versus the prior year. Operating income decreased by $17
million versus the prior year as higher pension expense, increased regional physician investments and lower inpatient volumes
more than offset higher outpatient activity.
Insurance Services
UPMC holds various interests in health care financing initiatives and network care delivery operations that have more than 3.5
million members as of June 30, 2019. UPMC Health Plan is a health maintenance organization (“HMO”) offering coverage for
commercial and Medicare members. UPMC for You is also an HMO, which is engaged in providing coverage to Medical Assistance
& Medicare Special Needs Plan beneficiaries. UPMC Health Network offers preferred provider organization (“PPO”) plan designs
to serve Medicare beneficiaries. UPMC Health Options offers PPO plan designs to serve commercial beneficiaries. UPMC for Life
is a Medicare product line offered by various companies within the Insurance Services division. UPMC Work Partners provides fully
insured workers’ compensation, and integrated workers’ compensation and disability services to employers. Community Care
Behavioral Health Organization (“Community Care”) is a state-licensed HMO that manages the behavioral health services for
Medical Assistance through mandatory managed care programs in Pennsylvania. Community HealthChoices (“CHC”) program is
currently available for individuals who are dual eligible for Medicaid and Medicare or qualify for Medicaid LTSS and is designed to
increase opportunities for older Pennsylvanians and individuals with physical disabilities to remain in their homes and communities
rather than in facilities.
Insurance Services operating revenues of $5.3 billion increased $801 million versus the prior year, driven by membership growth of
nearly 120,000 members. Operating income decreased by $66 million, as start-up losses on the new Community HealthChoices SE
Zone contract and higher value-based payments more than offset higher income relating to increased enrollment.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 5MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
UPMC Enterprises
UPMC Enterprises leverages UPMC’s integrated delivery and financing system capabilities to generate new revenue streams. This
is accomplished by fostering new ideas for improvement in the delivery of health care, pursuing commercialization opportunities
of smart technologies and developing strategic partnerships with industry leaders. Leveraging UPMC’s long-standing reputation for
academic and research excellence, UPMC Enterprises also sponsors the translation of basic science conducted in a research setting
to its commercial use in bedside clinical practice, application in medical laboratories, or use across emerging venues where medicine
is delivered. These ventures both support UPMC’s core mission and help to stimulate the economy of western Pennsylvania.
UPMC Enterprises manages a portfolio that includes various product development initiatives and numerous operating companies
with commercially-available products and services directed toward the improvement of the delivery of health care. Unlike the
Health Services and Insurance Services divisions, UPMC Enterprises’ results are classified as investing and financing activity in the
condensed consolidated Statements of Operations and Changes in Net Assets, consistent with the long-term nature of developing
and commercializing technology-enabled initiatives.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 6MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
REVENUE METRICS – HEALTH SERVICES
Medical-Surgical Admissions and Observation Visits
Inpatient activity as measured by medical-surgical admissions and observation visits at UPMC’s hospitals for the six months ended
June 30, 2019 decreased 2% compared to the same period in 2018.
For the Six Months Ended June 30 Trailing Twelve-Months
(in thousands) 2019 Change 2018 400,000
Academic 62.7 (3%) 64.4
364,854 362,751
362,074 361,319
353,378
Community 43.2 (4%) 44.8
350,000
335,087
Regional 74.8 0% 74.9
317,809
Total 180.7 (2%) 184.1 301,047
300,000
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
QUARTER ENDING
Outpatient Revenue per Workday
UPMC’s outpatient activity for the six months ended June 30, 2019 as measured by average revenue per workday increased 7%
compared to the same period in 2018. Hospital outpatient activity is measured on an equivalent workday (“EWD”) basis to adjust
for weekend and holiday hours.
For the Six Months Ended June 30 Quarterly Average (in millions)
(in thousands) 2019 Change 2018*
$15 $14.3
$13.8 $14.9
$13.4 $14.5 $14.5
Academic $ 5,760 7% $ 5,393
$12
Community 2,142 2% 2,099
$10.6
$11.1
Regional 6,576 8% 6,088
$9
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
Total $ 14,478 7% $13,580
QUARTER ENDING
* Adjustments to prior year methodology to conform to current year.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 7MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
REVENUE METRICS – HEALTH SERVICES (CONTINUED)
Physician Service Revenue per Weekday
UPMC’s physician activity for the six months ended June 30, 2019 as measured by average revenue per weekday increased 9%
from the comparable period in 2018. Physician services activity is measured on a weekday basis.
For the Six Months Ended June 30 Quarterly Average (in millions)
(in thousands) 2019 Change 2018 $8.0
Academic $ 3,617 2% $ 3,541 $7.0 $6.8
$7.0 $7.0
$6.5
$6.4 $6.4
$6.3
Community 1,681 5% 1,599 $5.9
$6.0
Regional 1,706 36% 1,258
$5.0
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
Total $ 7,004 9% $ 6,398
QUARTER ENDING
Sources of Patient Service Revenue
The gross patient service revenues, before explicit and implicit price concessions, of UPMC are derived from third-party payers
which reimburse or pay UPMC for the services it provides to patients covered by such payers. Third-party payers include the
federal Medicare Program, the federal and state Medical Assistance Program (“Medicaid”), Highmark Blue Cross Blue Shield
(“Highmark”) and other third-party insurers such as health maintenance organizations and preferred provider organizations. The
following table is a summary of the percentage of the subsidiary hospitals’ gross patient service revenue by payer.
Six Months Ended
June 30
2019 2018
Medicare 47% 47%
Medicaid 17% 17%
UPMC Insurance Services Commercial 15% 14%
National Insurers Commercial 7% 7%
Highmark Commercial 6% 7%
Other 8% 8%
Total 100% 100%
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 8MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
OPERATING METRICS - INSURANCE SERVICES
Membership
Membership in the UPMC Insurance Services Division increased to 3,522,278 as of June 30, 2019, a 3% increase versus June 30, 2018.
4,000,000
3,498,195 3,522,278
3,500,000 3,395,993 3,403,940 3,394,448 3,396,531
3,238,840 3,256,464
3,000,000
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
QUARTER ENDING
As of June 30, 2019 June 30, 2018
Commercial Health 774,142 715,541
Medicare 191,291 177,920
Medicaid 421,470 424,117
Sub-Total Physical Health Products 1,386,903 1,317,578
Community HealthChoices 72,053 43,122
Behavioral Health 983,471 1,003,816
Sub-Total Health Products 2,442,427 2,364,516
Work Partners and Life Solutions 599,443 557,993
Ancillary Products 397,510 380,994
Evolent 82,898 100,437
Total Membership 3,522,278 3,403,940
Healthcare Spending Ratio
UPMC Insurance Services healthcare spending ratio remained stable as medical expenses trended consistently with premiums.
Trailing Twelve-Months
100%
95%
90% 87.7
86.7 87.0 87.1 87.5
86.5 86.3 86.3
85%
80%
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
QUARTER ENDING
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 9MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
KEY FINANCIAL INDICATORS
(Dollars in millions)
Operating Earnings before Interest, Depreciation and Amortization
Operating EBIDA for the six months ended June 30, 2019 decreased 16% as compared to the six months ended June 30, 2018,
as operating income across Health Services and Insurance Services divisions decreased versus the prior year.
For the Six Months Ended June 30 Trailing Twelve Months EBIDA
2019 Change 2018 $1,000
$885
$835 $862
$789 $790
$800 $755 $751
$714
Operating Income $ 93 (47%) $ 176
$600
Depreciation and
314 2% 307 $400
Amortization
$200
Operating EBIDA $ 407 (16%) $ 483
$0
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
FOUR QUARTERS ENDING
Unrestricted Cash and Investments Over Long Term Debt
Unrestricted cash and investments over long term debt decreased by $153 million as compared to December 31, 2018 as receivables
in the Insurance Services division increased $432 million over that period, primarily as a result of the timing of payment from the
Commonwealth of Pennsylvania’s Medicaid program.
$2,500
$2,115
$2,000 $1,904
$1,725
$1,500
$1,471 $1,500 $1,243
$1,000 $906
$1,059
$500
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
QUARTER ENDING
Days in Net Accounts Receivable
Consolidated Days in Accounts Receivable continue to be lower than industry averages due to UPMC’s rigorous procedures in
this area. Days in Accounts Receivable increased primarily as a result of the timing of payment from the Commonwealth of
Pennsylvania’s Medicaid program.
Days 50
2019 46
By Receivable Jun 30, Dec 31, 44
Balance 42
2019 2018 41
40 39
Patient AR $ 1,105 45 42 39
36
34
Other AR 1,508 47 39 30
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
Consolidated $ 2,613 46 39 QUARTER ENDING
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 10MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
Market Share
The chart below shows the change in UPMC’s estimated inpatient market share for calendar years 2017 and 2018 by service area(1).
This is the most recent market share data currently available.
UPMC INPATIENT MEDICAL-SURGICAL MARKET SHARE
AS OF DECEMBER 31(2)
80%
2017 2018
70%
60%
59% 60%
MARKET SHARE
50%
40% 43% 43%
30%
27% 27%
20%
10%
0%
Allegheny County Western PA (29-County) Central PA (19-County)
(1)
UPMC’s three service areas are (1) Allegheny County, (2) a 29-county region including Allegheny, Armstrong, Beaver, Bedford, Blair, Butler, Cambria,
Cameron, Centre, Clarion, Clearfield, Crawford, Elk, Erie, Fayette, Forest, Greene, Huntingdon, Indiana, Jefferson, Lawrence, McKean, Mercer, Potter,
Somerset, Venango, Warren, Washington, and Westmoreland counties., (3) a 19-county region including Adams, Clinton, Columbia, Cumberland,
Dauphin, Franklin, Fulton, Juniata, Lancaster, Lebanon, Lycoming, Mifflin, Montour, Northumberland, Perry, Snyder, Tioga, Union, and York counties.
(2)
Excludes psychiatry and substance abuse discharges.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 11MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
ASSET AND LIABILITY MANAGEMENT
During the three months ended June 30, 2019, UPMC’s investment portfolio returned 2.6%. As of June 30, 2019, UPMC utilized
141 ongoing external investment managers including 47 traditional managers, 10 hedge fund managers and 84 private capital
managers. UPMC is also invested with an additional 82 legacy private capital and hedge fund managers. UPMC’s investment
portfolio has a long-term perspective and has generated annualized returns of 5.3%, 8.3% and 5.5% for the trailing one-, three-
and five-year periods. As of June 30, 2019, 67% of UPMC’s investment portfolio could be liquidated within three days.
UPMC’s annualized cost of capital during the period was 3.40%. This cost of capital includes the accrual of interest payments,
the amortization of financing costs and original issue discount or premium, the ongoing costs of variable rate debt and the cash
flow impact of derivative contracts. As of June 30, 2019, the interest rates on UPMC’s long-term debt were approximately 78%
fixed and 22% variable after giving effect to derivative contracts. Annualized interest cost for the variable rate debt for the
period averaged 2.48%. The annualized interest cost for the fixed rate debt was 3.69%. UPMC’s primarily credit facility, which
expires in January 2024, has a borrowing limit of $600 million. As of June 30, 2019, UPMC had approximately $84 million
letters of credit outstanding under the credit facility leaving $516 million available to fund operating and capital needs, of which
$120 million was drawn.
UPMC has credit facilities of $19 million (increases to $150 million from May 15 to August 14 on an annual basis) and $50 million
with expiration dates in April 2022. Both of these credit facilities support the Insurance Services division. As of June 30, 2019, there
was $150 million drawn and $15 million drawn, respectively, on these credit facilities.
The table below compares reported Investing and Financing Activity for the six months ended June 30, 2019 and 2018 by type.
Investing and Financing Activity by Type
Six Months Ended June 30 2019 2018
(in thousands)
Realized gains $ 152,154 $ 151,734
Interest and dividends, net of fees 49,307 45,731
Realized investment revenue $ 201,461 $ 197,465
Unrealized gains (losses) on derivative contracts 854 (412)
Other unrealized gains (losses) 237,306 (110,113)
Investment revenue $ 439,621 $ 86,940
Interest expense (81,445) (83,284)
Loss on extinguishment of debt (6,537) –
UPMC Enterprises activity (72,870) (45,024)
Gain (loss) from investing and financing activities $ 278,769 $ (41,368)
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 12MANAGEMENT’S DISCUSSION & ANALYSIS
PERIOD ENDED JUNE 30, 2019
Sources and Uses of Cash
UPMC’s primary source of operating cash is the collection of revenues and related accounts receivable. As of June 30, 2019, UPMC
had approximately $261 million of cash and cash equivalents on hand to fund operations and capital expenditures, and borrowing
availability under the primary credit facility was $516 million to fund operating and capital needs, of which $120 million was drawn.
Operating EBIDA was $407 million for the six months ended June 30, 2019, compared to $483 million for the six months ended
June 30, 2018. Net cash provided by operating activities was $295 million in the six months ended June 30, 2019 compared to $289
million in the six months ended June 30, 2018.
Key sources and uses of cash from investing activities for the six month period ended June 30, 2019 include capital expenditures
of $496 million, as well as $10 million to acquire ownership interests in and fund businesses. Major capital projects included
construction and improvements at UPMC Pinnacle, UPMC Hamot and UPMC Mercy as well as ongoing expansion and
improvement across the entirety of UPMC. Major information services projects included enhancements that are advancing
UPMC’s leading clinician centric computing environment, technology infrastructure that supports UPMC’s diversified digital
environment, investments in enterprise data analytics and other technologies that are transforming the consumer experience
across the spectrum of health care.
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 13UTILIZATION STATISTICS
PERIOD ENDED JUNE 30, 2019
The following table presents selected consolidated statistical indicators of medical-surgical, psychiatric, sub-acute and rehabilitation
patient activity for the six months ended June 30, 2019 and 2018.
Six Months Ended June 30
2019 2018
Licensed Beds 8,318 8,717
BEDS IN SERVICE
Medical-Surgical 4,748 4,821
Psychiatric 416 432
Rehabilitation 245 260
Skilled Nursing 1,443 1,392
Total Beds in Service 6,852 6,905
PATIENT DAYS
Medical-Surgical 654,660 662,353
Psychiatric 64,417 70,144
Rehabilitation 36,868 40,368
Skilled Nursing 221,356 225,148
Total Patient Days 977,301 998,013
Average Daily Census 5,399 5,514
Observation Days 78,119 65,667
Obs Average Daily Census 432 363
ADMISSIONS AND OBSERVATION CASES
Medical-Surgical 130,627 135,964
Observation Cases 50,072 48,185
Subtotal 180,699 184,149
Psychiatric 5,971 6,169
Rehabilitation 2,433 2,755
Skilled Nursing 2,493 2,722
Total Admissions and Observation Cases 191,596 195,795
Overall Occupancy 85% 85%
AVERAGE LENGTH OF STAY
Medical-Surgical 5.0 4.9
Psychiatric 10.8 11.4
Rehabilitation 15.2 14.7
Skilled Nursing 88.8 82.7
Overall Average Length of Stay 6.9 6.8
Emergency Room Visits 556,076 573,812
TRANSPLANTS (DOMESTIC)
Liver 68 68
Kidney 122 126
All Other 171 179
Total 361 373
OTHER POST-ACUTE METRICS
Home Health Visits 407,275 372,542
Hospice Care Days 129,610 103,089
Outpatient Rehab Visits (CRS) 333,053 331,309
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 14OUTSTANDING DEBT
PERIOD ENDED JUNE 30, 2019
(IN THOUSANDS)
Amount
Issuer Original Borrower Series Outstanding
Allegheny County Hospital UPMC Health System 1997B $ 43,568
Development Authority UPMC 2007A 60,373
UPMC 2010A 45,788
UPMC 2010B 98,878
UPMC 2010C 50,000
UPMC 2010F 95,000
UPMC 2011A 77,797
UPMC 2017D 499,608
UPMC 2019A 836,721
Monroeville Finance Authority UPMC 2012 321,375
UPMC 2013B 60,248
UPMC 2014B 47,483
Pennsylvania Economic UPMC 2013A 114,734
Development Financing Authority UPMC 2014A 294,793
UPMC 2015B 122,255
UPMC 2016 251,226
UPMC 2017A 454,297
UPMC 2017C 134,569
Erie County Hospital Authority Hamot Health Foundation 2010A 9,880
Hamot Health Foundation 2010C 500
Pennsylvania Higher Educational UPMC 2010E 193,933
Facilities Authority
Lycoming County Authority The Williamsport Hospital 2011 13,889
Tioga County Industrial Laurel Health System 2010 7,215
Development Authority Laurel Health System 2011 5,570
Dauphin County Pinnacle Health System 2012A 136,982
General Authority Pinnacle Health System 2016A 104,913
Pinnacle Health System 2016B 87,270
General Authority of Hanover Hospital 2013 9,879
Southcentral Pennsylvania Hanover Hospital 2015 23,979
Potter County Hospital Authority UPMC 2018A 20,437
Somerset County Somerset Hospital 2009A 1,375
Hospital Authority Somerset Hospital 2015A 18,000
None UPMC 2011B 99,689
UPMC 2017B 97,340
UPMC 2018B 411
Susquehanna Health Innovation Center New Market Tax Credit 17,172
Somerset Hospital 2013 1,730
UPMC Swap Liabilities 7,041
Various - Financing Leases and Loans 115,823
Total $ 4,581,741
Includes original issue discount and premium, Deferred Financing Costs, and other. Source: UPMC Records
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 15DEBT COVENANT CALCULATIONS
PERIOD ENDED JUNE 30, 2019
DEBT SERVICE COVERAGE RATIO
(Dollars in Thousands)
Trailing Twelve-Month Period Ended
June 30, 2019
Excess of expenses over revenues $ (33,510)
ADJUSTED BY:
Net Unrealized Losses from Period 1 73,132
Depreciation and Amortization 1 630,975
Loss on Defeasance of Debt 1 (6,537)
Inherent Contribution 1 74,878
Realized Investment Impairments 2 (27,100)
Interest Expense 157,756
Revenues Available for Debt Service $ 869,594
Historical Debt Service Requirements – 2007 MTI $ 357,724
Debt Service Coverage Ratio – 2007 MTI 2.43X
Historical Debt Service Requirements – All Debt and Financing Leases $ 393,008
Debt Service Coverage Ratio – All Debt and Financing Leases 2.21X
LIQUIDITY RATIO AS OF JUNE 30, 2019
Unrestricted Cash and Investments $ 5,271,394
Master Trust Indenture Debt $ 4,211,724
Unrestricted Cash to MTI Debt 1.25
(1)
Non-Cash.
(2)
Reflects ultimate realization of previously impaired cost-based investments.
I hereby certify to the best of my knowledge that, as of June 30, 2019, UPMC is in compliance with the applicable covenants
contained in the financing documents for the bonds listed on the cover hereof and all applicable bank lines of credit and no Event
of Default (as defined in any related financing document) has occurred and is continuing.
C. Talbot Heppenstall, Jr.
Treasurer
UPMC
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 16Unaudited Interim
Condensed Consolidated
Financial Statements
FOR THE PERIOD ENDED JUNE 30, 2019
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 17REVIEW REPORT OF INDEPENDENT AUDITORS
The Board of Directors
UPMC
Pittsburgh, Pennsylvania
We have reviewed the condensed consolidated financial information of UPMC, which comprise the condensed consolidated
balance sheet as of June 30, 2019, and the related condensed consolidated statements of operations and changes in net assets for
the three and six-month periods ended June 30, 2019 and 2018 and condensed consolidated cash flows for the six-month period
ended June 30, 2019 and 2018.
Management’s Responsibility for the Financial Information
Management is responsible for the preparation and fair presentation of the condensed financial information in conformity with U.S.
generally accepted accounting principles; this includes the design, implementation and maintenance of internal control sufficient
to provide a reasonable basis for the preparation and fair presentation of interim financial information in conformity with U.S.
generally accepted accounting principles.
Auditor’s Responsibility
Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States applicable
to reviews of interim financial information. A review of interim financial information consists principally of applying analytical
procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than
an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the
expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.
Conclusion
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial
information referred to above for it to be in conformity with U.S. generally accepted accounting principles.
Report on Condensed Consolidated Balance Sheet as of December 31, 2018
We have previously audited, in accordance with the auditing standards of the Public Company Accounting Oversight Board (United
States) and in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of
UPMC as of December 31, 2018, and the related consolidated statements of operations and changes in net assets and cash flows
for the year then ended (not presented herein); and we expressed an unqualified audit opinion on those audited consolidated
financial statements in our report dated February 26, 2019. In our opinion, the accompanying condensed consolidated balance
sheet of UPMC as of December 31, 2018 is consistent, in all material respects, with the consolidated balance sheet from which it
has been derived.
Pittsburgh, Pennsylvania
August 27, 2019
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 18CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
As of
June 30 December 31
2019 2018
CURRENT ASSETS
Cash and cash equivalents $ 260,750 $ 277,324
Patient accounts receivable 1,105,193 1,060,365
Other receivables 1,508,394 1,076,317
Securities lending collateral 51,152 171,657
Other current assets 341,615 358,100
Total current assets 3,267,104 2,943,763
Board-designated, restricted, trusteed and other investments 6,709,605 6,578,930
Beneficial interests in foundations and trusts 537,979 499,957
Net property, buildings and equipment 5,523,228 5,334,051
Operating lease right-of-use assets 1,110,261 –
Other assets 482,889 482,246
Total assets $ 17,631,066 $ 15,838,947
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 635,271 $ 604,186
Accrued salaries and related benefits 805,737 720,756
Current portion of insurance reserves 692,892 636,566
Payable under securities lending agreement 51,152 171,657
Current portion of long-term obligations 143,803 462,147
Other current liabilities 808,502 472,059
Total current liabilities 3,137,357 3,067,371
Long-term obligations 4,437,938 4,245,409
Pension liability 160,622 114,178
Long-term insurance reserves 348,553 335,527
Operating lease noncurrent liabilities 1,042,035 –
Other noncurrent liabilities 378,237 341,407
Total liabilities 9,504,742 8,103,892
Net assets without donor restrictions 7,024,469 6,678,826
Net assets with donor restrictions 1,101,855 1,056,229
Total net assets 8,126,324 7,735,055
Total liabilities and net assets $ 17,631,066 $ 15,838,947
See accompanying notes
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 19CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN NET ASSETS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended June 30 Three Months Ended June 30
2019 2018 2019 2018
NET ASSETS WITHOUT DONOR RESTRICTIONS
Net patient service revenue $ 4,414,914 $ 4,299,747 $ 2,226,561 $ 2,193,350
Insurance enrollment revenue 4,957,155 4,239,459 2,485,607 2,110,594
Other revenue 818,219 714,150 421,545 369,574
Total operating revenues 10,190,288 9,253,356 5,133,713 4,673,518
Expenses:
Salaries, professional fees and employee benefits 3,586,318 3,338,423 1,807,838 1,686,456
Insurance claims expense 3,432,541 2,791,896 1,732,699 1,396,372
Supplies, purchased services and general 2,764,532 2,639,751 1,392,452 1,352,077
Depreciation and amortization 313,877 307,290 158,208 154,355
Total operating expenses 10,097,268 9,077,360 5,091,197 4,589,260
Operating income 93,020 175,996 42,516 84,258
Inherent contribution 9,383 (6,859) (7,283) (12,849)
Income tax expense (8,716) (12,077) (6,057) (7,797)
After-tax income $ 93,687 $ 157,060 $ 29,176 $ 63,612
Investing and financing activities:
Investment revenue 439,621 86,940 141,987 41,826
Interest expense (81,445) (83,284) (40,571) (41,898)
Loss on extinguishment of debt (6,537) – (6,537) –
UPMC Enterprises activity:
Portfolio company revenue 34,505 40,367 17,649 5,616
Portfolio company and development expense (107,375) (85,391) (58,007) (50,884)
Gain (loss) from investing and financing activities 278,769 (41,368) 54,521 (45,340)
Excess of revenues over expenses 372,456 115,692 83,697 18,272
Other changes in net assets without donor restrictions (26,813) 20,098 (20,693) (3,720)
Change in net assets without donor restrictions 345,643 135,790 63,004 14,552
NET ASSETS WITH DONOR RESTRICTIONS
Contributions and other changes 6,220 2,784 63 1,926
Net realized and unrealized gains on restricted investments 7,167 17,226 960 4,488
Restricted net assets acquired 1,525 – – –
Assets released from restriction for operations and
capital purchases (7,308) (13,650) (2,385) (2,682)
Change in beneficial interests in foundations and trusts 38,022 11,214 38,253 4,830
Change in net assets with donor restrictions 45,626 17,574 36,891 8,562
Change in net assets 391,269 153,364 99,895 23,114
Cumulative effect of change in accounting principle – 218,800 – –
Net assets, beginning of period 7,735,055 7,925,116 8,026,429 8,274,166
Net assets, end of period $ 8,126,324 $ 8,297,280 $ 8,126,324 $ 8,297,280
See accompanying notes
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 20CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended June 30
2019 2018
OPERATING ACTIVITIES
Change in total net assets $ 391,269 $ 153,364
Adjustments to reconcile change in net assets to net cash
provided by operating activities:
Depreciation and amortization 313,877 307,290
Change in beneficial interest in foundations and trusts (38,022) (11,214)
Restricted contributions and investment revenue (13,387) (20,010)
Restricted net assets acquired through affiliations (1,525) –
Unrealized (gains) losses on investments (237,306) 110,113
Realized gains on investments (152,154) (151,734)
Net change in non-alternative investments 269,595 96,032
Inherent contribution (9,383) 6,859
Changes in operating assets and liabilities:
Accounts receivable (468,905) (485,017)
Other current assets 140,829 (206,691)
Accounts payable and accrued liabilities 86,003 6,740
Insurance reserves 69,352 12,491
Other current liabilities (137,288) 467,635
Other noncurrent assets and liabilities 74,294 57,203
Other operating changes 7,751 (53,755)
Net cash provided by operating activities 295,000 289,306
INVESTING ACTIVITIES
Purchase of property and equipment (net of disposals) (490,918) (427,520)
UPMC Enterprises investments in joint ventures (10,000) (10,000)
Cash acquired through affiliations 21,272 –
Net change in investments designated as nontrading (15,317) (15,741)
Net change in alternative investments 12,361 41,364
Net change in other assets 15,247 (5,135)
Net cash used in investing activities (467,355) (417,032)
FINANCING ACTIVITIES
Repayments of long-term obligations (989,738) (217,503)
Borrowings of long-term obligations 1,132,132 249,933
Restricted contributions and investment income 13,387 20,010
Net cash provided by financing activities 155,781 52,440
Net change in cash and cash equivalents (16,574) (75,286)
Cash and cash equivalents, beginning of period 277,324 529,631
Cash and cash equivalents, end of period $ 260,750 $ 454,345
SUPPLEMENTAL INFORMATION
Finance lease obligations incurred to acquire assets $ 5,535 $ 1,732
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 21NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
UPMC is a Pennsylvania nonprofit corporation and is exempt from federal income tax pursuant to Section 501(a) of the Internal
Revenue Code (the “Code”) as an organization described in Section 501(c)(3) of the Code. Headquartered in Pittsburgh,
Pennsylvania, UPMC is one of the world’s leading integrated delivery and financing systems. UPMC comprises nonprofit and for-
profit entities offering medical and health care-related services, including health insurance products. Closely affiliated with the
University of Pittsburgh (“University”) and with shared academic and research objectives, UPMC partners with the University’s
Schools of the Health Sciences to deliver outstanding patient care, train tomorrow’s health care specialists and biomedical
scientists, and conduct groundbreaking research on the causes and course of disease.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. The
accompanying unaudited interim condensed consolidated financial statements include the accounts of UPMC and its subsidiaries.
Intercompany accounts and transactions are eliminated in consolidation. For further information, refer to the audited consolidated
financial statements and notes thereto as of and for the twelve month period ended December 31, 2018.
2. NEW ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU No. 2016-02, Leases, which consists of a comprehensive lease accounting standard. Under
the new standard, assets and liabilities arising from most leases are recognized on the balance sheet and enhanced disclosures on
key quantitative and qualitative information about leasing arrangements are required. Leases are classified as either operating or
financing, and the lease classification determines whether expense is recognized on a straight-line basis (operating leases) or
based on an effective interest method (financing leases). The new standard was effective for interim and annual periods on January
1, 2019, and UPMC has applied the transitional package of practical expedients allowed by the standard relating to the identification,
classification and initial direct costs of leases commencing before the effective date; however, UPMC did not elect the hindsight
transitional practical expedient. UPMC has made an accounting policy election to not apply recognition requirements of the
guidance to short-term leases. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an
optional transition method that allows entities to initially apply the new lease standard at the adoption date and recognize a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption while comparative periods
presented will continue to be in accordance with current ASC 840. UPMC utilized the optional transition method to apply the lease
standard as of January 1, 2019. After adoption, UPMC recognized assets and liabilities of approximately $1,200,000 as of the
transition date. Refer to footnote 8 for additional disclosures.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost. This new guidance requires the disaggregation of the service cost component from the other components of net
benefit cost. The service cost component of net benefit cost is to be reported in the same line item on the consolidated statement
of operations as other compensation costs arising from services rendered by the pertinent employees, while the other components
of net benefit cost are to be presented in the consolidated statement of operations separately, outside a subtotal of operating
income. The amendments also provide explicit guidance to allow only the service cost component of net benefit cost to be eligible
for capitalization. The adoption of the change in presentation of net benefit cost in the consolidated statement of operations is to
be applied retrospectively, and the change in capitalization for only service cost applied prospectively. The guidance allows a
practical expedient that permits the use of the amounts disclosed in the retirement benefits footnote for the prior comparative
periods as the estimation basis for applying the retrospective presentation requirements. UPMC will adopt for the year ending
December 31, 2019 and interim periods in the subsequent year. The impact of adopting ASU 2017-07, when applied retrospectively
UPMC UNAUDITED QUARTERLY DISCLOSURE • JUNE 2019 | 22NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS)
to the three and six months ended June 30, 2019, would increase salaries, professional fees and employee benefits on the
consolidated statements of operations and changes in net assets presented herein by $8,362 and $15,071, respectively, with a
corresponding decrease to operating income and increase to other non-operating gains. As a result, for the three and six months
ended June 30, 2019, operating income would be $34,154 and $77,949, respectively, and other non-operating gains will be $8,362
and $15,071, respectively, upon retrospective adoption of ASU 2017-07. The adoption will have no impact on excess of revenues
over expenses or net assets.
3. REVENUE
Net Patient Service Revenue
UPMC’s net patient service revenue is reported at the amount that reflects the consideration to which UPMC expects to be entitled
in exchange for providing patient care. These amounts are due from patients, third-party payers (including health insurers and
government programs), and others and include an estimate of variable consideration for retroactive revenue adjustments due to
settlement of audits, reviews, and investigations. Generally, UPMC bills the patients and third-party payers several days after the
services are performed and/or the patient is discharged from the facility. Revenue is recognized as performance obligations are
satisfied. Performance obligations are determined based on the nature of the services provided by UPMC. Revenue for performance
obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges.
UPMC believes that this method provides a reasonable representation of the transfer of services over the term of the performance
obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to
inpatient services. UPMC measures the performance obligation from admission into the hospital to the point when it is no longer
required to provide services to that patient, which is generally at the time of discharge. Revenue for performance obligations
satisfied at a point in time is recognized when goods or services are provided and UPMC does not believe it is required to provide
additional goods or services to the patient.
The majority of UPMC’s services are rendered to patients with third party coverage. Reimbursement under these programs for
all payers is based on a combination of prospectively determined rates, discounted charges and historical costs. Amounts
received under Medicare and Medical Assistance programs are subject to review and final determination by program
intermediaries or their agents and the contracts UPMC has with commercial payers also provide for retroactive audit and review
of claims. Agreements with third-party payers typically provide for payments at amounts less than established charges.
Generally, patients who are covered by third-party payers are responsible for related deductibles and coinsurance, which vary
in amount. UPMC also provides services to uninsured patients, and offers those uninsured patients a discount, either by policy
or law, from standard charges. UPMC estimates the transaction price for patients with deductibles and coinsurance and from
those who are uninsured based on historical experience and current market conditions. The initial estimate of the transaction
price is determined by reducing the standard charge by any contractual adjustments, discounts, and implicit price concessions.
Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue
in the period of the change and are accrued on an estimated basis in the period the related services are rendered and adjusted
in future periods if final settlements differ from estimates. Adjustments arising from a change to previously estimated transaction
prices were not significant in the six months ended June 30, 2019 or 2018.
Consistent with UPMC’s mission, care is provided to patients regardless of their ability to pay. UPMC has determined it has
provided implicit price concessions to uninsured patients and patients with other uninsured balances (for example, copays and
deductibles). The implicit price concessions included in estimating the transaction price represent the difference between amounts
billed to patients and the amounts UPMC expects to collect based on its collection history with those patients. Patients who meet
UPMC’s criteria for charity care are provided care without charge or at amounts less than established rates and UPMC has
determined it has provided an implicit price concession. Price concessions including charity care are not reported as revenue.
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