Investments drive down UPMC

Operating revenue for the University of Pittsburgh Medical Center rose 12 percent during the first three quarters of fiscal 2008 to $5.2 billion compared to the same period a year ago, but poor investment returns drove down net income to a loss of $7 million for the period, according to a financial statement released Wednesday. The loss compares to a $459 million gain during the same nine-month period in 2007.

The increase in operating revenue was attributed to the acquisition of Mercy Hospital, which improved UPMC's market penetration in Allegheny County to 55 percent, a $345 million increase in revenue from UPMC Health Plan and related products and inflationary increases in payor contracts. UPMC spent $438 million for capital improvements during the past nine months, up 26 percent from $348 million in the prior period. Capital spending on such projects as the new Children's Hospital in Lawrenceville and information technology upgrades is expected to top $590 million for fiscal 2008.

"It's a really strong financial picture and a strong quarter," said Senior Vice President and Chief Financial Officer Robert DeMichiei. "We're going to continue to invest and grow."

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Poor investment returns compared to a year ago and an accounting change in the prior fiscal year helped reduce UPMC's investment income to a loss of $151 million in the most recent nine-month period compared to a gain of $279 million in the first nine months of 2007, according to the financial statement. The latest returns reflect a 0.5 percent loss on UPMC's investment portfolio compared to a 12.9 percent gain for the same period a year ago.

Operating expenses for the same three-quarter period increased by $603 million to $5.1 billion and operating income decreased $33 million to $152 million from the prior nine-month period mostly due to depreciation and contributions to the Pittsburgh Promise scholarship program.

Membership in UPMC health insurance companies rose to 1.25 million as of March 31, 2008, primarily the result of a Medicare increase of 16,000 members and commercial growth of about 13,000 members, according to the financial statement. UPMC is among the biggest employers in Pennsylvania with 48,000 employees and nearly $7 billion in revenue.