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UPMC hiring growth to slow

| Friday, May 10, 2013, 12:06 a.m.

Expenses at hospital giant UPMC are growing faster than revenue, an unsustainable path that officials said on Thursday they are working to change.

UPMC, the region's largest employer, is making money. But to prevent further financial losses, the 19-hospital health system is taking action now, tamping down hiring in administrative jobs, UPMC Chief Financial Officer Robert DeMichiei said.

Health care jobs have been a primary driver of Western Pennsylvania's economy for many years, said Frank Gamrat, economist for the Allegheny Institute for Public Policy, a Castle Shannon think tank.

“That's been the one bright spot around here,” Gamrat said. “To hear that they're (UPMC) going to slow down hiring is certainly going to take a bite out of job growth around here.”

In the last several years, UPMC has added a net 2,000 to 2,500 new jobs a year, DeMichiei said. “That growth is going to flatten.”

For at least the last five quarters, UPMC's year-over-year growth rate of expenses has exceeded the rate of revenue growth.

UPMC's net income in the fiscal third quarter ending March 31 was $170 million, down from $210.7 million in the same period last year. Net income includes investment gains and other non-operating income.

UPMC is not cutting staff, but overall employment levels of more than 56,000 will remain flat or grow only slightly for at least the next year, DeMichiei said.

“Administrative areas have got to become more efficient,” he said, noting that the health system is looking to make its non-medical employees perform the same work with fewer people with the help of technology.

UPMC continues to make money and bring in new patients, DeMichiei said. But the health system is not on a sustainable track. Government reimbursements under the Medicare and Medicaid programs are being cut, private insurers are trying to reduce utilization of medical services to save money, and the number of patients seeking medical care is declining, he said.

That's a trend most hospitals in the region are experiencing, said Jane Montgomery, vice president of clinical services and quality for the Hospital Council of Western Pennsylvania in Warrendale.

“They're still hiring, but the hiring has maybe slowed down,” Montgomery said. “They're selectively hiring. They're looking at where's the volume. ... They're looking at where their business is” and shifting employment to respond.

In the January-March quarter, UPMC had revenue of $2.62 billion, up 6.5 percent from revenue of $2.46 billion in the same quarter last year. Expenses in the quarter were $2.56 billion, up 7.1 percent from expenses of $2.39 billion in the same quarter the year before.

Higher expenses led to a decline in UPMC's income from operations in the January-March quarter. Operating income was $61.6 million, down from $70.1 million.

The result included a $53 million one-time boost from the sale of a company in which UPMC had invested. Excluding that sale, UPMC's adjusted operating income in the quarter was $8.6 million, compared with adjusted operating income of $62.1 million the year before.

Allscripts, a Chicago company that sells electronic health record systems, bought Israeli medical software company dbMotion in March for $235 million. UPMC invested about $35 million in dbMotion in 2006.

With the stock markets rising this year, UPMC's investment portfolio hit a high of $4 billion at the end of March.

UPMC also is working to finish a purchase of Altoona Regional Health System. DeMichiei said he expects the deal to close around midsummer. The value of the deal has not been disclosed.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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