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UPMC revenue up 10 percent to $10 billion

| Thursday, Aug. 23, 2012, 12:01 a.m.
UPMC East Hospital in Monroeville opened in July 2012. A revised tax-exempt status of the facility and nearby Forbes Regional Hospital would generate tax revenue for the municipality. Sidney Davis | Tribune-Review

Patients across Western Pennsylvania continued to flock to UPMC's dominant network of hospitals and physicians during its most recent financial year, driving a 10 percent gain in revenue to nearly $10 billion.

But higher costs for salaries, technology and other expenses, coupled with declining reimbursement rates from health insurers and the government, put a squeeze on profits, UPMC said on Wednesday.

“There is no doubt about it,” said Robert DeMichiei, chief financial officer. “It is a challenging environment.”

During the year ended June 30, UPMC generated $9.6 billion in revenue, up from $8.8 billion the prior year. Income from operations fell to $351 million from $406 million. UPMC is Allegheny County's largest employer with more than 56,000 workers system-wide.

The number of patients seeking treatment at its 19 hospitals jumped to 253,899 from 234,785 in the prior year. By July, it counted more than 421,000 commercial health insurance members, up 15 percent from July 2011.

“We're seeing a strong migration of customers to UPMC Health Plan,” DeMichiei said.

But with investment losses of $127.1 million for the year, UPMC reported net income of $220.7 million — a 70 percent drop from 2011 when investment income of $282 million helped it earn $726.8 million.

UPMC does not use investment income, which can vary widely depending on stock market performance, to fund its operations. That income sits in a reserve portfolio valued at $3.7 billion.

Though a not-for-profit organization, UPMC must make money to invest in its hospitals, buy technology and recruit physicians, DeMichiei said.

UPMC spent $618 million during the year on capital projects, including $105 million toward construction of UPMC East, its newly opened hospital in Monroeville.

That hospital, about a mile from Forbes Regional Hospital owned by rival West Penn Allegheny Health System, cost UPMC a total of $250 million over five years. It has attracted an average 80 patients a day since opening last month, more than double expectations.

“It is not cannibalizing other UPMC hospitals” and instead is taking market share from competitors, DeMichiei said.

Some community groups and government officials have criticized UPMC for making too much money, not paying property taxes and not contributing to the Pittsburgh Public Service Fund, which collects money in lieu of taxes from some nonprofit organizations to put toward the city's operations.

Highmark Inc., the state's largest health insurer, is trying to buy West Penn Allegheny to establish a $1 billion health system to compete with UPMC. Spokesman Michael Weinstein declined to comment on UPMC's financial report.

In the last three months of its fiscal year, UPMC said investments lost $76.5 million, though revenue during the quarter was $2.4 billion.

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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