How UPMC's overseas operations blossomed in 14 years

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You wouldn't know it from the 1,300 employees running 14 operations in six foreign countries and the nearly $100 million in annual revenue from records management, cancer centers, general hospitals, biomedical research and a transplant center, but UPMC did not have any grand strategy when it started its international efforts nearly 14 years ago.

"It was sort of by chance," said Charles Bogosta, president of the University of Pittsburgh Medical Center's International and Commercial Services Division.

It started in August 1995 when Ignazio Marino, then a UPMC transplant surgeon, met with an Italian doctor, Ugo Palazzo, who specializes in treating liver disease, hoping that Dr. Palazzo might help him find a job that would bring him home to Italy.

Dr. Palazzo had a bigger plan: Dr. Marino would start a transplant center in Palermo.

Dr. Marino told him: "You're crazy."

But Dr. Marino took the idea back to Pittsburgh and pitched it to Jeffrey Romoff, UPMC's CEO, who jumped on the idea of making UPMC part of the project. In 1996, that led to an agreement to create the transplant center in Palermo now known as ISMETT.

"Now we've fully realized what 15 years ago was a dream," Dr. Palazzo said in a phone interview from his office at ISMETT, where he is associate medical director.

Since the creation of ISMETT, UPMC's international growth has not been left to chance. UPMC has pursued it with the same intensity that characterized its move to dominate Western Pennsylvania health care after the hospital system was formed in 1986.

After a slow start, UPMC has nearly doubled the size -- in employees and revenue -- of its international operations in the past four years alone.

After expanding into Italy, UPMC opened operations in Qatar, Ireland, England, Cyprus and Japan, and it's now looking at possible arrangements in several other European countries, China and Kazakhstan.

It has grown enough that starting in 2008, UPMC began describing itself in news releases and on its website as an "integrated global health enterprise" instead of just an "integrated health care enterprise."

In a branch of the business that many experts say could help determine the future financial winners and losers among American hospitals, UPMC now appears to be the country's single biggest operator of overseas health care facilities, when measured in revenue, according to a survey of experts, overseas health operators and financial documents.

Moreover, in the past three years, it has begun to fulfill Mr. Romoff's oft-stated goal for UPMC to fill the role that steel once did: to go abroad, make a profit and bring the money back to Western Pennsylvania.

After several requests, UPMC spokeswoman Wendy Zellner said Mr. Romoff was not available to be interviewed for this story.

But in a 2008 interview, he said, "We've become a large employer and we want to become increasingly an exporter.

"The truth of the matter is, is what we're taking from Pittsburgh, or what we're exporting from Pittsburgh, is the brains of our physicians, and the talent of our management, exporting it and bringing back the wealth to enhance Pittsburgh to build a new Children's Hospital, to contribute to the Pittsburgh Promise and the like."

That idea became an issue for angry Braddock residents last week when they learned that UPMC had pumped more money into a financially troubled hospital it now owns in Dublin, Ireland, at about the same time it was deciding to close its struggling hospital in the Mon Valley community.

Last year, UPMC paid $95 million into Beacon Hospital in Dublin to rescue it from its creditors, making UPMC a majority -- 66 percent -- owner of the hospital. UPMC also revealed it had to cover about $7 million in losses at the hospital last year.

Mr. Bogosta said since UPMC gained majority control last year, Beacon has turned around financially and should be profitable within a year.

Still, Tony Buba, chairman of the Save Our Community Hospitals citizens group, which has protested UPMC Braddock's closing, said that with the money that has gone into Beacon, "the Braddock hospital could have stayed open for 10 years and, who knows, the whole region could have turned around in 10 years."

Markets and money

Major bond agencies, too, have taken note of UPMC's efforts to find new revenue by expanding internationally -- in their views, a generally positive development.

But since UPMC increased its ownership in Beacon last year, Moody's, in particular, has expressed concern.

In their February 2010 report, as UPMC was selling bonds, Moddy's analysts wrote:

"Expanded ownership and management of a private hospital in Dublin, Ireland, potential participation in the Irish Government-sponsored co-location projects around privatized healthcare and a variety of other international opportunities could translate into the deployment of capital and or managerial investments internationally that may stress already leveraged resources further."

UPMC officials said they see the two decisions -- investing in Beacon and closing Braddock -- as unrelated. But in a sense, the two actions are a microcosm of UPMC's international motivation -- cutting loose a money-losing, domestic operation while gaining control of an overseas hospital that could yield large future profits.

"We believe the only way to really succeed over the long haul will be to become global," said Mr. Bogosta, who has overseen UPMC's international efforts since 2006.

"And certainly one of the reasons is economic and our ability to generate profits. In the U.S. market, the margins are becoming more and more slim, so you have to find other ways of making money."

That also has been the mantra for UPMC's competitors -- Johns Hopkins, Cleveland Clinic, Harvard University and others -- over the past decade as many of them rushed to establish an international presence.

The hospitals are typically chosen by countries or organizations because of their placement on the U.S. News & World Report magazine's list of America's 21 best hospitals or as top recipients of National Institutes of Health grants. Still, UPMC, at No. 13 on the U.S. News & World Report list, stands out on that list.

"UPMC has gone overseas on a much larger scale than the rest," said Michael Merritt, director of international business development for New York-Presbyterian Hospital, which is No. 6 on the list.

"And it might end up being a first-mover advantage play where people who are out there early while the deals are there might succeed, and the people coming later have a harder time."

No government agency or organization currently tracks American hospitals' overseas operations ---- a sign of the newness of foreign hospital operations. In a 2008 article in the journal Academic Medicine, Mr. Merritt and three other authors tried to identify the big players.

They ranked UPMC with six other academic health centers as the busiest overseas operators with "significant initiatives abroad." That list included such prominent names as Cleveland Clinic (No. 4 on the U.S. News & World report list), which manages one hospital and is building another in Abu Dhabi; Johns Hopkins International, (No. 1 on the magazine's list), which manages five foreign hospitals; and Partners Harvard Medical International, which works in at least 23 locations abroad.

"Anybody who's going to be a major academic health center in five or 10 years is going to have to be looking global," said Chris Railey, spokesman for Partners Harvard Medical International. It works with Harvard Medical School staff who work at Massachusetts General (No. 5 on the U.S. News & World Report list) and Brigham and Women's (No. 10 on the list) hospitals in Boston.

Different models

But not all of America's prestigious hospitals see creating an international presence as a guarantee of continued prominence and profit.

Some of UPMC's peers, such as UCLA Medical Center (No. 3), the University of California-San Francisco Medical Center (No. 7) and Barnes-Jewish Hospital in St. Louis (No. 9) long ago decided to not look overseas.

"In some way, at least for us, it would serve as a distraction," said Richard Liekweg, CEO of Barnes-Jewish. "We try to stay focused on our local, regional and national health care efforts."

Neal Cohen, vice dean for international medical services at the UCSF Medical Center, has read about agreements where UPMC as well as others are paid to run a hospital without putting any of their own money at risk.

"But the one thing you are putting at risk is attention to your day job," he said. "And you have to decide if you want to do that."

Dr. Cohen ticks off a list of other hospitals' failed or disappointing overseas ventures, adding: "I think the jury is still out over whether they'll work."

Some major projects overseas have become major disappointments for other hospitals.

In 2006, Johns Hopkins Hospital had its contract terminated as a partner in a biomedical research center in Singapore in large part because it couldn't recruit enough top researchers to work there.

Over the past two years, Partners Harvard Medical International has seen its work helping to develop a hospital in Dubai Healthcare City slow to a crawl because of Dubai's financial troubles.

And in January, Mayo Clinic (No. 2) closed its cardiovascular clinic in Dubai after five years of operations for similar financial reasons and now has no direct patient care operations overseas.

"We're now looking at how we can do better internationally," said David Hayes, medical director of Mayo's international office. "We've used a number of different models over the years overseas and we're now looking at what has worked for us and for others."

UPMC has had its own difficulties overseas, though nothing as dire as having to close down projects.

The scope of its contract to run three hospitals and train staff in Qatar was reduced from $100 million to $55 million over 4 1/2 years.

It hasn't broken ground for a biomedical research facility it planned to design, run and open this year for the Italian government, although it announced the plans four years ago. Mr. Bogosta said the delay was the result of the slow pace of work with the government.

And while the additional problems in Ireland might seem a case example of the trouble American hospitals can run into overseas, UPMC officials see its potential upside -- with profits they expect to begin rolling in next year -- as another justification for looking abroad.

"Everybody uses the steel industry as a great example. People say, 'If we had just stayed in Pittsburgh with the steel mills.' Well, what would have happened? There might not be a U.S. Steel," Mr. Bogosta said recently while sitting in his office on the top floor of the U.S. Steel Tower.

"But I think it is different" than running a global steel business, he said. "You know, we're not selling a commodity, so it's a little harder to do. But I think over the long haul, it will be the right strategy."


Sean D. Hamill: shamill@post-gazette.com or 412-263-2579. Staff Writer Steve Twedt contributed.


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