In its latest for-profit venture beyond hospitals and insurance, the University of Pittsburgh Medical Center is spending $20 million on a "virtual microscope" designed to replace glass slides with digital images and touted as a faster and more accurate way for doctors to identify diseases.

Its 50-50 partner in this venture is GE Healthcare, a unit of Fairfield, Conn.-based conglomerate General Electric Co.

UPMC and GE are contributing a total of $40 million toward the launch of Omnyx LLC -- a company to be based in Pittsburgh and promising to employ 40 within three years (20 have been hired so far). The state is contributing $80,000 in tax credits and a $100,000 grant. Collectively, UPMC and GE are predicting the market for digital renderings of glass slides (those used to diagnose disease) will eventually expand to $2 billion, and that Omnyx can capture 25 percent -- or $500 million. UPMC and GE would each share half of any revenues.

Omnyx's chief executive officer, GE Healthcare executive Gene Cartwright, predicts that it will take less than two years to test the GE slide-scanning prototype, gain regulatory approval and begin selling the product to other systems (UPMC would be the product's first customer). Chuck Bogosta, a UPMC executive vice president and president of the system's for-profit international and commercial services division, predicts the new company will be "cash flow positive" in three to four years.

"That's aggressive," said Dirk Soenksen, founder and chief executive officer of Vista, Calif.-based digital pathology company Aperio Technologies, which launched in 1999 and now employs 150. But, "they are very smart people. If that's what the plans suggest they can do, maybe they can do that." The UPMC-GE partnership, he added, is "a major move on the chess board" and "will do immense things to validate the market further," thereby making "the pie bigger for everybody."

The GE-UPMC discussions began two years ago, each agreeing to explore ideas jointly and contribute as much as $25 million apiece to future projects. It is the fourth such joint-development relationship for UPMC, which has similar arrangements with IBM, Alcatel-Lucent and Cerner. In total, UPMC has committed a total of $85 million to the four partnerships, but GE is the first to produce a new business with UPMC.

The corporate relationships are part of a larger push by the nonprofit UPMC to cope with a tightening of margins in the health-care industry and evolve beyond its market saturation in southwestern Pennsylvania, where it handles 55 percent of all hospital discharges in Allegheny County.

In addition to 20 local hospitals and an insurance arm, UPMC also owns stakes in a variety of local health care-related companies and additional projects around the world. It manages a transplant center in Palermo, Italy; manages a Dublin hospital; operates two Irish cancer centers; provides consulting services and physicians to a medical system in Qatar; and has agreed to help a hospital system in the United Kingdom implement an electronic health-care record.

It continues to look for other deals in the Mediterranean and the Middle East.

But UPMC's international and commercial services division still is small when compared with the more traditional lines of hospitals and insurance. In the first nine months of fiscal 2008, international and commercial contributed $52 million in revenue, compared with $3.7 billion from the hospitals and $1.8 billion from insurance. After expenses, international and commercial lost $7 million, compared net gains of $89 million for the hospitals and $70 million for insurance. Asked this week when international and commercial would be consistently profitable, Mr. Bogosta said, "It could easily be next year."

The venture with GE also is a first for GE -- never before has the conglomerate created a company with an academic medical center. Mr. Cartwright of GE contends that the company's digital prototype is faster than any other scanner currently on the market, rendering slides digitally in 30-40 seconds.

Mr. Soenksen of Aperio Technologies said no one has a 30-second scanner on the market and acknowledged that such a product would be "exciting" for some customers. Aperio's scanners vary, with older models taking eight minutes and newer ones doing the job in nearly two minutes. He concedes that for an entire hospital to convert from glass slides to digital images, the machines have to be "really fast."

Pathology has trailed radiology and cardiology in adoption of digital applications because its images are larger and thus more difficult to render electronically.

Work in this field began about a decade ago and among the early pioneers was Dr. Michael Becich, chair of the department of biomedical informatics at the University of Pittsburgh. The first machines were too slow for wide adoption, said Dr. George Michalopoulos, chairman of the pathology department at the University of Pittsburgh and a pathologist at UPMC.

But the GE device, he said, is fast enough to "incorporate into the work flow" of a typical UPMC hospital that works through 1,000 slides per morning.

Also, digital files, Dr. Michalopoulos said, can be shared by pathologists anywhere in the world without waiting for glass slides to arrive in the mail; storage is easier; and information can be retrieved more quickly.