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UPMC sees jet as a key tool in quest for global reach
Sunday, June 08, 2008

As the University of Pittsburgh Medical Center searches the world for new revenues and exporting opportunities, a key tool in the nonprofit's quest to become a "global health enterprise" is a 6-year-old jet equipped to reach any two points on earth with only one stop.

Exactly how is this multimillion-dollar asset being used by the region's largest employer?

And at what cost?

Flight plans submitted to the Federal Aviation Administration during an eight-month period in 2007 and a 40-day period in early 2008 show slightly more than half of all trips (30 of 58) on a Bombardier Global Express leased by UPMC were taken internationally, and many of these were to or from cities in Italy, Ireland and the United Kingdom, where UPMC has existing arrangements with local hospitals and cancer centers. Eleven, in fact, were to or from Palermo, Sicily, site of an organ transplant center managed by UPMC for more than a decade and source of $30 million to $40 million in annual revenue for UPMC. There were eight additional flights to or from other cities in Italy.

"Every use of the jet," said UPMC spokesman Paul Wood, "has been for legitimate medical or business development purposes."

During the periods in 2007 and 2008 examined by the Post-Gazette, UPMC logged about 253 flight hours with the FAA. Using estimates from aircraft consulting firm Conklin & deDecker, the costs of operating the Global Express for those hours would have been $1.08 million, or $18,752 per flight. Commercial flights to Europe or other parts of the United States are certainly much less, but whether the higher amount can be justified has a lot to do with how many people were aboard each trip -- and that information is not publicly available, nor was UPMC willing to disclose it.

Add additional estimates for what it might cost to lease and maintain this plane, and UPMC's air travel bill could be as high as $5 million to $6 million a year.

UPMC's Mr. Wood, who declined to discuss specific jet expenses, said all costs were "covered within the budgets of the appropriate business units" that use the plane. Also, "the benefits of leasing this jet far outweigh its costs when it comes to UPMC fulfilling its mission. That is providing outstanding patient care while creating new sources of revenue that benefit the residents of Western Pennsylvania."

It is common for an employer of UPMC's size ($6.8 billion in revenue, 48,000 workers) to have a private jet. PNC Financial Services Group, Pittsburgh's largest bank, has two, in fact. But it is unusual for such a multimillion-dollar asset to be used by a nonprofit hospital system, even those that rival UPMC in size and reach. The nonprofit Cleveland Clinic & Health Systems, for example, has a new hospital under construction in Abu Dhabi and is pursuing contracts in China, Guatemala, Brazil, Egypt and India. Yet, its employees fly commercial when traveling internationally, according to spokeswoman Eileen Sheil, although the Clinic does maintain a "fractional interest" in a plane available for "group travel here in the states."

In Boston, the Beth Israel Deaconess Medical Center (affiliated with the Harvard Medical School) neither owns nor leases a private jet and has a travel policy of booking coach seats to international or domestic locations. "Our focus is on the most efficient, cost-effective way to get people to where they need to go," said Beth Israel spokesman Jerry Berger.

UPMC Vice Chairman Mark Laskow acknowledged that other nonprofit health-care systems do not typically lease private airplanes. But, "they don't look anything like this health-care system," he said. "They are not generating intellectual capital of the kind we are creating."

"The reason," he added, that "most systems don't have it is that this is not like most systems."

While the spending of nonprofit medical providers is under more scrutiny around the country as institutions rack up record profits, UPMC argues its earnings ($618 million in fiscal 2007) allow the system to invest in new equipment, new buildings and new employees, all of which benefit southwestern Pennsylvania. In return for the tax exemption that accompanies its nonprofit status, UPMC also is expected to provide a loosely defined "community benefit," and in fiscal 2007, UPMC reported $431.6 million in "free or uncompensated care" -- or 6.3 percent of total revenue.

UPMC, it should be noted, also pays taxes on its for-profit entities.

The person largely responsible for UPMC's for-profit, multinational shift -- the institution now refers to itself in marketing materials as "an integrated global health enterprise" -- is Chief Executive Officer Jeffrey Romoff, who collected about $4 million in fiscal 2007 compensation. Among $20,380 in taxable expenses listed for Mr. Romoff were a car allowance, legal and financial counseling, and spousal travel. The IRS does not require UPMC to disclose the specifics of that travel.

UPMC, under the leadership of Mr. Romoff and his mentor, Thomas Detre, first ventured abroad more than a decade ago when it established the Palermo transplant center staffed by Italian and American physicians. Back then, UPMC officials typically traveled to Italy commercially, according to a source familiar with that situation.

Earlier this decade, UPMC leased a Bombardier Challenger -- a jet used by many for-profit corporations.

When it signed for the Global Express in March 2007, it gave up the Challenger.

The owner of the 2002 Global Express is Banc of America Leasing & Capital and the last user was Delaware Global Operation LLC, which was managed by Jeffrey Soffer of real estate development company Turnberry Associates in Florida, according to documents submitted to the FAA. Turnberry was founded by Donald Soffer, who built many projects in Pittsburgh with the late developer Eddie Lewis and is related to South Side Works builder Damian Soffer.

Delaware Global had been leasing the plane since 2003.

The Global Express, according to documents filed with the FAA, has 17 passenger seats -- counting a four-place rounded couch and a six-place conference/dining table area. UPMC's Mr. Wood said the plane was actually not large enough to seat 17 people. There is a bathroom and TV on board, he said.

UPMC signed a rental agreement that expires in 2017, but it would not discuss the contract terms. The last user of this Global Express took out a $38.4 million promissory note from the aircraft owner obligating it to pay more than $4 million a year in interest and principal, according to documents filed with the FAA, with a $21.1 million payment due on the loan's maturity date in 2013. UPMC also was unwilling to discuss what the nonprofit pays to maintain, staff and fuel the Global Express. Airplane consulting firm Conklin & deDecker estimates that a Global Express costs $4,299 per hour to operate during flight and that the fixed costs (hangar, crew salaries, maintenance) are typically $834,264 per year.

Even if UPMC were spending $5 million a year on the Global Express, Mr. Wood noted that would amount to less than one-tenth of 1 percent of its nearly $7 billion in revenue and less than 1 percent of the $625 million UPMC is spending on a new Children's Hospital in Lawrenceville. What's more, the plane allows transplant surgeons to travel "directly to Palermo to perform life-saving operations," he said, and business development teams can use it while "pursuing promising strategic partnerships, joint ventures or management contracts around the world."

"Given the weakness of the U.S. economy and the decline we're seeing in the airline industry, the jet is a viable solution for economic gain in an increasingly global market."

The most popular destination for the Global Express, at least during the periods examined by the Post-Gazette, was Italy. In addition to the 11 trips to or from Palermo, there were four flights to or from Milan, in the northern part of the country, one flight from Rome to Pittsburgh, and three flights to or from the island of Sardinia (and that's not counting any intra-European flights not tracked by the Federal Aviation Administration).

It is not immediately clear why UPMC needed to visit Sardinia, which has no visible connection to UPMC's work overseas. The Palermo transplant center is on a separate island hundreds of miles to the south, across a span of the Mediterranean Sea.

Yet the jet touched down in the northeastern Sardinian port city of Olbia on July 12, after a stop in Dublin, where UPMC manages a cancer center, and left two days later, according to flight plans submitted to the FAA. The same UPMC plane also was at Olbia's Costa Smeralda Airport on June 26, according to FAA documents, before flying back to Pittsburgh via Bangor, Maine. Costa Smeralda is Italian for "Emerald Coast" -- a reference to the turquoise waters, rocky coves and ultraluxury resorts that dot the northeastern section of the island, making it a popular destination for international tourists.

Mr. Wood declined to discuss who was on the Sardinia flights or why they were taken but said of the jet that there is "a procedure in place for approving its use," without detailing specifics.

Mr. Laskow, the vice chair who has oversight of jet travel as chair of the UPMC audit committee and as a member of the board's executive compensation committee, also cited board-approved "procedures" for senior management's use of the plane, "and there's no reason to believe they weren't followed here."

If there is any personal use of a plane by executives, it has to be taxed and reported, Mr. Laskow said. "We have procedures and we follow them," he said. "Nothing has happened to make us concerned."

Another four flights during the period examined by the Post-Gazette were to or from Dublin, where UPMC manages a hospital and cancer center. Three were to or from Newcastle and London (UPMC recently agreed to export electronic health record technology to a hospital system in the United Kingdom); and five were to or from airports in Greece (UPMC has been negotiating an agreement with a hospital on the nearby island nation of Cyprus).

Domestically, there were six flights to or from White Plains, N.Y., shortly after UPMC signed its lease for the Global Express in March 2007; three to or from St. Louis and a flight to Madison, Wis., and back. Later in 2007, there were four to or from Teterboro, N.J., where the jet's current aircraft manager (Jet Aviation) has a facility; and then a flight apiece to Fort Lauderdale, Fla., and Philadelphia in early 2008. In between were an array of flights from the Allegheny County Airport in West Mifflin to Pittsburgh International Airport, or vice versa. UPMC housed the plane at the smaller Allegheny County Airport until last summer, when it changed aviation management companies and began storing the Global Express at Pittsburgh International.

Mr. Laskow said he understands that the plane can be viewed as an "interesting" asset. He views it an important "tool" in UPMC's strategy of selling products and expertise around the world while bringing money and jobs back to the Pittsburgh area.

Most likely, the jet "will get even more use than it has been getting."


To see a YouTube video of UPMC's jet when it was being leased by the previous user, Delaware Global Operation LLC, go to www.youtube.com.

Dan Fitzpatrick can be reached at dfitzpatrick@post-gazette.com or 412-263-1752.
First published on June 8, 2008 at 12:00 am