The University of Pittsburgh Medical Center (UPMC) has international operations in nine countries (UPMC 2017a). It operates cancer centers and a full-service hospital in Ireland; transplantation, radiotherapy, and biotechnology centers in Italy; information technology and cancer centers in the United Kingdom; cancer center consulting in Colombia, Kazakhstan, and Lithuania; transplantation in Singapore; pathology consulting in China; and educational training in primary care in Japan. UPMC is exploring expansion in Cyprus and Qatar. Most of these represent joint ventures with local partners.

UPMC is headquartered in Pittsburgh, where it has a commanding presence. The largest employer in western Pennsylvania, with more than 70,000 employees and nearly $17 billion in revenue, UPMC owns more than 30 hospitals, 600 outpatient sites, a large insurance plan, and a number of other healthcare ventures (UPMC 2017b).

Moody’s Investors Services greeted UPMC’s 2017 diversification with a debt downgrade (Moody’s Investors Services 2017). Rather than a joint venture, it was an acquisition. In summer 2017, UPMC bought Pinnacle Health System, a seven-hospital system based in Harrisburg, Pennsylvania. This acquisition means that UPMC acquired, built, or otherwise gained access to nine hospitals in 2017, allowing UPMC to sell its health insurance products outside its core western Pennsylvania market. Moody’s noted that the purchases added integration and execution risk, marked UPMC’s entry into a competitive and rapidly consolidating market, put pressure on profit margins, and increased the ratio of debt to equity (Moody’s Investors Services 2017).

Discussion Questions

• Why is expansion outside the United States an attractive form of diversification?

• What are the pitfalls of international expansion?

• What are the potential pitfalls of other diversification efforts?

• Why do small profit margins and a high ratio of debt to equity increase risk?

• What are the main risks that UPMC faces in its Pittsburgh operations? 

• Why is buying additional hospitals in Pennsylvania risky?