Business news

Jeffrey Romoff, who heads the region's biggest hospital network, has voluntarily cut his annual compensation by more than 25 percent as the University of Pittsburgh Medical Center continues to reduce costs in a challenging economy.

CFO Robert DeMichiei said Thursday that 500 members of UPMC's senior executive team had voluntarily agreed to reduce their compensation, which includes salary, up to 25 percent, but Romoff chose a deeper cut. Neither the exact amount of Romoff's cut nor the total anticipated savings in executive compensation was disclosed.

"It's an unprecedented, terrible economy right now," DeMichiei said. "Health care is becoming a discretionary expense, like purchasing gasoline, going on a vacation. And we don't see it getting better any time soon."

"We're going to proactively address the cost structure."

Romoff received $3.9 million in compensation in fiscal 2007, the most recent figure available, so his cut is worth nearly $1 million. The decision to reduce executive compensation was reached in early February, according to UPMC spokesman Paul Wood, and there have been no decisions about restoring salaries.

One measure of the region's tough health care market was the essentially flat number of hospital admissions in the network, excluding Mercy Hospital, which UPMC acquired last year, during the first six months of fiscal 2009 compared with the same period a year ago, DeMichiei said. Charity care had also increased as the overall economy has soured, but exact figures were not available.

UPMC, which employs about 50,000 people, furloughed 500 people in October and DeMichiei would not rule out further layoffs if the economy doesn't improve. None of the cuts affected patient care and the health care system is looking at other cost-saving measures, including internal reorganization.

"Everything is on the table," DeMichiei said. "We're going to be very precise about where we make cuts and where we make investments."

"We're going to be very proactive."

Despite the compensation cuts, UPMC is moving ahead with plans to open a hospital in Monroeville , less than two miles from an existing hospital that is owned by the West Penn Allegheny Health System, UPMC's crosstown rival and the region's second-biggest health care network guaranteed online payday loans.

UPMC is converting a former hotel in on Mosside Boulevard into a 120-bed hospital, which is close to The Western Pennsylvania Hospital's 350-bed Forbes Regional Campus. UPMC officials have told borough officials the hospital will cost around $250 million.

Patient demand for care at UPMC facilities is driving the system's plans, DeMichiei said.

"The patients decide where we can deliver care," he said. "Frankly, we've reached the tipping point in Monroeville. There's a demand for inpatient services."

The new hospital will improve convenience for the 90 to 150 residents of the eastern suburbs who visit UPMC hospitals every day in Oakland, Monroeville Manager Marshall Bond said when the plans were announced in November.

Not everyone agrees Monroeville needs another hospital, including Dr.Kenneth Melani, president and CEO of Highmark Inc., the region's dominant health insurer.

"Is it in the best interest of the community," Melani said during an interview last month. "Absolutely not. It's going to increase costs."

The country's health care system is "imploding and we're not doing anything to control costs," he said.

UPMC's belt-tightening plans were disclosed during an otherwise upbeat six-month financial review, where DeMichiei reported that UPMC increased revenue 14 percent during the first half of fiscal 2009, with operating income up 3 percent from the same period a year ago to $103 million.

UPMC's earnings before interest, depreciation and amortization were $280 million for the first half of the year and on track to top $500 million for the fifth consecutive fiscal year. The money is used to pay for hospitals and equipment, including the new Children¹s Hospital, which opens in April.

Source