Case Study
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).
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?
