UPMC's layoffs were the start of a McKinsey-guided 'transformation,' documents show

A wave of employee layoffs that UPMC announced last month was just one part of a broader restructure and operations “transformation” initiative, for which the nonprofit system has tapped management consulting firm McKinsey & Company.

In slides from an internal presentation obtained by Fierce Healthcare, the nearly $28 billion Pittsburgh organization told employees that it was “confidently going forward” with layoffs that were among the “early phases of operational/quality changes across UPMC.”

The layoffs, which UPMC has said affected about 1% of its 100,000-person workforce, were “tough, but necessary actions to ensure we stay true to mission/commitments to the community, workforce and infrastructure,” the system wrote in the presentation.

Slides addressing the layoffs placed the changes under headlines and logos outlining system’s “partnership” with the controversial McKinsey, who UPMC wrote is providing an “objective, non-biased evaluation” of the organization. The consulting firm is also helping UPMC identify “opportunities” for short-term turnarounds—including organizational restructuring—and subsequent “long-term optimal positioning.”

Public and internal messaging from UPMC said the layoffs announced last month “primarily” affected administrative, nonclinical and nonmember-facing staff. However, a current UPMC hospital nurse, speaking to Fierce Healthcare on the condition of anonymity, and others have pushed back on the characterization.

A slide from an internal presentation at UPMC

The nurse said she is aware of multiple released clinicians in shift supervisor-type roles that are “very much patient-facing.” Eliminating those employees increases the strain on other clinicians and has a negative impact on patient care, she said.

“We need all hands on deck just to function and make sure we can take care of patients appropriately and safely—so eliminating the staff absolutely has an effect on patient care,” the nurse told Fierce Healthcare.

Echoing claims made on social media around the time of the layoffs, the nurse also criticized UPMC for the “cruel” manner in which it conducted the layoffs and questioned the necessity in light of other spending on a new, $1.5 billion hospital expansion project and a “fancy” corporate jet. The nurse and others also described a negative shift in morale among UPMC’s workforce in the wake of the layoff announcement.

Fierce Healthcare reached out to both UPMC and McKinsey for comment on the partnership and the layoffs but did not receive a response in time for publication. This story will be updated with any response.

McKinsey provides 'outside system look at opportunities' amid operating losses

UPMC is among the country’s largest nonprofit health systems. Its operating revenues are roughly split between its health services division, which includes 40 hospitals, and its 4.2 million-member insurance services group—though it also runs a division supporting development of commercial venture enterprises and, like many large nonprofits, keeps an investment portfolio.

The system’s operations have also been losing money. For the 2023 fiscal year, ended Dec. 31, the organization logged a $198.3 million operating loss (-0.7% operating margin) on revenue of $27.7 billion due in part to rising health plan utilization and insurance claims expenses. Its bottom line fared better at a $31 million loss, thanks in large part to that year's investment returns.

The performance comes after UPMC had recorded a $162 million operating gain across 2022 but a $1 billion net loss due to that year’s investment markets. And just this week it reported a $103 million operating loss (-1.4% operating margin) for its first quarter of 2024 and 103 days of cash on hand as of March 31.

“UPMC is continuing to face strong headwinds and the realities of a new, still-evolving, post-pandemic marketplace,” the system wrote in the internal slideshow presentation, alongside notes that low government reimbursement and high supply and labor costs had contributed to the difficulties.

Earlier this year, UPMC cut the base pay rate for many of its internal travel nurses by about 15%, from $85 an hour to $72 an hour, and adjusted other aspects of the program’s pay cycle in response to lessening industry-wide demand for travel nurse labor, the Pittsburgh Post-Gazette reported.

Slides on the organizational restructure said that UPMC would be working to boost operational efficiency and care access, including by creating more operating room availability, opening additional patient appointment slots and monitoring hospital length of stay. In a graphic outlining the organization’s 2024 strategic priorities, it outlined a focus on new models of care, accelerating business growth and diversification, “sound finance” principles and “exceptional” experiences for patients and employees alike."

UPMC also wrote that McKinsey’s “outside system look at opportunities” could potentially bring improvements to physician productivity, supply and purchased service spending, revenue cycle management and payer contracting.

Screenshot of a slide from an internal presentation at UPMC
(Fierce Healthcare)

The global consulting firm has faced criticism over the guidance it’s provided to high-profile healthcare providers and other organizations within the industry.

A 2022 New York Times investigation highlighted a revenue growth strategy created by the firm to help the 51-hospital nonprofit Providence obtain payments from low-income patients who should have qualified for financial support.

Facing subsequent scrutiny from lawmakers and state attorneys general, Providence’s top executive responded by describing the overlooked financial assistance as “an error” that it planned to amend, though did not directly discuss McKinsey’s involvement in creating the program. Recent months saw Providence strike a settlement refunding or erasing $157.7 million in medical care payments for Washington patients, though an investigation into the alleged practices is still ongoing in Oregon.

McKinsey is also under criminal investigation over its work with drug manufacturers, such as Purdue Pharma, to maximize revenues from the sale of opioids. The firm, which has not admitted any wrongdoing, has agreed to about $1 billion in settlement payments related to its opioid industry consulting since 2021.

The presentation slides reviewed by Fierce Healthcare listed McKinsey's name and logo directly above bullet points addressing April's layoffs; however, the slides did not explicitly describe what role, if any, McKinsey may have had in the April layoffs. UPMC and McKinsey have not responded to questions seeking clarification on their partnership in relation to the layoffs.

Employees 'feel like they're walking on eggshells'

UPMC said in April that its reductions would largely leave patient-facing care roles intact, a common message and approach among recent years' hospital layoffs that reflects a widespread need for more nurses and other clinicians.

In practice, however, at least some of the health systems’ cuts extended to those who sometimes step in to provide care, the anonymous nurse, who has been at UPMC for over a decade, said.

These positions are situated “between the director and the regular staff” of individual departments, she explained, and are held by nurses or other clinicians that often take on patients when frontline workers need to step away.

“We are in a healthcare crisis right now,” the nurse said. “There is a shortage of people working in hospital facilities, and these people jump in when we’re short-staffed and employees need breaks. They jump in and talk to patients, and they still are active in the procedures or in the testing.”

The nurse said they and other UPMC clinicians heard that the layoffs would be focused among administrative staff and presumed that their teams would be unaffected, they said.

It was a shock when later that day they learned that clinicians were abruptly escorted off the premises.

“One clinician I know was in her office with one of the employees when she was asked to come to the director's office,” the nurse said. “The employee was sitting there in the office waiting for her to come back, and she was still sitting there waiting when HR and another director showed up to gather her things.”

A slide from an internal presentation at UPMC
(Fierce Healthcare)

The nurse said it was “cruel” and “probably traumatic” for the laid off employees to be “escorted out as if they had done something wrong, or they were guilty of a crime.” The nurse said they knew of clinicians with “anywhere from 20 to 45 years of service” who were laid off in this manner.

“They’ve devoted their entire careers and lives to [UPMC] and taking care of patients,” the nurse said. “UPMC likes to preach dignity and respect, and that was far from it.”

Social media and message board posts from late April appear to outline a similar pattern of more tenured employees—who likely would have accrued higher compensation—bearing much of the brunt. A portion of those postings also specified that they or others who were laid off had patient-facing roles, or were in positions officially considered to be “non-clinical” but still involved patient care.

UPMC wrote in the presentation slides for employees that the “scope of leadership positions was carefully evaluated and decisions to reduce positions [were] made based on scope/reporting structure.”

The nurse said the layoffs have “changed the morale in the workplace,” particularly among those in middle management positions who now “feel like they’re walking on eggshells.” Those still employed that posted online wrote that they were “devastated” seeing colleagues unexpectedly released. Another current employee who spoke to Fierce Healthcare but did not wish to be named also shared these sentiments.

One slide included in the presentation stressed that the layoffs and broader McKinsey-supported "transformation" does not mean that UPMC will be curtailing any of its operations or services, or that the organization is "frightened for the future."

Rather, the layoffs and other operating efficiency efforts also come as UPMC leans into capital expenditure business growth, per the presentation and other quarterly financial documents.

Among the health system's larger projects: the April 2023 opening of its $510 million UPMC Mercy Pavilion, housing vision and physical rehabilitation institutes; and and ongoing construction of a $1.5 billion, 17-story hospital expansion that would connect via skybridge to the existing, 130-year-old UPMC Presbyterian and become “the largest healthcare building in Pittsburgh’s history,” per financial documents.

For the latter, UPMC first announced the expansion plan in 2017 and broke ground in 2022, with a timeline to cut the ribbon in 2026. The system has said the new "digital, high-tech" tower will add private rooms on higher floors, green spaces and lower-level retail space, making the hospital destination both locally and for those traveling from across the country.

A rendering of the UPMC Presbyterian expansion, set to open in 2026
An artist's rendering of the UPMC Presbyterian expansion, a $1.5 billion construction project set to open in 2026 (UPMC)

The nurse pointed to these projects and another multimillion-dollar spending line—a 2023 private jet registered to a trust company but operated by UPMC that, per online aircraft tracking services, repeatedly flew to and from Boca Raton Airport on the days surrounding the layoff announcement—as a “pretty disheartening” contrast for employees.

“UPMC has all these higher corporate priorities—their fancy jet, this brand new hospital across the street from [UPMC Presbyterian]—they’re going to have to come up with the money for that somewhere,” they said. “So a lot of us are saying, you know, they’re cutting all these people because they need the money to build their fancy new hospitals—that they’re probably not going to be able to staff because they can’t staff any of their other hospitals.”