The nonprofit University of Pittsburgh Medical Center -- a profit machine in recent years -- did something rare during the first nine months of fiscal 2008.

It lost money.

Net income was a negative $7 million, compared with a gain of $459 million in the year-ago period, the drop largely due to turmoil in financial markets and the resulting pressure on UPMC's $3 billion equity and fixed-income investment portfolio.

Despite the overall decline, UPMC Chief Financial Officer Robert DeMichiei argued that it was a "very solid performance" for the region's largest employer and dominant medical provider, pointing to its sizable cash flow, 6 percent growth in admissions to its 20 hospitals, a 12 percent increase in enrollment to its insurance arm and a 12 percent increase in operating revenue.

"UPMC's financial position remains very, very strong."

The fact that UPMC's investment portfolio -- the primary source of UPMC's large profits in recent years -- gave up a negative $151 million in the first nine months compared with a $279 million gain in the year-ago period "is not a surprise to us," said UPMC treasurer Talbot Heppenstall, citing the credit crunch that roiled markets worldwide this year. And the losses were on paper only -- due to an accounting change last year; UPMC treats quarter-to-quarter portfolio drops as actual losses.

The last time UPMC experienced a negative return on its portfolio was 2003.

In February, UPMC survived a scare in an obscure corner of the bond market as worries about a U.S. recession and stability of bond insurers triggered a dramatic rise in interest rates on $456 million in UPMC debt and other short-term debt owed by municipalities and universities around the country. UPMC refinanced its bonds (representing 20 percent of all UPMC debt) at fixed rates but the episode still cost it $1.5 million in added interest expense, according to Mr. Heppenstall.

Asked yesterday if UPMC intended to wade back into that corner of the bond market -- so-called "auction-rate securities" -- Mr. Heppenstall answered with a flat "no."

"We have learned our lesson."

He added: "It was an interesting test."

The UPMC treasurer also emphasized that he planned no changes to the overall mix of UPMC's investment portfolio, citing a long-term strategy approved by the board that is responsible for annualized returns of 11.5 percent for the five-year period ending last March.

As for the rest of UPMC, Mr. DeMichiei urged that attention be paid to cash flow of $396 million -- measured by UPMC as earnings before interest expense, depreciation and amortization. This, he said, was the source for investments in new projects, new employees, new equipment and new international ventures without borrowing more money. UPMC spent $157 million on a new Children's Hospital in Lawrenceville, scheduled to open next May; it began work on a new seven-story, $100 million expansion of UPMC Passavant; it purchased the former Palace Inn Motel in Monroeville for $19 million, with plans for new outpatient facility; and it made a $100 million pledge to the Pittsburgh Promise, a scholarship program for kids in the Pittsburgh Public Schools.

UPMC also became the operator and part owner of Beacon Hospital in Dublin and agreed to export electronic health record technology to Newcastle-upon-Tyne Hospitals in the United Kingdom.

Operating income suffered as a result of these many new capital expenditures, dropping 18 percent, but this is all part of a strategy to "build world-class infrastructure," said Mr. DeMichiei. "We operate for the long term."

Such a perspective also explains UPMC's decision last year to sign a long-term lease for prime office space inside the U.S. Steel Tower and place its logo atop all three sides of the 64-story structure, Pittsburgh's tallest. If the weather holds this weekend, the 20-foot-tall gold-and-white letters will go up Saturday, according to spokesman Paul Wood. The sign project is costing the nonprofit $750,000, according to a document submitted last year to the city planning commission.