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Eugene hospital closure sign of wider PeaceHealth financial woes

The three-state nonprofit system has run up big operating losses for the past four years
PeaceHealth Sacred Heart Medical Center University District in Eugene, Ore. | COURTESY OF PEACEHEALTH
August 24, 2023

When PeaceHealth opened its cutting-edge 1.2-million-square-foot RiverBend hospital in Springfield in 2008, its executives assured the public there was still plenty of demand for services at the system’s former Lane County flagship hospital, near the University of Oregon in Eugene.

Fourteen years later, reality has finally caught up.

In that span, the PeaceHealth University District hospital, with a staff of over 500, has run up a total of $261 million in operating losses, more than half of that in just the past three years of the pandemic, filings with the Oregon Health Authority show.

On Tuesday, PeaceHealth executives called it quits. They announced they will almost entirely shutter the “underutilized” facility. Expenses were far outstripping revenues, and patient volumes were sharply down, they said.

In the first three months of this year, University District’s operating costs exceeded revenues by $17 million — or a loss of $1.3 million a week, records show.

The closure will include the University District emergency department, leaving Oregon’s third-largest city without an ED.

 “We will have poorer health as a community because of PeaceHealth’s business problems,” said Lane County Commissioner Laurie Trieger, who represents part of Eugene, including the University District area.

Community stunned

PeaceHealth’s Aug. 22 announcement stunned community members.

In addition to closing the emergency room, PeaceHealth will shift other related services and an inpatient rehabilitation unit to RiverBend, but keep a secure inpatient psychiatric unit operating for the time being, PeaceHealth said Tuesday.

“By discontinuing services at University District, which have unsustainable negative operating margins, we can more effectively invest our resources to better meet the Lane County community’s current and emerging needs,” PeaceHealth said in a statement Wednesday.

The move triggered calls for PeaceHealth to reverse course. The Oregon Nurses Association called the looming closure “dangerous and irresponsible.”

But it seems unlikely PeaceHealth leaders will change their minds, given the depth of the Vancouver-based chain’s financial woes. The 10-hospital nonprofit system with operations in Alaska, Washington and Oregon is reeling from years of severe operating losses, not just at University District, but systemwide. Almost all of the system’s hospitals have either lost money or broken even for several years, filings with Washington and Oregon regulators show.

Through four fiscal years in a row, up to June 30 of this year, the system as a whole has reported operating losses that total $1.2 billion. For the latest fiscal year, the system lost $240 million on operating revenues of $3.3 billion.

In the past three years, the system’s pool of cash and investments has shrunk 23%.

The bond ratings agency S&P Global in July downgraded PeaceHealth’s rating and said it will take PeaceHealth time to dig itself out of its financial hole.

Trieger said community members are still trying to gauge the pending closure’s impact, especially the loss of the emergency department. That will leave two emergency departments in the metro area — one six miles away, at RiverBend, the other five miles away at McKenzie-Willamette Medical Center. Both are in Springfield on the east side of the Willamette River. 

The bulk of Eugene is on the west side of the river. “No emergency department in the city of Eugene, no emergency department in a city where there are thousands of university students,” Trieger said.

PeaceHealth is meeting with Eugene-Springfield fire, police and other services to discuss emergency transportation times, Trieger said.

The closure will swamp RiverBend’s already-crowded emergency department, the Oregon Nurses Association predicted.

But Trieger said PeaceHealth may not have much choice.

“I do understand (PeaceHealth’s) point of view. For PeaceHealth, it is a business problem,” she said.

PeaceHealth said the University District emergency department now sees an average of 95 patients a day – a little more than half of its volume before the opening of RiverBend. Two-thirds of the visits are for medical care and the remainder for behavioral health care that is better provided in a different setting, PeaceHealth said. Very few of the medical care patients end up being admitted as inpatients, PeaceHealth said.

Oregon Rep. Rob Nosse, D-Portland, said PeaceHealth’s decision reflects the “tough times in health care.”

“I am not surprised that they are closing that facility,” said Nosse, chairman of the House Committee on Behavioral Health and Health Care.

Secure psychiatric unit vital

There have been clear signs PeaceHealth was preparing to step away from the hospital. In 2021, the system demolished 300,000 square feet of old, empty buildings there. Earlier this year, PeaceHealth said it would build a 50-bed rehabilitation center next to the RiverBend hospital, and then close its 27-bed rehabilitation unit at University District.

The fate of the hospital’s secure psychiatric unit remains unclear.

In its announcement, PeaceHealth said it would “continue providing behavioral health services at University District until there is a sustainable alternative in the community.”

Few Oregon hospitals operate secure psychiatric units, which typically run at a loss because health insurance reimbursements typically fall far short of covering the costly staffing needs.

Trieger said a secure, inpatient psychiatric unit is a vital component in mental health care and no entity in Lane County has plans to take over that work from PeaceHealth. 

PeaceHealth losses accelerated

The University District closure alone won’t likely fix PeaceHealth’s finances.

Among the system’s four Oregon hospitals, RiverBend remains a major profit center, while the Cottage Grove hospital is typically marginally profitable, but its Florence Peace Harbor hospital consistently racks up big losses. Its operating losses totalled $35 million over the past four years, filings show.

In its bond rating cut in July, S&P Global in July cited PeaceHealth’s string of losses.

“The downgrades reflect our view of PeaceHealth’s substantial and accelerating multi-year operating losses coupled with our expectation that improving its performance could take some time,” the ratings agency wrote.

PeaceHealth still has substantial wealth in the form of stocks, bonds and other investments — but that backstop has dwindled sharply.

As of June 30, the system’s net worth — all assets minus all liabilities — stood at $2.2 billion, including cash and investments of $2 billion. That’s down from a net worth of $2.4 billion in June 2020, including cash and investments of $2.6 billion.

The Fitch bond ratings service in March downgraded PeaceHealth’s rating to reflect “the considerable operating stress PeaceHealth has faced recently,” including the drop in its net worth and its reduced cash flow. 

“Despite these challenges, Fitch expects PeaceHealth’s operating results to show steady and significant improvement over time,” the agency wrote.

PeaceHealth on Wednesday said that in addition to cuts, it is looking for ways to grow. For example, this year it bought a small Eugene medical practice, Northwest Surgical Specialists, which it is integrating into its PeaceHealth Medical Group clinical.

University District once a profit center

Before the pandemic, PeaceHealth was reasonably sound financially. Several of its biggest hospitals, most notably RiverBend, generated huge profits that offset moderate losses at the system’s smaller facilities, including University District.

But the pandemic cut the profits at the big hospitals and in many cases worsened losses at the financially marginal ones.

Before PeaceHealth built RiverBend, the University District campus was a big profit center. But the system moved all the most profitable services to RiverBend and left the University District facility, which at one time totaled roughly 700,000 square feet, with typically unprofitable services such as the emergency department, and the 36-bed inpatient secure psychiatric care facility, the Johnson Unit.

In the period 2009-2017, University District reported operating losses of just a few million dollars a year. But with the pandemic, employee costs soared and PeaceHealth said patient usage dropped. 

Last year was the Eugene hospital’s biggest operating loss ever, with expenses of $179 million, but revenues of just $113 million.

You can reach Christian Wihtol at [email protected].