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Hospitals Face Tough Choices: Cut, Dive Into Reserves Or Seek Partnerships

May 22, 2020

In mid-March, as Oregon health officials braced for a crush of COVID-19 cases, Gov. Kate Brown ordered hospitals to postpone elective surgeries to ensure adequate bed space and equipment for coronavirus patients.

But even after the ban on non-emergency procedures was lifted May 1, patients are still staying away from hospitals. As a result, many hospitals say they are struggling to bring in even a fraction of the patient revenue they typically earn.

Officials at these hospitals are pleading with Oregon lawmakers and Congress to speed up the delivery of promised financial assistance. But they’re also warning that relief funding in the pipeline isn’t enough to stem unprecedented losses from the cancellation of lucrative non-emergency procedures.

"Hospitals are having to wrestle with how to maintain a workforce when the facility does not have work for staff to do or revenue coming in to maintain their employment,” executives at small and mid-sized hospitals and the Oregon Association of Hospitals and Health Systems said in a letter to Brown last month. The letter said many Oregon hospitals were facing 40-to-60-percent revenue declines.

While they wait, smaller hospitals in particular face difficult choices: cut costs by reducing staff amid a time of unprecedented uncertainty, dip into limited reserve funds or even look to a bigger hospital system for help.  

Santiam Hospital’s southern Marion County health clinics are currently operating at 30 percent capacity, CEO Terry Fletchall told The Lund Report. While Marion County has Oregon’s highest tally of COVID-19 cases outside of the Portland metro area, the area’s hotspots are largely on the other side of the county from Stayton, the 8,200-resident community where Santiam Hospital is located, 16 miles southeast of Salem.

But, despite just 14 reported coronavirus cases in the ZIP code encompassing Stayton and the surrounding area since the pandemic began, and no patients currently with the virus at the 40-bed nonprofit hospital, Santiam is grappling with what Fletchall says is an unprecedented reluctance by the public to seek care – even at clinics located away from the hospital.

“People are really apprehensive to come in,” Fletchall said. “They’re concerned that’s where COVID patients are, and they have more of a chance of catching COVID. They just have great apprehensions about going to health care providers, clinics, hospitals. That’s where they think all the sick people are.”

The absence of elective treatment patients is especially painful for smaller hospitals outside the Portland metro area, like Santiam, where the worst fears of the pandemic’s reach haven’t materialized to date.

Santiam doesn’t have the luxury of some other small hospitals that are part of larger health systems, with pools of reserve funds that can help rural providers fill their budget gaps. Asante Ashland Community Hospital and Providence Seaside Hospital are similar to Santiam in terms of size and operating revenue, state financial filings show. But the Ashland and Seaside hospitals benefit from parent companies flush with cash. Asante had nearly $1.3 billion in assets as of 2018, the most recent year data are available. Providence had more than $3.4 billion.

By contrast, Santiam’s only lifeline is about $12 million in reserves. Revenue is down about 60 percent compared to last year, Fletchall said, because it had to set aside bed space for potential COVID cases. With few patients returning, he projects the hospital will lose about $2.5 million per month over the next three months – a significant amount for a small hospital that turned a $1.5 million profit for all of 2019.

“Hospitals with low numbers of COVID patients don’t have any revenue to offset (losses from unfilled) beds,” he said.

Sounding The Alarm

The revenue crunch hasn’t just affected Oregon’s smallest hospitals.

In late April, revenue at Bend-based St. Charles Health system was down 49 percent on a year-to-date basis compared to the same time a year ago, spokeswoman Lisa Goodman told The Lund Report. The four-hospital central Oregon health system reported more than $800 million in total operating revenue in 2018, according to the most recent annual financial filings with the Oregon Health Authority. But small operating margins left it with a modest $24 million profit, making large-scale revenue declines potentially disastrous.

St. Charles received $26.8 million in federal funding through the Coronavirus Aid, Relief and Economic Security Act, known as CARES. Those funds amounted to the system’s share of the $2 trillion stimulus package signed into law in late March, which included $100 billion for hospitals and local health clinics nationwide. Only $30 billion has been delivered to date, and just $10 billion of that was specifically earmarked for rural hospitals.

Even Oregon’s largest hospitals have been impacted. OHSU saw a $35 million to $40 million earnings decline in the last two weeks of March alone, and projected cash losses of roughly $124 million by the end of June. But OHSU benefits from having more than $1 billion in cash reserves and investments, as well as a hospital foundation that boasts another $1.1 billion.

But the losses are tougher for local systems like St. Charles to stomach. After receiving its first COVID-19 patient on March 11, and peaking at 15 hospitalizations on April 5, St. Charles Bend has just one inpatient with the virus today, Goodman said. And its revenue picture has improved slightly in the last month compared with the onset of the pandemic. Revenue projections are currently 33 percent lower than last year. 

“Overall, however, we don’t think the state and federal funding is at a level that will stabilize health care,” Goodman told The Lund Report.

An Uncertain Future

Oregon has its own share of financial problems. Brown has asked state agencies to draft 17-percent budget cuts in anticipation of a bleak revenue forecast scheduled for release Friday.

The federal government has been hospitals’ only source of financial relief. In addition to CARES Act funding, the Paycheck Protection Program and Health Care Enhancement Act that Congress passed late last month includes $75 billion earmarked for hospitals and health care providers across the country.

But it’s still unclear when those funds will arrive, or how they will be split up among more than 6,000 hospitals nationwide. Also unclear is when or how the U.S. Department of Health and Human Services will distribute the remaining $70 billion in CARES Act funds, though they’re expected to be channeled to COVID-19 hotspots around the country.

The uncertainty leaves executives like Fletchall, Santiam Hospital’s CEO, wondering if the hospital can make it through to the other side of the pandemic. Santiam has received about $1.3 million in federal help to date, and was recently awarded a share of a $2.7 million federal grant that U.S. Sen. Ron Wyden, D-Ore., helped Oregon Health & Science University’s Office of Rural Health secure. The grant provided about $85,000 to each of Oregon’s 32 smallest hospitals.

But Wyden, through a spokesman, acknowledged what hospitals like Santiam and St. Charles have been saying for months: more help is needed.

“Senator Wyden is continuing to fight for every possible federal dollar to help rural hospitals in Oregon and nationwide,” spokesman Hank Stern told The Lund Report in an email. “While he’s glad $10 billion has been dedicated to rural hospitals from the HHS provider fund in the bipartisan relief packages so far, he knows full well that more needs to be done for these health care providers to meet the unique challenges they face in serving rural Oregonians.”

While they wait, hospitals like Santiam face difficult choices: cut costs by reducing staff amid a time of unprecedented uncertainty, dip into limited reserve funds, or even look to a bigger hospital system for help.

“We’re a small, community-based nonprofit,” Fletchall said. “Yes, we can merge with Salem Hospital, or OHSU, or whoever at any time. “But that’s not what the community wants. They want control of their health care. Our board is represented by the local community. We’re very committed to that.”

You can reach Elon Glucklich at [email protected].