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OHSU Approves $3 Billion Budget for Fiscal Year 2018

The hospital and university system’s spending plan for July 2017 through June 2018 includes heavy capital spending, an also a continuing focus on keeping expenses down as revenue growth slows.
June 30, 2017

After two years of rapid growth, Oregon Health & Science University ability to meet demand for its services is running into capacity constraints, and the pay OHSU’s hospital receives for care is curbing as well, prompting the state’s largest healthcare institution to approve a budget on Thursday that anticipates a leaner era in the years ahead – and that reflects the uncertainty created by debates over health reform unfolding in Washington, D.C.

“I believe that OHSU is as well positioned as it ever has been,” said Dr. Joe Robertson, OHSU president, who noted that fundraising efforts and faculty recruitment have been especially strong over the past few years.

“We remain well-positioned to fulfill our mission of health and well-being of Oregonians. However, I think it’s fair to say there are some storm clouds on the horizon, particularly in the area of healthcare, and some would say those storm clouds are overhead. We don’t know what is going to happen.”

In a presentation to OHSU board members, Chief Financial Officer Lawrence Furnstahl said he intends to closely monitor spending and revenue and guide adjustments month-by-month as the health system’s financial situation becomes more clear.

“In the two years before this one, the largest driver of earnings in the university was 10 percent growth in patient revenues,” Furnstahl said. “About half of that came from volume and half of that came from rate, and both of those were positively impacted from the Affordable Care Act. That rapid growth has fallen in half to 5 percent.”

Meanwhile, OHSU’s hospital is operating at or near capacity, with beds regularly filled, meaning that even if demand were higher, there are only limited opportunities to continue to grow.

In the budget approved Thursday, OHSU’s board expects base operating income to decline slightly from $108 million to $100 million. To achieve that in an era of higher costs, ongoing construction, and debt payments from past building projects, the health system will have to rein in costs where it can, Furnstahl said.

Highlights from the Fiscal Year 2018 budget, which will run from July 2017 through June 2018, and which was unanimously approved:

  • Capital spending will go down 8 percent compared to FY 2017, to $161 million.
  • OHSU expects to continue to receive roughtly $80 million to $85 million in special Medicaid funds not available to other Oregon hospitals, to support research and education.
  • FY 2018 revenue is estimated at $3 billion, with 71 percent coming from patient revenue, 14 percent coming from grants; 3 percent from the Medicaid special funds; 4 percent in gifts; 3 percent in tuition; 1 percent in state appropriation, and 4 percent from all other sources.
  • FY 2018 expenses are estimated at $2.9 billion, with 60 percent going to salaries and benefits, 30 percent to services and supplies, 5 percent toward depreciation, 4 percent toward the provider tax, and 1 percent toward interest.
  • The budget generates $62 million of positive cash flow, which will keep OHSU’s days of cash on hand even at about 200.

New spending in the 2018 fiscal budget includes the creation of a parking infrastructure fund to address chronic parking shortages both on the south waterfront and at OHSU’s hilltop campus, with $15million allocated. Another $248 million is set aside for major construction projects, funded through debt, a $200 million state grant, and gifts.

Excluding one-time revenue sources, such as the state’s $200 million Knight Cancer Center funding, OHSU’s annual earnings are expected to drop for the first time since 2014, going from $287 million in FY 2017 down to $283 million in FY 2018.

Spending freezes that were put into place in 2017 will also continue into the first quarter of 2018, which runs July through September of this calendar year. Cost containment efforts in FY 2017 have focused on hiring freezes for non-essential personnel, suspending discretionary spending, carefully managing supply chain and pharmacy costs, and pushing a culture of belt-tightening across the university.

OHSU’s headcount has fallen from a high of 16,307 people in February of this year to 16,146 people in May 2017.

In the year ahead, OHSU will focus on identifying ways to make sustainable cost reductions, Furnstahl said. “It’s not just telling people to hold positions vacant, but thinking about how we’re doing work.”

In addition, the hospital will keep a close eye on its progress as the year progresses.

“To insure meeting next year’s budget, as I’m confident we’ll meet this year’s budget, we are going to explicitly manage in a month-by-month and quarter-by-quarter way,” he said. “We are going to start with our foot on the breaks at the beginning of the year, and hopefully ease off.”

Reach Courtney Sherwood at [email protected]

Correction OHSU's ability to provide more services is constrained by its capacity, not by a drop in demand. An earlier version of this story was in error.