Oregon Health & Science University leadership on Tuesday declined to say whether it has considered scrapping its proposed acquisition of Legacy Health in light of its worse-than-expected financial performance and threatened federal cuts.
OHSU’s sidestepping of questions about the absorption of Legacy comes in the wake of an advisory board’s recommendation against it and a notably challenging and uncertain financial outlook for OHSU, which is Oregon’s leading research institution and one of its major employers.
Last week, OHSU leaders reported additional new losses as well as budget cuts on top of its layoff of hundreds of employees last year. That comes in the context of proposed federal cuts that OHSU officials said pose a major additional threat to its financial condition and workforce. Meanwhile, the academic medical center has faced leadership turmoil as well as public criticism from a star researcher at OHSU’s Knight Cancer Institute, Brian Druker, who stepped down as CEO in December, saying OHSU has lost sight of its mission. The abrupt departure of Druker, widely credited with making OHSU a national player, sparked speculation that its outside fundraising may suffer.
The recent financial news, in particular, appears to undermine the premise of the OHSU application for state approval of the deal, in which the university appeared to gloss over its own financial weaknesses and portray Legacy as in dire straits.
In the wake of the OHSU board of directors’ meeting Friday, The Lund Report sent a query to the university’s spokesperson asking “Has the OHSU board and administration discussed whether it should change course on the proposed absorption of Legacy….If not, why not, and if so, what has it concluded?"
In reply, the spokesperson sent a description of the ways OHSU intends to reduce expenses in the coming year. The steps, which include delaying a planned addition to Doernbecher Children’s Hospital and limiting raises and travel costs, “are necessary regardless of whether the Legacy Health integration is approved,” she wrote.
Normally public agencies have to share information about board discussions. However, OHSU has used its special exemptions in Oregon’s records law and public meetings law to keep its discussions of the merger out of public view, while denying multiple public records requests.
So whether or not the appointed board that’s entrusted with oversight of the public institution has discussed the impact of the recent threats — and whether the Legacy acquisition still makes sense in light of them — is unknown.
In their application and during the months since filing it, OHSU officials have argued the merged entity would be subject to public accountability and transparency, so critics’ fears of excessive cost hikes are groundless.
OHSU faces steep new cuts
At its board meeting last week, executives reported that OHSU posted an operating loss of about $7.9 million per month, on average, with a loss of more than $71 million for the nine months that ended March 31. That's sharply higher than its losses for the year-earlier period.
Looking forward, OHSU projects a $45 million full-year operating loss for the 2025-26 fiscal year. Narrowing the loss next year will require delaying capital projects, not filling job vacancies and drawing down the institution’s reserves so that OHSU “can preserve as many jobs as possible,” said Lawrence Furnstahl, OHSU’s chief financial officer.
“If we tried to reach a zero-balance budget, the additional cuts above what we’ve already targeted would result in excessive damage to our missions and our people,” he said.
In the meeting, interim president Steve Stadum indicated that year-over-year expenses rose 11 percent for the most recent nine months, while revenues rose 11.5 percent.
“We’re actually losing less than we did the year before, which, from my perspective, is progress,” Stadum said.
Federal research cuts add new uncertainty
Looming over the financial conversation is the threat of drastic cuts in federal research funding. Proposed cuts in National Institutes of Health research funding could cost OHSU as much as $80 million, according to a multistate lawsuit against the administration. Already, members of Oregon’s congressional delegation are sounding the alarm about the magnitude of the proposed cuts.
“Will research survive at OHSU? I personally don’t think it’s going to survive in its present state,” said Peter Barr-Gillespie, OHSU’s chief research officer, who cited a sharp reduction in new federal grants and a harsher federal formula for covering research costs in the Friday board meeting. “I look at all these threats … Each of them would be devastating, and together it could be a real problem.”
If OHSU cannot afford to continue to conduct research, Barr-Gillespie said, “it would be transformative, and not in a good way.”
Stadum has formed a commission to propose how OHSU should respond to the changes in research funding.
Application portrayed university as a financial savior
When OHSU officials filed their application for the proposed purchase of Legacy in September 2024, they set a hoped-for deadline for completing the merger of March 30, 2025, saying, “It is essential that the organizations begin integrating by that date to … assure the long-term financial viability of the state’s public university health care system.”
The notice painted a particularly bleak picture of Legacy, a six-hospital system. “Simply put, Legacy Health must find a strategic partner to achieve financial sustainability, and OHSU is the best possible partner for Legacy Health,” OHSU told the state. “Over the last five years, Legacy Health has absorbed significant and unsustainable operational losses, driven by COVID-related disruptions, declining volumes and rapidly escalating costs.”
But since then, Legacy has shown signs of stabilizing finances and received affirmation from S&P Global, the bond ratings agency. The system continues to lose money, but has raised its reserves and lowered its debt, said the ratings agency last month, noting that Legacy Health has “sound economic fundamentals and a relatively stable business position.”
Stadum recently told Willamette Week the acquisition should go forward, saying the combined entity would be subject to public accountability.
OHSU has contended its takeover of Legacy would improve efficiencies such as by making better use of vacant Legacy beds to ease OHSU overcrowding. Supporters have said that breaking down barriers and consolidating could improve the quality of care, and some employee unions say the merged entity would improve working conditions.
But critics have cited research suggesting such mergers inevitably raise costs for residents and patients, while potentially hurting care. Former Gov. John Kitzhaber said in November the proposed acquisition “raises more questions than answers.” And the community advisory board appointed by the state to review the OHSU-Legacy linkup voted unanimously to recommend against the plan.
The Oregon Health Authority expects to make a final decision by June or July.
Nick Budnick contributed to this report.
