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OHSU Wrangles With Union Over Employee Costs, Proposes Cuts

Oregon Health & Science University | MICHAEL MCDERMOTT/OHSU
June 25, 2020

Expecting revenues to remain sub-par for many months, Oregon Health & Science University is preparing a mix of cost-curbing measures to prevent its budget for the fiscal year starting July 1 from sinking too far into the red.

Those measures are likely to affect OHSU’s largest labor union, the American Federation of State, County and Municipal Employees Local 328, which represents 7,000 employees. But the union is pushing back, hoping the giant health care system doesn’t lean too heavily on the backs of its lowest-paid workers.

OHSU asked the local to agree to delay by as much as 12 months a contractually scheduled across-the-board 3% pay raise slated to be awarded July 1.

The union leadership rejected that idea. But it has reached a tentative agreement with OHSU, which is now before union members for a vote, that would allow OHSU to temporarily lay off workers, keep them on OHSU’s health insurance plan and rehire them no later than the end of the year. The tentative deal, separate from the 2019-2022 labor contract, also outlines terms for voluntary retirements, voluntary permanent layoffs, voluntary hours-worked reductions and similar steps.

OHSU would still have the option of forcing layoffs, noted Local 328 President Matt Hilton, a call center operator at OHSU.

Patient volumes and accompanying revenues at OHSU appear to be rebounding steadily after the initial sharp drop caused by the COVID-19 pandemic, Hilton said.

If there is a shortage of work to keep AFSCME-represented employees busy, OHSU should be able to handle that with temporary layoffs and voluntary or mandatory work reassignments, he added.

Hilton said the pay-raise delay proposal “didn’t sit well with anyone” on the union team.

OHSU and its foundation have a combined $2.4 billion in investments, he noted. “What is the point of having billions in reserves if you can’t use it during a pandemic?” In the coming fiscal year, the union proposed steps such as temporary layoffs that could save OHSU $6 million, Hilton said. That’s less than half of what OHSU asked for in concessions, he said.

A spokeswoman said Thursday that OHSU has not prepared any estimates of workforce reductions.  

Measures affecting AFSCME members are just one element in a broad-ranging package laid out by CFO Lawrence Furnstahl for the OHSU board to consider Friday.

Furnstahl’s plan anticipates an operating loss of $95 million on revenues of $3.3 billion for the coming fiscal year. Patient revenues will clock in at about 92 percent of pre-COVID-19 levels, he forecast.

To achieve that budget, key steps include:

Previously announced salary cuts averaging 10% for faculty and nonunion staff, totaling about 4,500 people, that will save an estimated $90 million. His plan calls for partially restoring the cuts starting as early as this fall or winter, if revenues turn rosier.

Cuts in services and supplies, to save $60 million, and a $30 million drop in planned capital spending. OHSU will halt its $460 million hospital expansion project once it completes designing the core and shell of the new facility this summer, Furnstahl wrote. The site is on Marquam Hill, near the two current hospital buildings. To build the project, OHSU had planned to borrow $250 million, use $130 million in cash and $30 million in gifts, he wrote. OHSU has already spent $50 million in cash on the design. But the drop in revenues and the resulting red ink call for prudence, he urged.

Besides AFSCME, the Oregon Nurses Association represents 2,800 nurses at OHSU. Their labor contract expires June 30, and the two sides are negotiating a new one. But the union’s spokesman, Kevin Mealy, said OHSU hasn’t raised economic issues such as wages. “We’re seeing a clear ramp-up” in patient volumes at OHSU, he added.

OHSU is "in active normal-course negotiations with ONA and the approach to (the coming fiscal year) will be addressed there," OHSU spokeswoman Tamara Hargens-Bradley said.

Like Hilton, Mealy stressed that OHSU has a massive investment portfolio.

In his memo to the board, Furnstahl sought to highlight other aspects of OHSU’s finances: OHSU has $1 billion in debt and a liability to the Oregon Public Employees Retirement System of $450 million. Compared with health care rivals such as Providence Health & Services and Kaiser Permanente, and academic peers such as the University of Washington and the University of California, OHSU has “higher unfunded pension liability, weaker debt measures” and below-median liquidity, he wrote. The Moody’s bond ratings service pointed to all these “challenges” in a ratings report last November.

Furnstahl wrote that delaying capital spending “mitigates the immediate impact of the budget deficit on cash, but in the longer-run, OHSU will need to resume these investments or not grow.” Growth has been the organization’s mantra for decades.

He also noted that OHSU’s accrued expenses of PERS pension benefits are rising “significantly” for the current and approaching fiscal years. They've risen from $77 million in fiscal year ending June 30, 2018, to $110 million this fiscal year and $102 million in the coming fiscal year, hitting hardest at a time of lower revenues, Hargens-Bradley said.

Furnstahl said that OHSU’s agreements with its lenders limit how large the organization’s budget deficits can be, and how much it draws down on its cash reserves. 

“Lenders want this commitment because once an organization starts spending down cash to cover large deficits, it can be hard to stop,” he wrote.

In his memo, Furnstahl said that for the fiscal year starting July 1, 2021, OHSU projects revenues to rise to $3.5 billion, generating an operating profit of $15 million.

You can reach Christian Wihtol at [email protected].