Year in and year out, St. Charles Health System’s flagship 292-bed hospital in Bend has been the financial powerhouse of the four-hospital chain, generating profits that buoyed up the system’s other medical centers in their money-losing years.
That abruptly ended as COVID-19 blew up traditional hospital financial models in Oregon, hammering large hospitals around the state that had long been highly profitable, new financial reports show. Meanwhile, smaller hospitals have tended to generate healthy margins.
The reports, submitted by hospitals to the state each quarter, provide detail and context about the cornerstone institutions of the state’s health care system. Oregon hospitals’ trade organization recently urged lawmakers to hold off from imposing new mandates on hospitals, citing the system’s financial “fragility.”
During the third quarter of 2021, when Oregon saw peak hospitalizations due to the delta variant, nearly half of the state’s 60 acute-care hospitals reported losses, while half reported profits. That’s a much higher rate of losses than normal. The losses were driven in part by increased boarding at hospitals because there is no room for patients at skilled nursing or assisted living centers.
Staff shortages at hospitals have also contributed to a lack of staffed beds that in turn has hurt patient care, contributing to several patient deaths during the delta peak last fall, hospital officials and health care workers have said.
At the same time, though, Oregon’s hospital systems have large stock and bond investment portfolios that grew substantially in 2021, often more than offsetting operating losses individual hospitals sustained, financial filings show.
Also, the state has paid for several companies to provide temporary emergency workers to understaffed hospitals, authorizing more than $280 million so far, to be reimbursed by the federal government.
Red Ink In Bend
Illustrative of the strain big hospitals are under, the Bend hospital has taken a beating with sharply higher staff and equipment costs, reduced surgeries, the end of federal CARES Act grants, and the inability to discharge some recovering patients, the latest financial reports show.
For the first three quarters of 2021, the Bend hospital reported an operating loss of more than $21 million, or nearly 4% of revenues. The fourth quarter is predicted to be similarly grim. That comes atop an $18 million operating loss in 2020.
Meanwhile, the nonprofit system’s three small hospitals fared uncommonly well, as all the region’s COVID-19 cases were channelled to the Bend facility. All three are in the top 10 in the state for profitability percentages for the first three quarters of 2021. In the third quarter of 2021, during the height of the delta variant, the tiny Madras and Prineville hospitals each reported operating profits topping 20%, according to data submitted by St. Charles to the state.
Inability To Discharge
One big thorn that’s increasingly aggravating Oregon hospitals: Many COVID-19 patients have recovered to the point they can be discharged to a nursing or assisted living center, but those facilities statewide are largely full. So, the patients continue to occupy hospital beds. Yet insurance typically won’t pay the hospital for that expense because the patient no longer needs hospital-level care, said Lisa Wood, spokesperson for Salem Hospital. The hospital reported a $3 million operating loss for the first three quarters of 2021. That’s an eye-opening result for a hospital that has reaped strong profits — sometimes topping $30 million a year — for decades.
The 494-bed nonprofit hospital is boarding an average of 40 patients a day who medically don’t need to be there but can’t be discharged because there is no facility to take them, Wood said. That costs the hospital about $80,000 a day, she said.
“Once the patient no longer meets acute care medical necessity, insurance generally no longer covers their cost of care,” she said. “Salem Health must largely write off the cost of care for these patients once they have met the criteria for discharge and through the entire length of stay while boarding in the hospital.”
Recovery Time Unclear
Although the pandemic’s omicron surge is receding, hospital systems expect it will take some time for large hospitals to regain their traditional profitability.
“Our current forecast indicates that, like others, Salem Health will be experiencing continued financial strain for at least the next 12 months as we stabilize the workforce and continue to problem solve the increased (length of stay) issues,” Wood said.
St. Charles, in its public financial report for the first three quarters of 2021, echoed Salem Health’s concerns, saying the lack of beds at nursing or assisted living facilities has driven up the length of patient stays at St. Charles hospitals 23% compared to the same period in 2020.
Fourth quarter results for most Oregon hospitals have not yet been publicly released. But they aren’t pretty for St. Charles, spokeswoman Lisa Goodman said.
“The fourth quarter really showed a fall off in revenue and increase in expenses, as we relied more and more on contract nurses” who are temporary hires brought on at a premium, Goodman said. Special expenses in the first three quarters of 2021 included paying $5.5 million in bonuses to try to retain staff, according to the system’s third-quarter report.
More Hospitals Report Losses
To give state regulators a snapshot of how hospitals are doing financially, each hospital files an unaudited set of quarterly financial data with the Oregon Association of Hospitals and Health Systems, which passes along the numbers to the state, which posts them on its website.
The numbers don’t follow accepted accounting methods for audited statements, may omit some expenses, and are subject to error. For example, the quarterly filings by Bay Area Hospital in Coos Bay for much of 2021 are incomplete, omitting millions of dollars in expenses. The trade association said it is working to correct the numbers.
So, the quarterly filings are not the final word. But they give a good quick look at how hospitals are faring in the pandemic.
For the first three quarters of 2021, out of Oregon’s 60 acute-care hospitals, 24 showed operating losses. In the third quarter alone, 29 showed operating losses. By comparison, in 2019, prior to the pandemic, 15 hospitals posted an operating loss.
Almost all of Oregon’s hospitals are nonprofits, and the topsy-turvy finances of 2021 underscored several key factors:
Health system dynamics: Most of the hospital systems rely on one or two big money generators — typically their largest hospitals where many surgeries are carried out. These prop up the rest of the system, which often includes hospitals that are small, rural, financially marginal or chronic money losers. The profits from big hospitals also are crucial for feeding reserves that hospitals need for capital projects.
Investment portfolios: The hospital systems all have large stock and bond investment portfolios vital to their long-term financial soundness. The returns on those portfolios are not included in individual hospital financial reports to the state. So, while many individual hospitals fell into the red in 2021, the systems as a whole typically did fine, largely due to investment returns.
For example, the seven-state Providence St. Joseph Health system, which includes eight hospitals in Oregon, posted an operating loss of $405 million for the first nine months of 2021, according to its third-quarter financial report.
But, separately, Providence’s investment portfolio gained $937 million in that period, hitting about $13 billion, more than offsetting the operating loss, according to the report.
Other hospital systems in Oregon have more modest portfolios, but all have done well in the stock market boom of the last several years.
St. Charles’ portfolio generated $47 million in earnings in the first three quarters of 2021, taking it to a total of $770 million, the system reported. Those earnings, plus profits from its small hospitals, allowed the system to post a $60 million profit for the first nine months of the year.
CARES Act Funding: The end of federal CARES Act grants is making hospitals’ 2021 financials look particularly dire.
In 2020, hospitals’ revenue declines and increased expenses caused by COVID-19 were partially offset by the grants. But little of that money was left to dole out in 2021, leaving hospitals to fend for themselves.
For example, the entire multi-state Providence system received a total of $1.1 billion in CARES Act money, almost all of it in 2020, according to the system’s latest financial reports. Even with the aid, the system reported operating losses in 2020. Those losses doubled in the first three quarters of 2021.
Big Profits At Small Hospitals
During the COVID-19 turmoil, some small hospitals have been spared some pandemic-related expenses because many COVID-infected patients were sent to the larger hospitals.
In the third quarter of 2021, eleven of Oregon’s 60 acute-care hospitals reported operating profits over 10%, with the highest — Santiam Memorial Hospital — at 29%. All 11 were very small hospitals — under 50 beds.
St. Charles Madras — a 25-bed hospital that lost money or broke even for 10 years between 2007 to 2020 — reported a stellar 22% operating profit margin for the first nine months of 2021, with a record $10 million profit.
By contrast, the list of the biggest losers —16 hospitals reporting operating losses exceeding 5% in the third quarter — included six large hospitals of over 100 beds. These included St. Charles Bend; PeaceHealth University District Medical Center in Eugene; Good Samaritan Regional Medical Center in Corvallis; and Providence Medford Medical Center. The PeaceHealth Eugene hospital and the Medford hospital have a history of invariably racking up annual operating losses, while the Corvallis hospital veers between operating profits and losses.
The Eugene hospital illustrates how the pandemic made things even worse for a chronic money loser, because it had to staff up to handle COVID-19.
The hospital — which has no surgical units and houses a secure psychiatric unit, rehabilitation units, elderly care services, outpatient therapy services and an emergency department — posted an operating loss of $40 million for the first nine months of 2021, compared to a loss of $40 million for all of 2020, and a loss of $28 million in 2019. The steeper losses during the pandemic appear mainly due to higher personnel and related costs, reports to the state indicate. PeaceHealth did not respond to questions from The Lund Report.
The Oregon hospital trade association calculated that for the third quarter of 2021, the state’s hospitals overall had a median operating profit of 1.1%.
The trade group “does not consider a 1.1% median operating margin as sustainable for continued hospital operations,” said spokesman David Northfield, adding a 3% profit is considered “the minimum margin for continued operation of full care services.”
System By System Breakdown
Here’s a look at how some of Oregon’s biggest systems fared in 2021.
Providence: For years, Providence St. Vincent Medical Center in Portland has been the big money maker in Providence’s Oregon operations. That remained true in 2021.
The 539-bed hospital posted an operating profit of $62 million — 8% on revenues of $782 million — for the first three quarters, including a profit rate of just 5% in the third quarter during the delta surge.
Those numbers are off from the medical center’s stellar numbers of recent years, including a $130 million operating profit in 2019.
Meanwhile, the pandemic didn’t help the financial performance of the smaller Providence hospitals that typically lose money or break even: Hood River, Willamette Falls, Milwaukie, Seaside and Medford.
“Providence Medford was hit particularly hard with the delta COVID surge in August and September, seeing a large proportion of COVID patients that required shutting down more elective services to ensure bed capacity,” said spokesman Gary Walker.
“In some of our rural communities like Providence Seaside, staffing and provider shortages have been more widespread, causing a larger impact,” he added.
As a large, integrated system Providence is “better able to weather the ups and downs of external factors in individual communities,” he said.
The financial report for the entire seven-state system for the third quarter ended Sept. 30, 2021 said that even though revenues overall were up for the nine months of 2021 compared to the same period a year earlier, costs were also up. The system reported an operating loss of $405 million for the nine months, on revenues of over $20 billion.
“Regional operating results for the nine months ended September 30, 2021 were mixed, reflecting the uneven impact of the pandemic,” Providence said in the report. “We saw a significant surge in COVID-19 volumes during the first quarter of 2021, particularly in our Southern California region. COVID-19 volumes decreased in the second quarter of 2021, followed by another surge during the third quarter of 2021.”
“The increased volumes resulted in higher labor costs and led to greater usage of agency staffing and increased overtime,” the report said. Also, Providence began paying bonuses to keep workers from leaving, it said.
Pay and benefit costs rose 10% for the first nine months compared to the same period a year earlier, the system reported.
PeaceHealth: At PeaceHealth’s four-hospital Oregon group, the 365-bed PeaceHealth RiverBend Medical Center in Springfield has long been the financial dynamo, reliably generating $75 million to $100 million or more in operating profits annually. That helps support the entire three-state Washington-based system, including the Eugene hospital and the small Cottage Grove and Florence hospitals that fluctuate between modest annual operating profits and losses.
The four-hospital Oregon group in 2019 generated $67 million in operating profits, largely courtesy of RiverBend.
But for the first three quarters of 2021, RiverBend produced only $33 million in profits, due to steeply rising expenses. The four-hospital Oregon group as a whole reported an operating loss of $3 million in the first three quarters of 2021.
Salem Health: Salem Hospital, the flagship of the two-hospital Salem Health system reported an operating loss of $3 million on revenues of $677 million in the first nine months of 2021. It had managed an operating profit of $34 million in 2020. The system is backstopped by an investment portfolio of around $900 million that it has built up with consistent profits from Salem Hospital over many years.
“Particularly over the last year, costs have escalated because of recurring (virus) surges, increased (patient sickness) and the resulting need for more staff in a very competitive labor market,” said Wood, the spokesperson.
“Two deployments of the National Guard to the hospital have helped offset some of these gaps in non-clinical care areas and have been a huge help in our ability to meet demand. However, the National Guard does not fill clinical roles. We have received some contract clinical staff from the state, but to meet overall demand, Salem Health has had to hire a significant amount of contract labor, which comes at a large premium,” she said.
Legacy: The five hospitals of the Portland-based Legacy Health System incurred a net operating loss of $2 million for the three quarters ended Sept. 31, 2021, according to filings with the state.
For 2020, the hospitals collectively reported a profit of $71 million, down the exceptionally strong $103 million profit in 2019.
The system reported a $1.3 billion investment portfolio as of spring 2021, up from $1 billion a year earlier.
Legacy declined comment to The Lund Report.
Asante: The three hospitals of the Medford-based Asante system reported a total operating profit of $36 million for the first three quarters of 2021, compared to $44 million for all of 2020, and $73 million for 2019, filings with the state show.
The traditional big money maker is the 378-bed Asante Rogue Regional Medical Center in Medford. It was clobbered financially in 2021. It reported $19 million in operating profits for the three quarters, including a loss of $6 million in the third quarter. That compares to a $64 million operating profit in 2019.
The decline in profitability was due in part to rapidly rising labor costs, Asante noted in its financial reports, which included a systemwide unaudited financial report for the fourth quarter ending Dec. 31, 2021.
“Salaries and benefits increased by 20.8% from $156.6 million (in the fourth quarter of 2020) to $189.2 million (in the fourth quarter of 2021) due to an increase in contract labor to offset the loss of employees due to the COVID vaccine mandate, increase in hourly rate for contract labor due to the national labor shortage and increase in premium pay and overtime for employed staff,” the report said.
The report noted that Asante’s investment portfolio increased sharply, rising to $826 million at the end of 2021, from $755 million a year earlier.
You can reach Christian Wihtol at [email protected].