PeaceHealth’s sudden layoff of 251 people across Oregon and three other states reflects a national trend in which hospital belt-tightening affects the communities and patients they serve.
Among the Vancouver, Washington-based systems’ cuts: the sleep clinic and pediatric cardiology service in Springfield, the optometry clinic and optical shop in Eugene, an allergy clinic in Bellingham, Wash., and overnight sleep labs in Bellingham and Vancouver, according to an April 25 internal memo The Lund Report reviewed.
That’s in addition to PeaceHealth’s decision earlier in April to terminate 36 temporary contract nurses at its Eugene and Springfield hospitals and close an unspecified number of inpatient beds at the two facilities. The Oregon Nurses Association labor union, which represents nurses at PeaceHealth, said 87 beds are being closed, and that’s sparking concern the changes will undermine care. Between them, the two hospitals are licensed to have 450 beds.
The cuts will add up to more than $200 million in “performance improvements,” according to the memo Sarah Ness, chief administrative officer at PeaceHealth, wrote to staff.
“Our current actions are important steps towards safeguarding PeaceHealth’s mission for the future,” she wrote “Other health systems are following suit; those that haven’t will risk more drastic consequences.”
The trend the Peacehealth cuts reflect is occurring nationwide. Several factors are driving it, two health economists wrote in the journal Health Affairs last fall, and it “will have lasting implications on quality and access to care, particularly among the most vulnerable populations.”
Cuts all over Oregon
Emergency financial help from the federal government has ended, and many hospital systems in Oregon and nationwide are reeling from quarter after quarter of operating losses. Wages and drug costs have ballooned, outpacing reimbursement rates under Medicare, Medicaid and commercial insurance contracts. To plug the gap, some systems are drawing deeply on their cash and investment reserves.
And as the recent trend shows, they are also trying to cut their way to profitability. That’s a tricky task.
Their hope: that savings from eliminating certain jobs and services will exceed the revenue lost by cutting those services. PeaceHealth, for example, is betting that the savings from cutting pricey temporary contract nurses — who can cost up to twice as much as staff nurses — will more than offset revenue lost by keeping beds empty.
PeaceHealth declined to say how many beds it is closing in Eugene and Springfield.
“PeaceHealth’s plans are constantly evolving and the number of temporarily closed beds will fluctuate daily depending on staffing and patient census. It has yet to be determined whether the temporarily closed beds will be on one floor — or unit — or in multiple areas at PeaceHealth Sacred Heart Medical Center at RiverBend,” PeaceHealth said in a statement.
It also said that at its four Lane County hospitals, which constitute PeaceHealth’s Oregon network, it has eliminated 69 positions along with its closure of speciality clinics. “We are notifying patients and will help them find alternatives for care where available,” the statement said, adding that PeaceHealth has nearly 1,300 “open clinical roles” systemwide that people can apply for.
But making cuts carries risks. The savings may prove meager. The workplace disruptions may drive other employees to leave. And for patients, quality and access to needed care may be diminished.
In recent months, there’s been a drumbeat of such news in hospitals across Oregon. These include:
- In April, Mercy Medical Center in Roseburg announced it would eliminate its 50-employee home health services unit.
- Also last month, McKenzie-Willamette Medical Center in Springfield announced it would close its midwifery unit.
- In January, Mid Columbia Medical Center in The Dalles closed its medical oncology unit, Celilo Cancer Center, but is reopening it as a state-required condition of merging into the Adventist Health system.
- In March, the nonprofit Legacy Health closed its birth center at Legacy Mount Hood Medical Center in Gresham, only to be forced by the state to begin reopening it after critics cited health inequities on the lower-income and diverse populations nearby.
- Last summer, financially ailing Bay Area Hospital in Coos Bay announced that to save money it would close its psychiatric health unit and lay off 56 workers. But the hospital backed down in the face of a public outcry that the service was vital.
And those cuts are unlikely to be the last, according to Becky Hultberg, president and CEO of the Oregon Association of Hospitals and Health Systems.
“We have been sounding the alarm for more than a year that hospitals in financial distress will eventually have to make some wrenching decisions about the services they provide, and that’s what we are seeing now,” she said in a statement. “I wish I could say these challenging financial headwinds are abating but many analysts say 2023 will be just as difficult as 2022, when nearly two-thirds of Oregon’s hospitals lost money.”
Low-profile services targeted
Kevin Mealy, a spokesperson for the Oregon Nurses Association labor union, said systems are targeting low-profile and specialty services in the hope of minimizing pushback. He cited Mercy’s announcement in April it would eliminate its 50-employee home health service, which visited patients in their homes.
“These are (patients) who don’t have that loud a voice to begin with,” Mealy said. “But those services keep them out of the emergency room.”
Hospitals must be careful what they cut. That’s because state and federal regulations require them to offer a wide range of basic services in order to keep their licenses. Mandated services include surgery suites, emergency rooms, maternity departments, labs, radiology, pharmacies, food services and more. The mandate on maternity services is partly why Legacy ran into trouble with regulators when it shut its Gresham hospital birth center.
But many hospitals over the years have added extras that now, legally, can be lopped off.
For example, McKenzie-Willamette last month confirmed the closure of its midwifery unit, which it launched in 2019, would eliminate 11 jobs. A spokesperson for the Oregon Health Authority said the move doesn’t run afoul of state rules because hospitals aren’t required to offer midwifery, and McKenzie-Willamette will keep its mandated labor/maternity department.
McKenzie-Willamette is a for-profit owned by Tennessee-based hospital chain Quincy Health LLC.
Hospitals have traditionally often tweaked their services, trimming or adding here and there. But the current wave of cuts is unusually deep, observers said.
Restoring profit margins
Hospitals maintain they have little choice but to cut.
“Like many health care providers in Oregon, we are experiencing tremendous financial strain,” Sarah Baumgartner, spokesperson at the Mercy hospital in Roseburg, said in a statement. In addition to cutting the home health service, the nonprofit hospital is making unspecified reductions in hospital sitters — a type of patient support staff - coffee cart and catering services, and a contracted transportation service, the statement said. “These decisions are not made lightly but are necessary for our continued stability and future growth,” Baumgartner said in the statement.
Baumgardner declined to explain why the hospital chose these cuts and how much it hoped to save.
Mercy is actually doing reasonably well financially — although its parent company isn’t. Mercy is owned by CommonSpirit, a giant Colorado-based nonprofit with 138 hospitals nationwide.
For 2022, Mercy had $13.5 million in operating profits on operating revenues of $336 million, a 4% profit margin, according to Mercy’s filings with the state. Still, that’s far below the hospital’s performance in the 2014-2019 period, when it averaged annual profits of $24 million, or nearly 10%.
CommonSpirit needs top-performing hospitals like Mercy to regain their financial strength, because a number of the system’s other hospitals are weak and the chain overall has incurred big operating losses. For the six months ended Dec. 31, the system reported an operating loss of $451 million on operating revenues of $17 billion, following an operating loss of $1.3 billion on operating revenue of $24 billion in the previous 12 months
Setting high financial goals
PeaceHealth executives want to restore their flagship RiverBend hospital in Springfield to its high profitability of years past, said Claire Syrett, an Oregon Nurses Association labor representative who works with unionized nurses at PeaceHealth. PeaceHealth for years has used revenue from RiverBend to help prop up the system’s weaker hospitals.
PeaceHealth wants its Oregon group — RiverBend plus three persistently money-losing Lane County hospitals, in Eugene, Cottage Grove and Florence — to greatly increase its bottom line, Syrett said PeaceHealth staff have told her.. By 2024, the Oregon group needs to achieve a 13% operating profit before taking into account interest, taxes, depreciation and amortization, a measure of profits known as EBITDA, Syrett said she has been told. Currently, because of its operating losses, the entire PeaceHealth system is at -1.2% EBIDTA, according to its latest financial filings. The four-hospital Oregon group appears to be at roughly that level too, financial filings indicate.
Responding to a Lund Report inquiry regarding that target, PeaceHealth said: “In keeping with our mission and values, PeaceHealth offers a wide range of healthcare services. Some services help offset others when reimbursements do not fully cover our costs.”
There’s no question RiverBend isn’t living up to its traditional role as a profit center. For 2022, it generated a $14 million operating profit on operating revenues of $811 million, a 2% margin, according to filings with the state. That’s way down from a profit margin that ranged between 11% and 17% in the 2014-2019 period, when operating profits sometimes topped $100 million a year.
Syrett said she’s not impressed with PeaceHealth’s cutting strategy. She says the system could have saved a lot of money if it had simply canceled a recent major rebranding and marketing program that unveiled a new logo and messages.
But there are no simple solutions for hospitals.
A mandated service
Legacy Health found that out when it announced it was closing the Gresham birth center. Legacy said that with the chronic regionwide shortage of health care workers, it lacked the employees to staff the center. It also said the center was not especially busy and that birthing needs could be met by other nearby medical institutions.
Plus Legacy, with six hospitals, has been going through rough financial times. In 2022, it incurred operating losses of $115 million on operating revenues of $2 billion. Its cash and investments shrank to $1.3 billion at the end of the year, down from $1.7 billion nine months earlier.
Despite the problems, the state forced Legacy to reopen the center.
The regulations that mandate hospitals keep specific types of services in place are prompting hospitals to close a scattering of beds but not entire departments, as evidenced by the bed closures at PeaceHealth’s Eugene and Springfield hospitals, Syrett said.
Hospital system representatives note that the recent targeted layoffs are small compared to their overall payrolls. Mercy has about 1,200 employees. McKenzie-Willamette, about 1,000. PeaceHealth, about 16,000.
And they stress that even as hospitals are firing, they are desperate to hire registered nurses to replace costly temporary contract nurses. For example, PeaceHealth’s RiverBend has hired 52 RNs since the beginning of February and has 188 RN openings it wants to fill, the hospital said in a statement.
The longer that hospital’s operating losses continue, the more anxious system executives become.
Heading into the pandemic, many systems had healthy investment portfolios that provided comfortable backstops. Now, some of those portfolios look worn-down.
PeaceHealth’s pool of cash and investments shrank to $1.9 billion by the end of 2022, from $2.9 billion a year earlier — a $1 billion drop, as operating losses and stock and bond market fluctuations eroded the wealth.
Hospital executives have traditionally been shy to talk about their reserves. But in the very first sentence of her memo to staff, PeaceHealth executive Ness pointed to that $1 billion drop.
“We need to take decisive action to sustain our healing mission,” she wrote.