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To Restore Profitability, OHSU Seeks To Curb Pace Of Jobs Growth

The institution needs to be more selective in where it adds new jobs so it can continue its mission to be a “national-scale” hospital, the board is told.
Oregon Health & Science University Center for Health and Healing Building 2 in the South Waterfront neighborhood, July 2020. | SHUTTERSTOCK
April 21, 2022

Oregon Health & Science University should cut the pace at which it adds staff, even as it pushes to resume revenue growth, Chief Financial Officer Lawrence Furnstahl wrote in a memo to the organization’s board for its Friday meeting.

OHSU’s leaders in the next several months will set details of a multi-year plan for a new financial model that moves the institution back toward its pre-pandemic profitability levels, Furnstahl wrote.

Rising inflation, including higher labor costs, plus other ongoing effects of the pandemic have “knocked OHSU off its prior trajectory of growth and earnings,” Furnstahl wrote. OHSU reported a $64 million operating loss for the nine months that ended March 31.

OHSU needs to continue growing, he wrote.

“The best path to secure the long-term sustainability of OHSU is to create a national-scale academic health center” by 2028 that includes “robust” specialty medical services, Furnstahl wrote.

That means adding staff, but at a slower-than-traditional pace, because revenue growth is expected to drop from previously forecasted levels, he wrote.

Furnstahl’s memo follows a public statement earlier this month by OHSU President Danny Jacobs warning that the institution needs to recalibrate its finances.

But Furnstahl’s memo and Jacobs’ comments have met with skepticism from employee representatives who say OHSU has skimped on hiring front-line workers during the pandemic even as the institution and its foundation hold a joint $2.6 billion investment portfolio of stocks, bonds and cash that has been performing well.

OHSU is posturing as part of its ongoing negotiations for a new AFSCME union contract to replace the three-year agreement that will expire at the end of June, said Sarah Curtis, an OHSU employee and an AFSCME Local 382 vice president.

“Every year that we go into bargaining, OHSU claims they are in financial hardship,” said Curtis, a five-year OHSU employee who works as a managed care coordinator securing insurance company prior authorizations for neurology work.

AFSCME represents more than 7,000 OHSU workers, many of them lower-paid employees in such fields as food service, room cleaning and facilities maintenance. That’s more than a third of OHSU’s workforce.

The sides in the negotiations are scheduled to exchange wage proposals in the next week, Curtis said. Workers need higher wages to cover the rising cost of living, including the cost of housing in the Portland area, she said.

Already Understaffed

Cutting the pace of hiring as Furnstahl has proposed will hurt patient care, Curtis said.

“We are already understaffed,” she told The Lund Report. “People are having to work tons of overtime. They are exhausted. They are just stretched too thin.”

But Furnstahl said OHSU needs to get back to pre-COVID profitability.

Pre-COVID, OHSU typically had a profit rate of about 10% as measured by EBITDA, a common measure of a company’s health that stands for earnings before interest, taxes, depreciation, and amortization. But that success collapsed with COVID. It dropped to 5.9% in the 12 months that ended June 30, 2020, and 7.8% in the 12 months that ended June 30, 2021. And, it is forecast at 5.7% for the current fiscal year. With slower hiring, and given the more sluggish predicted rise in patient volumes, OHSU could get back to a 10% profit rate by 2027, Furnstahl projected.

OHSU ties its staff growth to its revenue and patient volume growth.

But the jobs growth formula OHSU has used until now has been too generous and needs to be scaled back, Furnstahl wrote.

The growth model Furnstahl is proposing would increase OHSU to 19,400 full-time-equivalent employees by 2027, up 2,400 from the current 17,000, he wrote. That would be a sharp departure from OHSU’s “old model,” which would increase those positions to 20,570 by 2027, up 3,570 from today, he wrote.

OHSU would still provide “market-competitive wage and benefit growth in a rising inflation environment to fill critical positions,” he wrote to the board.

Adding Nurses, Not Administrators

Just where OHSU would add jobs in coming years remains unclear. As an example, Furnstahl wrote that if Intensive Care Unit patient volumes increased by 10%, a 10% increase in ICU nurses might be warranted, but with “little or no increase in administrative staff.”

He noted that overall since 2017, OHSU patient volumes have increased 27%, while full-time-equivalent nursing positions grew by 22%. At the same time, OHSU’s non-unionized managers and supervisors also grew by 22%, he wrote. “Going forward, we will need to temper such growth … by redesigning and refocusing work,” he wrote.

A big slice of OHSU’s rising labor costs has been hiring temporary workers, such as traveler nurses, to get through the pandemic-related labor crunch. OHSU currently has more than 400 full-time-equivalent contract workers, compared to a budgeted 60, Furnstahl wrote. In the first three months of this year, OHSU spent $49 million more than budgeted on contract labor, he wrote.

Curtis lambasted the use of temporary contract labor, saying OHSU should add permanent jobs instead. Contract labor can cost 3-4 times the wages of staff workers, she said. OHSU spokesperson Tamara Hargens-Bradley said OHSU wants to hire more permanent workers but hasn't been able to find them at the pace required.

Curtis also criticized OHSU’s focus on building more facilities.

The latest construction project, which has just begun, is a $650 million hospital wing.

“Their current trajectory is unsustainable,” Curtis said. “You can’t just keep building.”

Another big labor group at OHSU — the roughly 3,000 nurses represented by the Oregon Nurses Association — are also critical of the institution’s leadership.

During the pandemic, OHSU has never touched its reserves, said the association’s spokesperson, Scott Palmer.

“OHSU doesn’t have a lot of credibility to claim that funding essential staff — the nurses, techs, janitorial staff, and other front-line health care workers who devoted their lives to OHSU’s patients during a global pandemic — is just too expensive,” he told The Lund Report.

Payroll A Big Expense

Still, payroll is undeniably a huge expense for OHSU. Salaries and benefits total $2.4 billion in the current annual operating budget of $3.8 billion.

The expense covers not just the unionized workers, but also the faculty of about 3,200, most of them doctors, as well as the roughly 1,900 non-unionized administrators.

Pay negotiations with AFSCME may become contentious. The current three-year contract provided for annual pay increases of 3.25%, 3% and 3%. In addition, workers received up to 4% in annual so-called “progression” increases that move lower-paid workers in any job category toward the midpoint for all workers in that category. Smaller annual progression raises of between 1.5% and 2.75% went to workers who were closer to the midpoint.

The nurses association contract, which runs January 2021 to June 2023, provides an overall pay increase of about 10% spread over the contract period, plus additional annual pay increases for less-experienced nurses in their first four years of working at OHSU, and periodic additional pay increases for more-experienced nurses.

You can reach Christian Wihtol at [email protected].