Bend-based St. Charles Health has slowed hiring, cut employee reimbursements, taken a fresh look at its big-budget construction plans, and says there’s more to come as it responds to an increasingly challenging economic environment for hospitals in Oregon and across the country.
An operating margin of just 0.3 percent, or $845,000, for the first four months of 2017, is prompting the effort to both cut costs and raise revenue, St. Charles Chief Financial Jan Welander told The Lund Report in an extended interview on Thursday. The nonprofit’s annual systemwide-net income was $54.9 million in 2014, according to the most recent full-year financial records available to the public.
Meanwhile, some current and former employees are grumbling at the news and Welander’s explanation, as they criticize leadership choices the four-hospital central and eastern Oregon nonprofit has made in recent years.
“The message is, our financial position is deteriorating,” Welander said. “Our expense growth is outpacing our revenue growth. There’s not an end in sight for that.”
She outlined a series of steps that St. Charles has already started to take:
- Increased caution around hiring, with some positions being consolidated, combined or eliminated through attrition.
- A closer look at the planned $66 million St. Charles Bend ICU tower, which Welander said will still have the same budget, but may try to accomplish more with the same amount of funding.
- Doubling down on quality initiatives, in hopes of receiving additional payments from the state hospital transformation program, which sends millions of dollars each year to institutions that achieve key performance metrics.
She also disputed rumors swirling online and among current and former employees that large-scale layoffs may be in the works. One St. Charles worker told The Lund Report that a rumored 450 people would need to be laid off the meet the chain’s financial goals, which Welander flatly denied.
“Our focus on labor is around looking at every new and replacement position,” she said. “How is this an opportunity? Given that attrition does happen as a natural part of every business, is this an opportunity to restructure how we work?”
A former employee who has maintained close ties to current staff also criticized millions of dollars spent implementing lean business practices across the St. Charles chain, and criticized cuts to mileage reimbursement and the end of a cell phone program for physicians.
Welander said that those policy changes were aimed at achieving financial savings, and that they reflect evolutions in how technology is used today.
She also disputed rumors that construction of the Bend tower might be canceled or scaled back.
“We’ve asked our design team to review the scope of the building and decide if any modifications to the project scope are warranted. The project was initiated to expand the number of critical beds available to the central Oregon community. Our commitment to that is unwavering,” she said.
The $66 million in financing for the tower is lined up, and the budget will remain the same, she said. But design changes could come through that would accomplish more goals within the same budget, theoretically forestalling the need for future capital spending. The review of tower plans is likely to take three to six months.
Asked just how much of its total budget St. Charles Health is seeking to cut, Welander declined to get specific.
“It is an evolving dynamic target,” she said, noting that higher revenues could offset the needs for more cuts.
A Statewide Challenge?
Welander also said that the cuts and efforts to boost revenue now under way at St. Charles reflect challenges being felt across the state – and possibly across the country.
Charity care – the amount hospitals charge patients but then forgive when those patients are financially unable to pay – was an often overwhelming burden before the Affordable Care Act passed. By expanding access to both Medicaid, through CCOs, and to private insurance, charity care dropped drastically starting in 2014. But a majority of hospitals in the state have seen that trend begin to reverse over the past few months.
The latest figures do not show a similar problem at St. Charles – but hospital financial numbers from the state are only available through the third quarter of 2016, so the past eight months are not yet available.
In Q3 of 2016, St. Charles four hospitals all saw charity care spending fall. That trend has reversed this year, Welander said. Patients do have insurance, but their plans cover less, leaving members footing a much larger bill. A growing share of St. Charles’ new charity care expense comes from insured patients who cannot afford their deductibles or co-pays, she said.
Other insured patients seem to be avoiding or delaying treatment. “Fewer commercially insured people are seeking care,” Welander said. “There’s typically a dip early in the year. We are seeing that dip sustain itself for longer than in normal.
“We’ve seen approximately a 1.6 percent decline in our commercial payer mix, and declines in the commercial payer mix have a very substantial impact on our performance,” she continued.
Problems with re-enrolling members in Medicaid-funded coordinated care organizations, which The Lund Report has covered extensively, are also cutting into revenue. St. Charles is paid on a capitated rate for CCO members – essentially a flat rate to keep each person healthy, which results in higher profits for the chain if it succeeds at managing patient care and keeping people from becoming sick. Fewer CCO members means both fewer capitated payments, and a higher risk that a patient may be uninsured and unable to pay his or her bill.
Welander also pointed the finger at state and federal politicians who continue to meddle in healthcare policy and change the rules.
“We have never seen a level of uncertainty, over the past five or six years, that is at this order of magnitude,” she said. “There is no end in sight with our expenses growing and our revenues not keeping pace.”
House Bill 2391, unveiled Thursday, could bring some certainty to St. Charles – but not of the sort the chain was hoping for. It includes a tax package that would raise taxes on large hospitals from 5.3 percent to 6 percent and would set a new tax for small hospitals at 4 percent. The small hospitals will get an enhanced Medicaid reimbursement rate, but the large hospitals will not get a new enhancement for the 0.7 percent increase.
St. Charles has also been in headlines in recent weeks over a class action lawsuit and over a labor dispute with nurses. Welander insisted that neither directly affects the current budget shortfall. Though details of the class action suit are still being rolled out, the payout was agreed to and set aside back in 2015, she said. And she described labor negotiations as “route operations” that are not creating material financial challenges.
Instead, the St. Charles CFO argued, hospitals face a systemic challenge that has not been solved.
“The difference that has occurred from pre-Affordable Care Act to the new normal is the cost shift to commercially insured patients is no longer available,” she said. Historically, when low Medicare and Medicaid reimbursements and high charity care expenses cut into profits, hospitals could charge higher rates to those with commercial insurance to make up the shortfall. The Medicaid expansion and the growing population of seniors on Medicare mean that commercial insurance is just too small a piece of the pie.
“Healthcare really has to find a way to make itself affordable, so we can be sustainable,” Welander said. “Medicare and Medicaid do not cover the cost of services, and they represent right now just over 76 percent of our business. So we have to find a way to deliver healthcare more affordably. We are not unique in that.”
Reach Courtney Sherwood at [email protected].
