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‘Tough choices’ ahead as OHSU struggles to curb surprise losses

Layoffs are possible, but university executives say they hope to avoid or minimize them by focusing on profitable complex surgeries
April 18, 2024

Oregon Health & Science University executives are bracing employees for potential layoffs as they develop a budget to reverse recent unexpected operating losses.

The emerging plan relies heavily on cost-saving steps such as curbs on hiring, coupled with hoped-for rapid growth in financially profitable specialty surgery volumes, CFO Lawrence Furnstahl wrote in a report for the organization’s board of directors to discuss at their Friday meeting.

“Although reductions in force may be necessary, the intent of this work is to shift our overall strategy to ensure the highest and best use of the services that distinguish OHSU,” Furnstahl wrote. 

The term “reductions in force” is a labor management term that typically means layoffs aimed at permanently reducing the size of the workforce. Internally, the message at OHSU is clear that layoffs are not off the table. 

Discussing the budget at a managers’ meeting earlier this week, Alice Cuprill Comas, OHSU’s top lawyer, warned that good management requires making “tough choices.” She added that leadership will make those choices “with compassion” considering the “impact” they have.

For the fiscal year starting July 1, Furnstahl plans a breakeven operating budget of $5.4 billion, on the heels of the current fiscal year’s money losing performance. From last July to the end of March, OHSU ran up $44 million in operating losses, he wrote. The losses would have been even larger – a total of about $156 million – but for several one-time revenues and savings, including $44 million in unexpected one-time Medicare pharmaceutical revenue, he wrote.

OHSU management shared word of potential job cuts with OHSU employees earlier this month in an email from OHSU president Danny Jacobs, leading to a report in Willamette Week.

On April 12, the OHSU Faculty Senate, a group representing OHSU professors, wrote to the board of directors complaining of the nebulous and tardy nature of OHSU leaders’ communications to employees.

OHSU leaders “should provide basic information to OHSU members quickly and in plain language, especially when there is a reasonable expectation that controversial or triggering information about OHSU will be reported by the media. Faculty are united in their frustration with recent communications from OHSU either being too vague, hard to understand, blaming, or defensive,” wrote OHSU Faculty Senate President Amy Miller Juve, a professor of anesthesiology.

For OHSU – as for many hospitals around the state and nation, operating expenses - especially for personnel – continue to outpace operating revenues.

In the fiscal year ended June 2023, OHSU spent $2.7 billion on wages and benefits for its roughly 12,600 employees. For the coming fiscal year, starting July 1, OHSU expects to spend $3.3 billion on wages and benefits. That’s up 20% from 2023, Furnstahl wrote. Among the causes for the jump: labor contracts for nurses represented by the Oregon Nurses Association, and for so-called house officers, who are residents – doctors in post-graduate training – represented by AFSCME. All told, AFSCME and ONA represent about 9,900 OHSU workers. Plus, OHSU has had to boost nurse staffing levels to comply with Oregon’s new hospital staffing law, Furnstahl wrote.“Expenses continue to outpace revenue growth, putting us at financial risk,” Furnstahl wrote.

To get to breakeven, OHSU needs “renewed focus on improving access to the complex specialty and subspecialty services that no other health system in the region can provide,” he wrote. These complex surgeries – from cancer care to heart and lung operations and gastrointestinal procedures – provide crucial major revenue to OHSU.

But these revenues can be volatile. In March alone, OHSU ran up an $11 million operating loss, due largely to an abrupt decline in complex clinical procedures, Furnstahl wrote. Inpatient surgical cases in March were 6.6% below budget for the month, and 10% lower than the previous March, he wrote.

Nonetheless, the breakeven budget will be built in part on a hoped-for sharp ramp-up in surgical revenue, according to Furnstahl’s memo. Net patient revenue for the coming fiscal year is projected at $3.8 billion, up about 11% from the current fiscal year’s $3.4 billion.

OHSU executives at departments across the campus now through May are supposed to come up with ways to curb expenses that will help meet the breakeven operating goal, Furnstahl wrote.

Faculty, meanwhile, worry where the cuts will land. Harming OHSU’s research and teaching functions, Miller Juve wrote to the board, would be a “mistake.”

But Furnstahl wrote that OHSU may be in for a bumpy ride. Key, he wrote, is for there to be agreement “that all leadership levels, from the Board of Directors to frontline leaders, must back tough choices — even when it is hard or gets noisy.”

You can reach Christian Wihtol at [email protected].