If Oregon Health & Science University and Legacy Health merge as they hope, the new entity won’t turn an operating profit until 2030 due to deep problems at Legacy, their new state filing argues — while holding open the possibility of layoffs after six months.
The merger would be the largest such transaction in Oregon history if approved, and it’s one that could have impacts to people across the state.
The merger proposal comes as researchers and federal officials increasingly raise concerns that bigger does not necessarily mean better, citing research indicating hospital consolidation can bring higher costs and decreased access to quality care.
The application now will be considered by the health care merger review unit of the Oregon Health Authority. The office is tasked by lawmakers with ensuring that deals are in the public interest, improve health equity, don’t hurt workers, increase access to care, preserve competition and lower consumer costs.
While most proposed mergers and acquisitions have been approved by the relatively new Oregon program, not all have. Meanwhile, applicants have increasingly sought to take advantage of quirks in state law to achieve their desired ends.
“Patients at hospitals around the state must wait several days to two weeks for a transfer to an OHSU tertiary care inpatient bed. Patients at OHSU have relatively long wait times for scheduled surgeries and procedures.”
In this light, the application by OHSU is notable in a number of respects:
- The public application details a dire picture of the six-hospital Portland-based Legacy Health, highlighting major shortcomings in its finances and operations.
- At the same time it omits OHSU financial struggles that include operating losses in three of the past five fiscal years, notably a $97 million loss in its last fiscal year and a projected $25 million loss in the current year.
- The application fails to acknowledge major recent changes made by OHSU leadership, including layoffs of 500 employees and shifting resources to more profitable types of health care. In the past critics have argued the state should consider reversing changes made before merger bids in ways that could otherwise dodge state scrutiny.
- The merger presents no near-term benefits on costs to consumers: both systems project to increase expenses by 4.6% each year for an indefinite period, a rate that is unchanged if the merger goes through.
- Considered a politically influential player in Salem, OHSU is already pressing the state for quick approval by March 30, 2025. That would give regulators only six months for review, about half what it took the state to consider a California health insurer's plan’s effort to absorb Medicaid insurer CareOregon. The earlier merger bid in some ways appeared less challenging to analyze than the OHSU-Legacy joining.
The underlying financial and operational assumptions and projections made by OHSU are not disclosed, as its has redacted hundreds of pages of its application, removing them from public scrutiny.
OHSU portrayed as Legacy’s savior
One thing that the application makes clear is that OHSU is the major partner in the deal, with 22,000 employees vs. Legacy’s 14,000, and $4 billion in net assets vs. Legacy’s $1.5 billion.
Legacy, however, handles far more individual patients: 558,000 “unique patients” in 2023, compared to 348,000 at OHSU, according to the filing.
The proposed deal is portrayed as an integration rather than a purchase. But it amounts to OHSU agreeing to spend about $1 billion in exchange for absorbing Legacy and much of its assets and liabilities as a subsidiary.
Legacy’s woes include staffing shortages that force nearly 130 fully equipped beds to remain vacant; tens of millions of dollars worth of delayed routine maintenance; and a forecast of continued operating losses if the deal doesn’t go through, according to the merger application.
From 2016 to 2023, inpatient volumes at Portland’s 16 hospitals declined 5%, the filing said. During that same period, total inpatient volumes at Legacy Health facilities (excluding the Unity behavioral health center that Legacy oversees) declined 21%, the filing said.
Scattered across its hospitals – five in Oregon, one in Washington – Legacy has roughly 129 equipped beds that are unused because the system lacks the staff, according to the application.
Most of those beds are in Legacy’s central Portland area hospitals, the filing said, and if those beds were fully staffed, they could serve 7,500-9,000 patients a year. Additional operating room staffing could allow treatment of about 5,100 more surgery patients a year, the filing said.
The filing asserts OHSU would remedy Legacy’s operational shortcomings, but provides few specifics on how.
Despite those problems, the merger is vital to both entities, OHSU argues, citing its ability to raise money via bond issues at a lower cost than Legacy can thanks to a slightly higher bond rating.
Legacy’s facilities need $300 million to $700 million in upgrades over the next five years, the filing said, and OHSU commits to spending as much as $1 billion over the next 10 years to upgrade Legacy facilities if the merger goes through.
“Keeping pace with technological and clinical advancements needed to maintain access and quality requires consistent operating (profit) margins and/or access to capital to fund investments,” the filing added. “However, financial projections (for Legacy) showed operating losses in the near to mid-term, at least. This lack of margin would hinder Legacy Health’s ability to fund strategic capital investments while maintaining adequate levels of liquidity.”
Bond rating agency says Legacy strong
But just how weak are Legacy’s financials?
S&P Global, a bond rating agency, gives Legacy an A, third from the top of the ratings scale that runs from AAA down to D. Entities with an A rating have a “strong capacity to meet financial commitments but (are) somewhat susceptible to economic conditions and changes in circumstances,” according to the firm.
S&P in November 2023 shaved Legacy to an A rating from an A+, citing weaker profits, but added that Legacy has strengths, including relatively low debt, a “sizable primary service area, sound economic fundamentals, and a relatively stable business position.”
There is “aggressive competition” in the Portland metro between hospital systems – OHSU, Legacy, Providence Health and Kaiser Permanente – the ratings agency said. But the competition “could be assuaged” if OHSU and Legacy merge, it said.
Legacy’s financial reports show other strengths, despite recent losses. Prior to major losses in the last two years, Legacy turned modest profits every year from 2017 onward, averaging $57 million.
Also, Legacy has an investment portfolio worth about $1.3 billion. That portfolio has provided big returns that are reported separately from profits. From 2019 to 2024, the portfolio provided a total return of $436 million, according to Legacy financial statements.
OHSU’s surplus of patients and a shortage of beds and other facilities means it could make use of Legacy’s vacant beds.
“Patients at hospitals around the state must wait several days to two weeks for a transfer to an OHSU tertiary care inpatient bed,” the filing said. “Patients at OHSU have relatively long wait times for scheduled surgeries and procedures.”
In an interview last week, OHSU President Danny Jacobs acknowledged that lower bed occupancy rates at Legacy would allow OHSU to essentially farm out lower-intensity care to Legacy, opening up beds for more profitable procedures and surgeries — in keeping with recent leadership priorities intended to increase the university system's profitability.
“We have limited capacity at OHSU, which interferes with our ability to provide the services that only OHSU folks can provide,” Jacobs told The Lund Report.
Near-term losses expected despite merger, layoff picture unclear
The filing application projects operating losses through 2028 for the combined entity and an operating profit in 2030.
OHSU expects that costs for the integrated public university health system will increase by roughly 4.6% a year on average, the same as if the merger did not occur.
That’s well above the 3.4% state health care cost-control goal for 2025, which drops to 3.0% for the five years starting in 2026. But even without the merger, OHSU and Legacy would separately pursue reimbursement increases from health insurers equivalent to the 4.6% projected for the combination, the filing said.
So are layoffs ahead? Maybe.
The filing says layoffs won’t happen in the first six months after the merger, and layoffs of employees represented by a number of labor unions would not occur for at least 12 months. Beyond that it’s silent.
No specifics are given about how much overlap might exist between OHSU and Legacy in areas such as executive pay, billing, human resources or other administrative work. “In combining, the system will eliminate obvious duplication and redundancy, which may require workforce reductions in some areas,” the filing said.
OHSU said the merger will address health care inequities. It aims to increase “quality health care services for all people, including medically underserved populations.” Goals include shorter wait times for inpatient, ambulatory and surgical care; preventative care; broadened access to clinical trials; more virtual care; and increased educational opportunities for OHSU medical school students to work at Legacy hospitals.
Many documents blacked out
Public transparency was cited as a major reason for setting up the Health Care Market Oversight program which is now poised to scrutinize the merger. According to the program’s website, “by making information about proposed transactions public, HCMO informs communities about planned transactions before they happen and provides communities with the opportunity to offer input on how the transaction may impact them.” However, state law gives the Oregon Health Authority broad power to keep many program records secret.
With the new merger, the facts, assumptions and reasoning that underlie the many assertions and generalizations offered in the main public application document are unclear. Hundreds of pages of key exhibits that OHSU submitted to OHA as part of its application appear to include copious financial, operational and strategic information about the deal. But in the versions of those documents that OHSU has displayed for public view on its website, OHSU has blacked out almost all of that information.
In its filing, OHSU said removing the information was allowed under Oregon’s public records law because the information either was “sensitive business information” or was information Legacy provided OHSU on a condition of confidentiality.
If Legacy didn't have 40+ over-paid vice presidents and would stop firing employees, they would be able to open up their full facilities and serve the medical community and its patients. They plan on laying off many more hospital employees in the near future also.
Same for OHSU, Jacobs didn't need that ridiculously extravagant raise to his retirement fund. They are also laying off whomever they can.
"the new entity won’t turn an operating profit until 2030 due to deep problems at Legacy..." Theoretically, they are both non-profits. If they want to really save money, cut down on administration positions and their high pay, benefits, and perks.
I don't know just where the actual PATIENTS fit into this self-serving scheme, but I see no benefits for us, just higher charges for everything.