Oregon’s most profitable hospital, McKenzie-Willamette Medical Center, sits in an unlikely spot in the center of blue-collar Springfield, hemmed in by old strip malls and modest residential neighborhoods.
Don’t let the unassuming locale fool you: Last year, the hospital, owned by Tennessee-based Quorum Health Corp., posted a profit of just over $50 million, giving it a 25 percent profit margin, according to Oregon Health Authority data. The average profit margin at other Oregon hospitals didn’t even reach 7 percent that year.
McKenzie-Willamette, with 113 beds, also had the top hospital profit margin in 2016. Over the past five years, it enjoyed an average yearly profit of nearly $45 million while many other Oregon hospitals have struggled to post even a small profit.
But critics say McKenzie-Willamette is making money off the backs of patients by hiring too few nurses. It may even be breaking the state’s nurse staffing laws, prompting an investigation by the Oregon Health Authority.
The Oregon Nurses Association, which represents nurses statewide, says McKenzie-Willamette’s high profits are due in part to the hospital failing to provide legally required levels of staffing.
In February, the state filed a 49-page complaint against the hospital, saying that between 2016 and early 2018 the hospital violated 20 state nurse staffing rules, many of them multiple times. The hospital failed to develop and implement proper nurse staffing plans in the women’s health unit, cardiovascular intensive care unit, emergency department, short-stay unit, endoscopy unit and pre-anesthesia testing unit, the report says.
The state interviewed nurses, managers and executives. Nurses said that to save money the hospital has cut certified nursing assistants and pushed more work on to nurses, prompting nurses often to work through their required breaks in order to get their jobs done.
McKenzie-Willamette is “trying to squeeze every dollar they can in profits,” said Gary Aguiar, a labor relations representative for the union.
“Caregiver fatigue is a safety issue for nurses and patients alike” at the hospital, the union added in a statement.
McKenzie-Willamette declined to respond to The Lund Report’s questions about its staffing levels and the state report. Instead, it issued a statement: “McKenzie-Willamette Medical Center continues to build on the care we provide to Lane County and the surrounding community. We continually seek and attain national quality and safety accreditations. While striving for these accreditations, (the hospital) has increased efficiencies, maximized resources and maintained our commitment to provide high-quality care.”
The hospital responded to the state’s complaint with a corrective plan that’s under review. No details will be released until the plan is approved, said health authority spokesman Jonathan Modie. He isn’t sure when that will be.
State complaints to hospitals about their nurse staffing are not unusual. So far this year, the state has filed complaints against a dozen other hospitals about nurse staffing. The state is working with each hospital on a compliance plan.
The state’s staffing rules require hospitals to have nurse staffing committees that develop staffing plans based on hospital patient volumes and other data. The rules require hospitals to implement the staffing plans, ensuring safe staff-patient ratios.
Stressing their commitment to the Springfield community, McKenzie-Willamette officials point to their ongoing $105 million expansion and remodel of the facility, to be completed next year.
(See By The Numbers for details of McKenzie-Willamette's growth since 2012.)
From Near Bankruptcy To Profit
McKenzie-Willamette has not always been profitable. It opened in 1955 as a nonprofit. In the early 2000s, with dwindling financial reserves and an aging facility, it verged on bankruptcy, unable to compete with its much larger metro-area rival, PeaceHealth Sacred Heart, a nonprofit.
McKenzie-Willamette’s leaders, eager to preserve a hospital to serve the Springfield community, sold the facility to a for-profit hospital chain in 2003. The hospital passed through a series of for-profit ownerships, ending up with publicly traded Quorum in 2016.
Quorum bought McKenzie-Willamette in a package deal with several dozen other mid-market and rural hospitals across the country. The inclusion of McKenzie-Willamette turned out to be a boon for Quorum. The one-time financial dud has become a star in Quorum’s portfolio. According to Quorum’s filings with the U.S. Securities & Exchange Commission, McKenzie-Willamette’s revenues have been crucial to help Quorum meet debt payments on the $1.2 billion high-interest loan it used to buy the collection of hospitals, a number of them weak financial performers.
It’s unclear how McKenzie-Willamette is making so much money: It won’t divulge details about its finances or talk in detail about its strategy.
Public data suggest that McKenzie-Willamette’s tactics – aside from allegedly skimping on staffing - include cutting charity care to zero, limiting bad debt, focusing on patients with commercial insurance and charging higher than average prices for some procedures.
The Oregon Health Authority gathers plenty of data about hospital revenues and costs, but it doesn’t analyze hospital profitability. McKenzie-Willamette is one of only two for-profit hospitals in the state. The other is Willamette Valley Medical Center in McMinnville, also highly profitable, and a regular contender for the state’s top profitability spot. All the state’s other hospitals operate as nonprofits.
"(The Oregon Health Authority) cannot provide specific details why McKenzie-Willamette maintains high operating (profit) margins, but a for-profit hospital may make different business decisions than other non-profit peer hospitals,” said the authority’s lead spokesman, Robb Cowie.
Union representative Aguiar said there is a “chasmic difference” between the profits at McKenzie-Willamette and at Oregon’s nonprofit hospitals. “Clearly they have a different model,” he said.
All hospitals, whether for-profit or nonprofit, strive for an annual profit. The difference is that nonprofits don’t worry about their stock price or have to make payouts to shareholders. Instead, they use profits from one entity to subsidize other health-care operations that may be losing money. Or they squirrel profits away for later use on capital projects, operating costs or other expenses.
Nonprofit PeaceHealth Sacred Heart Medical Center at RiverBend, the Eugene-Springfield area’s biggest hospital, reported $77 million in net profit on revenues of $666 million in its 2017 fiscal year, a profit margin of 11 percent, according to health authority data.
Hospital Focuses On Profit Areas
Under Quorum, McKenzie-Willamette pared charity care down to zero in both 2016 and 2017. State law does not require for-profit hospitals to provide charity care, the health authority said. The state requires non-profit hospitals to provide charity care but doesn’t specify an amount, Cowie said.
As recently as 2012, McKenzie-Willamette, under its previous for-profit owner, reported spending $2.6 million on charity care.
The reduction in charity care may be due in part to the expansion of the Oregon Health Plan, Oregon’s version of Medicaid, under the Affordable Care Act. Now one-quarter of Oregonians are covered by taxpayer-funded Medicaid insurance, reducing the need for hospitals to provide free charity care. RiverBend provided $44 million in charity care in 2012. By 2017, the hospital had cut that to $12 million.
McKenzie-Willamette has also pruned its bad debt, the bills owed by patients who are unable to pay, because they lack money or insurance. In 2017, the hospital reported $5.5 million in bad debt. That’s down from $12 million in 2012.
Overall, Oregon hospitals’ bad debt, like charity care, has dropped due to the Affordable Care Act’s expansion. RiverBend had just over $25 million in bad debt in 2012. By 2017, that plunged to more than $10 million.
Aguiar said the Medicaid expansion has boosted hospital profits nationwide, at least in the short term.
McKenzie-Willamette also appears to focus heavily on patients with commercial insurance, which experts say pays more than Medicaid or Medicare.
State data for 2017 indicate that more than 50 percent of McKenzie-Willamette patient revenues came from commercial insurance, compared with a statewide average of about 30 percent. State data also show that McKenzie earned nearly 25 percent of its revenue from Medicare patients -- compared with nearly 45 percent on average in the state.
McKenzie-Willamette charges relatively high rates for a number of procedures. New data on pricing compiled by the state show that McKenzie-Willamette charges some of the highest rates in the state for gallbladder surgery, heart catheterization, hernia repair, hysterectomies, abdominal drainage, and nasal endoscopies, to name a few. It’s unclear how important these procedures are for McKenzie-Willamette revenues.
The data also show the hospital charges average or below-average rates for other procedures.
The overall care at McKenzie-Willamette earns three stars out of a maximum of five from Medicare. That’s the most common overall rating nationwide, according to Medicare. RiverBend and PeaceHealth’s University District Medical Center in Eugene each rate two stars. PeaceHealth’s hospitals in Florence and Cottage Grove each rate four stars.
More Growth Ahead
The $105 million facility revamp is greatly enlarging McKenzie-Willamette, remodeling 56,000 square feet of the existing 200,000-square-foot-facility and adding 153,000 square feet.
A main focus of the expansion has been to create private rooms for most patients, a dramatic shift from the hospital’s long-time standard of shared rooms. The new format has 98 patient rooms, some of which can hold two patients.
Parts of the expansion were completed in 2017, and the final work is due to be finished next year.
The expansion includes adding 15 private patient exam rooms to the emergency department, bringing the total of 38. The hospital also will add a second cardiac catheterization lab, where devices that keep the heart pumping are implanted through minimally invasive procedures.
The project has created a new entrance to the hospital and a large lobby for non-emergency patients.
The hospital’s staff stands at more than 900 full and part-time workers, including 354 registered nurses.
Reach Christian Wihtol at [email protected].
