The St. Charles Health System, the largest employer in Central Oregon, announced it will lay off 105 employees, or roughly 2% of its workforce, in an effort to control its operating costs. St. Charles is also eliminating 76 unfilled positions.

The people who will be laid off had not yet been told their fate on Wednesday afternoon when hospital leaders made their announcement. Laid off employees will receive severance packages.

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St. Charles leaders said after two years of responding to multiple COVID-19 surges, staff shortages and decreased revenue have pushed the health system into financial distress. To date this year, St. Charles has lost $21.8 million on its operations, a 6.7% operating loss.

Federal pandemic aid, which helped keep the hospital afloat during the first two years of the pandemic, is now contributing to its cash flow problems. When Oregon’s governor issued a statewide stay-at-home order in March 2020 and directed hospitals to suspend all elective procedures, hospitals across the state lost a critical source of income. That April, St. Charles received a $95 million cash advance from the Centers for Medicare & Medicaid Services, as part of a federal pandemic relief program. The initial $95 million loan accounts for more than half of the total federal pandemic aid St. Charles has received, according to the hospital’s financial disclosures.

Last year, the U.S. Department of Health and Human Services, which administers Medicare, began recouping the cash advance by not paying St. Charles for services it is providing to Medicare patients. In 2021, the federal government recovered more than $34 million of its advance this way. St. Charles still owes $60,967,000. The federal government will begin charging St. Charles a 4% interest rate on the outstanding balance later this year.

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Even as it is laying people off and eliminating some jobs, St Charles has around 400 open positions it is still recruiting for in nursing and acute care. Filling these roles temporarily with travel nurses — who are paid a higher rate than local, full-time staff — to fill those shifts has been a major driver of the financial crisis at St. Charles. The widespread practice is causing financial strain in health care systems across the country, according to the American Hospital Association.

Increased equipment and supply costs and an increased cost of staff benefits have also contributed to the problems at St. Charles, executives said.

Meanwhile, the number of elective surgeries taking place remains low.

“It has not been long since the omicron surge in our region has dissipated,” said Matt Swafford, St. Charles’ chief financial officer, “and it’s taken a huge financial toll.”

Managing rising costs is particularly hard, Swafford said, for systems like St. Charles that see a high percentage of patients on Medicare and Medicaid. (Medicare is the public program that covers health care costs for seniors and Medicaid covers people who cannot afford private insurance.) Those government health insurance programs reimburse at a lower rate than private insurers and typically only adjust their reimbursement rates once a year. That means quickly rising labor and supply costs, like the ones felt across the country this winter, aren’t easily incorporated.

The hospital’s executives said the layoffs are a “last resort,” after it has exhausted other strategies for injecting cash into its operations. The health system has spent $65 million from its long-term reserves, or about 10% of its portfolio, and extended its line of credit. If the hospital’s financial performance worsens, it could violate the terms of the hospital’s bond agreements, Swafford said.

“It’s a very serious threshold that we don’t want to cross,” he said.

St Charles estimates the layoffs will save it about $20 million a year. Even with the layoffs, it expects to end 2022 reporting losses.

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