St. Charles Health Makes Cuts Despite Booming Local Economy

Bend is one of the fastest growing cities in the nation, and economic indicators say the area economy is ticking.

So it came as a shock this fall when the big local health system, St. Charles, announced layoffs and pay cuts. Administrators at the nonprofit said the cuts were needed to avoid a $25 million to $35 million shortfall next year.

CEO Joe Sluka said he noticed earlier this year that St. Charles, the largest employer in Central Oregon, with some 4,200 staff, was seeing less money coming in and more going out.

“What we began to see was a decline in our revenue. Expenses increasing. And projecting out that we would be in a negative position at some point," he said.

"And what we wanted to do was be proactive in the way that we approach this so that we didn’t get into a situation where we were that desperate.”

Sluka said he thinks less money is coming in because people are moving to cheaper insurance with higher deductibles. So where they used to have a deductible of maybe $500, they might now have to pay anywhere from $2,000 to $10,000 dollars.

“That's becoming more the norm," he said. "And so now either people are not seeking care …or they can’t pay for the care when they do receive it.”

On the expenses side, the cost of everything is going up.

“Certainly pharmaceutical costs are increasing, as are our labor costs. But really what’s happening is a shift towards high-deductible health plans," Sluka said.

Sluka said raising prices for hospital services isn’t a viable option, even though St. Charles has 90 percent market share in Central Oregon. He said patients are already having problems paying bills, even when they have insurance.

Sluka's plan is to cut pay, suspended merit increases and lay off 30 people.

Jennifer Welander, the hospital's chief financial officer, says they’re also offering buy outs worth one week of pay for every year of service up to 12 years, plus a fixed bonus payment.

More than 70 people were offered the package. It’s not clear yet how many will actually take it. St. Charles also will cut pay for salaried workers by 5 percent for at least six months starting in January.

In May, the hospital scaled back plans for a new $66 million tower at its Bend location, reducing the number of new beds and floors.

Financial uncertainties are facing all hospitals, not just St. Charles.

If Republicans in Congress succeed in repealing the Affordable Care Act or killing the individual mandate, that could play havoc with hospital finances. In Oregon, voters are also about to decide Measure 101. Voting for the measure will affirm a proposed new tax lawmakers approved earlier this year to help hospitals pay for Medicaid expansion. But if voters reject it, lawmakers would have to come up with millions more — if they want to continue providing health insurance for low-income Oregonians.

Andy Van Pelt with the Oregon Association of Hospital and Health Systems, said he thinks St. Charles might just be the first of several hospitals to announce cuts.

“I think this is a trend in preparation," he said. "There’s a lot of uncertainty out there ... I do think hospitals are closely looking at their expenses.”

John Nangle, an emergency room nurse and head of bargaining for the Oregon Nurses Association at the St. Charles Bend hospital, said some employees think management is just preparing for upcoming union talks.

“A lot of what we hear now is: ‘Oh, we have negotiations coming up. Here we go again with the budget,’” he said.

Nangle said he wants to get a good look at St. Charles’ latest financial information before agreeing to any cost-cutting measures.

The health system's expenses have increased from $38 million in 2015 to $45 million in 2016, according to its tax return. That's on revenues of about $734 million in 2015 and $780 million in 2016.

Nangle said he's also struggling to reconcile proposed cuts with the hospital system's expansion plans.

"I'm not trying to poke a stick at anybody here," he said.  "I just want to understand the situation so we can help … at this point I do not understand the situation."

Part of the problem, he said, is trust. St. Charles has gone through several CEOs recently.

Meanwhile, hospitals in states as varied as Washington, New Jersey and Wisconsin have all announced cuts recently.  Their CEOs say they're are playing it safe, just like Joe Sluka. They hope to be financially ready if the Trump administration successfully dismantles the Affordable Care Act.

Update: This story has been updated to more accurately reflect the impact and intent of Measure 101.