Cascade Healthcare Community, the region’s largest private employer, announced Friday a cut in staff salaries and positions, and said layoffs and program eliminations are likely.

Unprecedented economic challenges forced the cost reductions, said CHC in a news release. The organization, which owns St. Charles Bend and Redmond and runs Pioneer Memorial Hospital in Prineville, said a number of economic factors had hurt the bottom line, including a drop in investment income, increased payments on bonds, a higher number of charity care cases and a declining number of patients.

“2008 was an ugly year,” said CEO Jim Diegel. “I’m probably being optimistic with that statement.”

Diegel said he needed to find $4.6 million to cut from the 2009 budget, which he might be able to do through salary cuts and a hiring freeze.

“We wanted to get started now, so that I’m not chasing the budget later on.”

The organization said it would reduce the pay of salaried employees by 5 percent and would require non-exempt employees, who generally work hourly, to take one day off each month.

Hourly employees had the legal right to choose whether to use vacation or unpaid days, said Diegel, though an internal memo encouraged the employees to take the days off without pay.

Besides these short-term solutions, Diegel said CHC is now looking at more long-term fixes that would permanently cut labor costs for the hospital by nearly 5 percent.

For now, CHC will institute a formal hiring freeze and eliminate all temporary or consultant positions. The organization may also cut some employees’ hours or reduce their positions to part-time. And, according to an internal memo, it may also decide to forgo salary raises.

CHC currently employs nearly 3,000 people in Central Oregon.

Diegel said the cuts were aimed at giving the organization a 2009 operating margin, the ratio of operating revenue to expenses, of 2.5 percent. That would be a higher margin than the organization has posted during the past couple of years, though still short of the 5 percent mark that executives have previously said is needed to maintain and grow its hospitals.

More drastic measures could be on the way.

Diegel said that layoffs were likely, though he didn’t name specific departments or positions on the chopping block.

Services are also being scrutinized, beginning now, said Diegel, and “within the next couple of weeks, we’re going to begin identifying some programs or services that need to be changed, modified or eliminated.”

Though Diegel mentioned only community education classes as perhaps extraneous to the organization’s mission, he said programs focused on the hospital’s core mission would be retained while others might be cut. Some programs are critical for patient care or safety, he said, while others “are nice to do but maybe aren’t critical for the community or the organization. That’s where your permanent changes are going to come from.”

The short-term salary cuts will not affect physicians because those employed by the hospital have contracts.

Registered nurses also may not be impacted as they have already been taking days off, said Alison Hamway, a representative for the Oregon Nurses Association. Hamway said the nurses have for some time been subject to “call offs,” when they are sent home when there are fewer patients.

In a memo to staff, Diegel said that those who have been called off do not have to take additional time off.

CHC is not the only hospital in the state trying to reduce labor costs. At Samaritan Health Services in Corvallis, non-clinical employees were required to take 10 unpaid days off between the end of November and the end of December.

The Oregon Association of Hospitals and Healthcare Systems said, in an e-mailed statement, that many hospitals are having a tough time and that “we are learning, health care is not ‘recession proof.’”

Cascade Healthcare, like many, has been hit by tumbles on Wall Street, with its investments losing huge amounts of money, Diegel said.

The Wall Street credit crisis also forced the hospital to refinance both its bond series, incurring both expense in converting the bonds from variable to fixed rate securities and in higher interest rates associated with the new financing. The hospital estimated it would pay an additional $5 million in interest expense in 2009.

The number of patients coming through the door has also dropped, said Diegel, particularly in the past couple of months. In November, the emergency department saw 11 percent fewer people than expected, and inpatient cases were 20 percent off the expected number.

At the same time, the number of those patients who are unable to pay for their care is increasing. Charity care expenses through November were $7 million more than in all of 2007, according to CHC.

All of that has impacted CHC’s bottom line. At the end of November, the hospital had an excess of operating revenue over expenses of $711,000, a margin of about 1 percent. For the year 2006, that same number was $17,160,000.