In this photo from 2011, medics from La Pine Rural Fire Protection District wheel a patient into St. Charles Bend emergency room. (Ryan Brennecke/Bulletin file photo)

St. Charles Health System announced a set of layoffs and pay cuts Tuesday in an effort to avoid a $25 million to $35 million shortfall in 2018.

The Bend-based nonprofit health system has been dealing with financial challenges since late 2016 and has already taken a number of cost-saving steps this year. Hospital officials are now projecting a 2.2 percent operating margin, but would like to expand that margin to 3.7 percent in 2018 to allow the health system to reinvest in its facilities and staff.

St. Charles CEO Joe Sluka said while the hospital is seeing a decline in revenues on many fronts, the price of health care has become so expensive, it cannot raise their prices any more.

“That has been impacting the patients and our businesses. They can’t afford the premiums of health insurance, and because of that they are moving into high deductible health plans which are causing folks not to seek care. They’re not even able to pay for the high deductibles that they have.”

The health system will eliminate 30 jobs, mainly nonclinical support staff whose duties can be absorbed by other employees. St. Charles had previously offered voluntary buy-outs to employees, and extended those offers to the 72 individuals who applied for them.

Additionally, the system will cut pay for salaried workers by 5 percent for at least six months starting Jan. 28, 2018, and will reduce executive team salaries by 10 percent for at least nine months. The pay cut will not affect hourly workers. Merit increases for 2018 will be suspended, although employees making less than $30 an hour will receive up to a 3 percent cost-of-living raise next spring.

Employees will also face increased costs to participate in the company’s health plan.

None of those changes will affect clinical nurses, whose salaries and benefits are subject to labor negotiations through the Oregon Nurses Association.

Hospital officials have invited the nurses’ union to discuss how they could work together to find additional cost savings.

“Certainly, the intent is to have no impact on patient care,” Sluka said.

Representatives of the nurses’ union, however, said they were blindsided by the layoffs, which were not discussed at their monthly staffing meetings with hospital officials.

“I’m very concerned that when we’re talking about St. Charles’ finances, we need to be looking (at) how this is going (to) impact safe, quality patient care for our community, building that safe place for our folks to come when they need us,” said John Nangle, an emergency room nurse at St. Charles Bend and head of the nurses’ bargaining unit at the hospital.

Nangle said that while nurses are the only employee group at the hospital with a bargained contract, they work hand-in-hand with environmental services, maintenance, laboratory and pharmacy staff as a health care team. Moves affecting one part of the team affect the other members and, in the end, patient care, he said.

“We know that we need a viable hospital, but we cannot make patient care decisions with the St. Charles operating margin,” he said. “They want more operating margins, and they’re going to do it on the backs of the health care team. That is a serious issue.”

St. Charles had asked its employees to suggest ways to cut costs and avoid layoffs, and many employees said they would be willing to take pay cuts to help stabilize finances, Sluka said.

St. Charles CFO Jenn Welander said the hospital has a number of initiatives to close the financial shortfall in 2018. About a third of the additional funds needed would come from increased revenues from insurance plans and other payers. Some 8 percent would come through reducing the costs of supplies. The remaining 60 percent consists of labor and benefits savings.

Sluka said the hospital did not have any further plans to cut back on capital improvement projects.

The hospital is in the midst of implementing a new and expensive electronic records system that is expected to cost $60 million through 2018, and has broken ground on the construction of a new hospital tower that will add much needed intensive care beds to a facility bursting at the seams.

In May, the hospital modified plans for the $66 million tower, pulling back on the number of new beds in the facility and cutting the size of the tower down from four stories to three.

Hospitals throughout Oregon are facing the same challenges. In the second quarter of 2017, the median operating margin at Oregon hospitals was 2.3 percent, less than half the 5.3 percent recorded for the same period in 2016.

According to the Oregon Association of Hospitals and Health Systems, the number of self-pay patients has continued to remain stable at just under 2 percent.

But Oregon hospitals provided $99.8 million in charity care in the second quarter of 2017, up 9.3 percent from $91.3 million from the first quarter. That suggests that despite the expanded insurance coverage under the Affordable Care Act, hospitals are seeing increasing numbers of patients who cannot afford the out-of-pocket costs required by their plans.

Sluka said hospitals like St. Charles are particularly concerned about a new 0.7 percent tax passed by the Oregon Legislature to help shore up the finances of the state’s Medicaid program, which covers health care for low income patients. That would cost St. Charles about $3 million next year.

Hospitals are facing additional cuts from a cap on reimbursement rates for state employee and teacher benefit plans.

“We have to adapt to a new reality while still fulfilling our mission to serve all patients, and meeting our obligations to lower their overall cost of care,” Sluka said.

St. Charles Health System is Central Oregon’s largest private employer with more than 4,400 employees. It operates hospitals in Bend, Redmond, Prineville and Madras in addition to clinics, labs and other medical services throughout the region.

—Reporter: 541-633-2162, mhawryluk@bendbulletin.com