BEND — The first three months of the year has left St. Charles Health System with a $17.2 million operating loss, the hospital reported in an email to its employees.

The cause is a confluence of events that have taken two years to brew, said Matt Swafford, St. Charles Health System chief financial officer. Since the start of the pandemic, St. Charles has operated at, or above, full capacity, at times paying wages that were three times higher than pre-pandemic rates and, until recently, delayed the return of the profitable private-pay surgeries that were put on hold to keep hospital beds and staff free for COVID-19 patients.

If the four-hospital system can’t address the financial problem, it could mean a partnering with another hospital or an elimination of services, Swafford said.

But those actions would be the last resort, Swafford said.

“We are not focused on that right now because we feel the most important thing we can do now is keep St. Charles a local, region-focused system,” Swafford said. “We’re making less money and losing money.”

St. Charles is not the only hospital in Oregon to find its balance sheet in the red. The majority of the state’s 62 hospitals are struggling financially, making decisions to boost revenues and cut expenses, said Becky Hultberg, Oregon Association of Hospitals and Health Systems president and CEO.

A recent study of finances at Oregon’s hospitals revealed 42% of them ended the first quarter losing money, Hultberg said.

“Central and Southern Oregon were disproportionately hit hard because of a smaller labor pool and they had to cancel surgeries,” Hultberg said. “It’s happening here and elsewhere. The challenge is that costs have increased significantly and revenues have not.

“It’s been a difficult two years. The pandemic has significantly impacted hospitals’ finances to the point that we might see reduction in services,” she said.

In Oregon, the cost of hospital labor rose 13% this year over 2019, which increased operating expenses 11%, Hultberg said.

In fact, Oregon hospitals have experienced five consecutive quarters where expenses outpaced revenues, she said. Fortunately no hospitals have failed, Hultberg said.

But given the current climate, that is not outside the realm of possibility.

“It’s incredibly important for hospitals to be solvent,” she said. “The state needs to do more to help with nursing licensure to ease the workforce front. We need that now. And we need to reduce the administrative burden because hospital financial stability is critical to a community’s health.”

In an email to its staff, St. Charles reported that its efforts have trimmed $8.8 million from forecast spending, and while surgical volumes have increased, they are still below the 1,500 surgeries a month pre-pandemic.

St. Charles ended 2020, the year financial data are most current, with $863.6 million in operating revenues and $862.3 million in operating expenses. In the year ending 2021, the operating revenue totaled $973.4 million, and operating expenses totaled $989.8 million, according to the health system’s consolidated statements.

Swafford said the losses would have been more pronounced had the hospital system not received advanced payments and grants, Swafford said.

“You can only run at 107% capacity for a period of time,” Swafford said. “We make money off of surgeries and we’ve had two years where we haven’t had a full day of scheduled surgeries.”

And while the hospital has acquired healthy reserves, like any household budget, it’s not wise to continue to tap into savings, he said. Those reserves are not only for future expansion, but equipment replacement and growth, he said.

“It’s been a couple of years of digging deep and re-examining how we do things around the system,” Swafford said. “We don’t make money on a lot of the services we provide. Seventy-five percent of the revenue comes from Medicare and Medicaid patients. Those two pay a fraction of the cost of what it requires to operate.

“The pandemic has revealed how fragile that is across the country.”

The Oregon Nurses Association said it is unfair for the hospital to place the blame of financial loss on the fact that nursing costs have risen, said Scott Palmer, association director of communications. The hospital has reserves and has an investment portfolio that generated $47 million in earnings, Palmer said.

“To hear St. Charles put the blame on the backs of nurses and other frontline health care workers who have been working tirelessly to provide essential care for our community during the pandemic, is shameful,” Palmer said. “Nurses are asking if St. Charles is considering reducing executive pay, lowering executive salaries, eliminating executive positions.”

According to federal income forms filed, Joe Sluka, St. Charles Health System president and CEO, was paid $1.2 million in reportable compensation in 2020, the most current year data are available.

To find places to trim costs, the health system has:

• Reviewed any open positions and eliminated those that can go unfilled, unless it can replace a worker who is being paid at higher traveling rates.
• Reviewed leadership structures.
• Created efficiencies between St. Charles Medical Group and the hospital to streamline processes.
• Reduced the need for traveling workers.
• Limited incentive pay programs and providing those to services that support long-term viability.

“Those are exactly the wrong choices to make,” Palmer said. “Fewer staff members and fewer nurses means more stress and strain on the staff who remain. That means it becomes harder to recruit good staff and incredibly difficult to keep the nurses who are already here.”