St. Charles Health System cuts workforce by 181 positions amid mounting financial challenges, operating losses

(Update: Adding comments from media briefing)

Despite move, 'will still end 2022 with a substantial operating loss'

 BEND, Ore. (KTVZ) -- Faced with skyrocketing contract labor, equipment and supply costs — and flat revenue — St. Charles Health System leadership announced Wednesday it "has made the difficult decision to reduce its workforce" by more than 180 people.

The reduction will impact 105 caregivers through layoffs. An additional 76 positions that are currently vacant have also been eliminated, the four-hospital system said in a news release, which continues below:  

The 105 layoffs — which will take place over the next three days — are targeted to mostly non-clinical areas where the organization found through a benchmark data review process that it has more staff than other health systems of a similar size.  

“For the past two years, our caregivers have taken on and conquered unprecedented challenges to care for our community, which is why it feels particularly unfair that we now find ourselves in this position,” said St. Charles President and CEO Joe Sluka. “While our financial situation isn’t unlike many other health systems around the country, this decision hurts. These are our people.”   

Even after taking aggressive steps to address its current financial challenges, which have included both reducing expenses and identifying revenue improvement opportunities, the health system said it has "hemorrhaged $21.8 million through April. Year to date, St. Charles is facing a 6.7% operating loss." 

The organization’s expenses and revenue began deteriorating in the spring of 2020, when its contract labor, equipment and supply costs began to soar at the same time it was forced to significantly reduce the number of surgeries it performed due to pandemic-related restrictions and the need to preserve bed capacity to care for critically ill COVID-19 patients.

This imbalance persisted through 2021 as St. Charles experienced three significant surges of COVID-19 patients — at times operating up to 107% of its capacity — making it difficult to resume its pre-pandemic level of surgeries and other services.

Further compounding St. Charles’ financial stress is the repayment of the more than $95 million in federal funds it received over the last two years to support its operations, the hospital system said. 

Though the workforce changes the health system is making this week are projected to reduce its expenses by approximately $20 million annually, St. Charles said it will still end 2022 with a substantial operating loss. With a sustained focus on improving the efficiency of its operations, the organization is working toward achieving a positive operating margin by the end of 2023 or early in 2024.  

“It has taken two long years of the pandemic to get us into this situation,” Sluka said, “and it will take at least two years for us to get out of it. But we will. And we will continue to take excellent care of our community now and in the future.” 

The workforce reductions represent about 4% of the total at St. Charles, the region's largest employer, which had just over 4,500 employees in this year's ranking of the region's largest private employers from Economic Development for Central Oregon, though that was a reduction from the 2021 total of 4,626 caregivers.

During a media briefing with hospital officials, Rebecca Berry, vice president of human resources, said they are "definitely still hiring" for other open positions, especially nurses and technical staff for acute-care needs and the operating room. She estimated about 400 openings remain to fill, after the reductions.

Asked by NewsChannel 21 if more cuts are likely or possible, Sluka said, "Despite all of our best efforts to reduce expenses, as you can see, our costs have continued to accelerate. And we will take more cost-cutting measures over time.

"We are hopeful that the impact to our caregivers is something we will not have to resort to again. But we can never say never on that. ... At this point, there is nothing being planned or nothing on the table, and we hope we don't have to resort to this again."

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Sluka also sent out the following email message Wednesday, entitled "Difficult times, difficult decisions":

Over the past two years, St. Charles caregivers have worked tirelessly to care for the people of Central Oregon when they needed it most: during a global pandemic – a public health crisis unprecedented in our lifetime.

They turned a parking lot into a COVID-19 testing site.

They converted an empty conference room into a community vaccine clinic.

They’ve taken care of the sickest COVID-19 patients in our hospitals and provided the latest treatments at our clinics.

Along the way, St. Charles – with support from the community – did everything we could to take care of our caregivers, so that they could take care of you.

All of that, of course, came at a price:

• Our labor costs have skyrocketed, largely due to our need to bring in expensive contract clinical staff from other areas of the country to help us meet the community’s needs.
• Equipment and supply costs have also increased, as they have in every industry.
• Our surgery volumes have been down for two years, which means significantly decreased revenues.
• Last but not least, we are now paying back federal pandemic relief funds to the tune of more than $1 million every week.

We’ve been working hard to reduce expenses for a few months, and those efforts have helped. But they are not enough to dig us out of this financial hole. We ended the month of April with a $21.8 million loss.

We are now at the point where we have to take additional action to ensure the long-term financial stability of the health system.

It pains me to tell you that we must reduce our workforce this week. We are eliminating 76 positions that were already vacant, but that isn’t enough. We are also reducing 105 positions that will result in layoffs.

First and foremost, that is not just a number. Those are our colleagues and our friends. We are grateful to them for their dedication to our community and we are saddened to see them go.

Over the past few weeks, we have gone through a thorough process in which we compared every area of our organization to industry benchmark standards.

Where we are out of line with those standards, we must make changes. In particular, many leadership positions are being eliminated to bring our structures into alignment with other health systems of our size.

These reductions are projected to reduce expenses by more than $20 million annually.

Still, we will likely end 2022 in the red. It has taken us two pandemic years to get us into this situation, and it will take at least two years for us to recover. And sadly, we are not alone. Organizations across Oregon and the country are facing similar financial challenges.

To the communities we serve, I want to reassure you of a few things:

• We have a responsibility to ensure our community has access to high-quality health care and are focusing these reductions in mostly non-clinical areas to minimize the impact on patients.
• We are still recruiting and hiring new caregivers to rebuild our workforce and reduce our need for expensive contract labor.
• We are reviewing all of our service lines to ensure they are financially sustainable, which could result in additional changes.

While these decisions are incredibly difficult, we are making them because we are committed to becoming a more efficient health system that is well-equipped to continue what we’ve done for the past 104 years: Care for the people of Central Oregon.

As always, we greatly appreciate your support.

Sincerely,
Joe