PeaceHealth plans deep cuts [The Register-Guard, Eugene, Ore.]

July 16--PeaceHealth is asking employees across its three-state system to help it come up with ways in the next two months to save $30 million, on top of $100 million in savings it already has identified internally, as it faces the "largest budget gap in recent memory," according to Alan Yordy, PeaceHealth's president and chief mission officer.

As part of the plans to cut costs, PeaceHealth, Lane County's largest health care provider and one of its largest employers, with 6,000 full- and part-time employees, is suspending hiring immediately for open positions and is reviewing them on a case by case basis, Yordy said. It is also reviewing all vacant positions to decide whether positions can be consolidated, cut to part time or if there are other options.

PeaceHealth employs about 16,000 people and has about 900 vacancies, according to Peter Adler, PeaceHealth's senior vice president/chief strategy officer. "That's normal," he said. Adler added that priority would be given to positions that involve direct patient care.

Yordy did not rule out layoffs but said, "Our first priority is to minimize work force reductions through responsible hiring practices, staffing and avoidance of unnecessary pay practices such as overtime pay."

Voluntary unpaid furloughs and early retirement options also are being discussed, he said, and travel will be curtailed unless it is "absolutely essential" and preapproved.

Yordy made his comments in a presentation prepared for PeaceHealth employees being delivered this week. The Register-Guard obtained a copy of his presentation.

The latest belt-tightening is a continuation of efforts PeaceHealth has made since the onset of the recession about six years ago to trim expenses and boost revenue.

"While budgeting is never easy, this year we are facing challenges that are unprecedented in recent memory," Yordy said.

The Vancouver, Wash.-based nonprofit has identified about $100 million in savings "in network and shared services operational improvement plans" for the fiscal year that started July 1, Yordy said.

In addition to looking for places to save money by cutting, PeaceHealth also is looking for way to increase revenue, Adler said.

These include "a whole lot of initiatives from smaller to larger," Adler said, including improving billing of insurance companies in order to get the money faster.

Yordy emphasized in his prepared remarks that the $100 million in savings "have been identified but not yet realized."

"If we don't achieve the full $100 million in identified savings, then the difference will be added to the $30 million goal; the total savings must reach $130 million," he said.

PeaceHealth is asking employees to find the additional $30 million in savings in the next two months.

The total $130 millionPeaceHealth is seeking amounts to about 5.5 percent of its operating revenue, Yordy said.

PeaceHealth reported a profit of $112 million on revenue of $1.53 billion in the fiscal year ended June 30, 2011, the most recent figures available.

The situation PeaceHealth is facing, while serious, is not unique, Yordy said.

PeaceHealth, like other health providers across the country, is dealing with flat patient volumes, rising expenses and lower reimbursements from government and insurance companies, he said.

Adler said that when the recession began, PeaceHealth saw patient revenue fall as many employers switched to insurance plans with high deductibles -- $4,000, $6,000 or more. "People decided that they were not able to afford elective care. That hernia, maybe it can wait another year." Adler said. Expenses, however, continued to rise, he said, in large part because of new technology and new drugs.

At the same time all this was happening, both government -- Medicaid and Medicare -- and private insurers cut reimbursements for medical care, Adler said. And charity care soared, he said, adding that as a mission-driven organization, PeaceHealth does not turn away patients who are unable to pay.

PeaceHealth is a Catholic-sponsored health care provider.

Along with the problems facing all health care providers, Yordy said, "PeaceHealth is facing additional challenges due in part to our required investments in the electronic health record and to Kaiser's discontinuation of its longstanding contract with PeaceHealth Southwest Medical Center."

Adler said PeaceHealth is investing $350 million in the new electronic health records system over the next three years to meet federal mandates.

For 15 years, Kaiser Permanente -- a managed care organization -- had a deal with PeaceHealth to send its 100,000 members in Clark County to PeaceHealth's medical center in Vancouver, Wash., for nonemergency care. This year, Kaiser decided to switch to Legacy Salmon Creek Medical Center, effective in October.

Adler said it's difficult to know exactly what the financial impact will be on PeaceHealth. It will continue to provide some services to Kaiser members because no one else offers them in Clark County, he said. Some employers or employees may decide to switch health care plans in order to continue receiving treatment at PeaceHealth, he said.

Also, he said, "We are still quietly negotiating with Kaiser."

Yordy said PeaceHealth is not in a crisis, but is acting now to avoid being in a crisis. "We have a strong cash position and an A+ bond rating," he said.

One bond rating agency, Fitch, recently reaffirmed its rating of AA- for six PeaceHealth revenue bonds, but lowered its ratings outlook for PeaceHealth from "stable" to "negative."

"PeaceHealth's primary rating strength continues to be its geographic diversity and the dominant market position in its major service areas," Fitch said in late April. In PeaceHealth's major service areas of Eugene-Springfield, Bellingham and Longview-Vancouver, the care provider had a market share of 77 percent, 87 percent and 58 percent, respectively, Fitch said.

But, the bond rating firm said, PeaceHealth will be taking on more debt for capital improvements, and the organization's profitability "is somewhat light for the 'AA' category." Its earnings before interest, tax and amortization expenses were 10.3 and 9.3 in the 2011 and 2012 fiscal years, respectively, compared with the AA median of 10.6 percent. Also, Fitch said, the amount of cash or investments that PeaceHealth has that can be quickly turned into cash is improving but is a little light for the AA category.

Adler said that Fitch's ratings reflect PeaceHealth's priorities and commitments, which can differ from a for-profit company.

"We are continuing to invest in mission-based services, which don't make a lot of money," he said. "We invest in what the community truly needs."

"We are making heavy capital investments in the right things, like behavorial health" at the psychiatric unit at Sacred Heart in Eugene, he said.

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