Bill Gorton: “How did you go bankrupt?”
Mike Campbell: “Well, two ways. Gradually, then suddenly
The Sun Also Rises – Ernest Hemmingway
In my November 2024 post on the proposed acquisition of Legacy Health by OHSU, I raised a number of questions about whether this transaction will be in the best interest of our state—especially in terms of addressing the larger challenges facing Oregon’s health care system: the escalating cost of premiums and deductibles, the lack of access to behavioral health, and the crisis in primary care.
Like the efforts of many financially struggling hospitals, the proposed OHSU-Legacy merger is, to some extent, being advanced in a bubble, focused primarily (and understandably) on the finances of these two institutions, as though they are immune from what is happening around them.
This observation applies not just to the proposed merger, but to all the players in our increasingly fragmented and contentious heath care landscape. No one is suggesting that our hospitals should not be addressing the short-term financial circumstances that threaten their stability. We need to keep the doors open. At the same time, unless we are also willing to address the larger system problems that are contributing to this immediate financial distress, we will simply continue to move from one crisis to another. Yet, today our health care landscape remains fragmented and contentious, with no center and no shared vision for the future. It is characterized by a politics of scarcity, driven by short-term financial considerations, rather than by mission, or the long-term stability of the system itself.
Across the board, payers, providers, and labor, are operating in silos—as if they are separate unrelated entities—when, in reality, they are all part of a larger dysfunctional, yet interconnected, system in which their fates are inextricably linked. Hospitals across Oregon, as well as many medical practices, are struggling financially, facing fiscal trajectories that are simply not sustainable. At the same time, the cost of health care has become increasingly unaffordable for individuals, and for employers—both public and private. This deteriorating situation is due, in large part, to the deeply flawed nature of our health care system itself—a system that no rational person would have intentionally designed.
These flaws were both exposed and exacerbated by the pandemic—in particular, the irrationality and fragility of a financing model based on volume. The significant revenue loss associated with the lockdown, and the reduction of non-emergency procedures and elective surgeries, was exacerbated by the inability to discharge people who no longer required hospitalization—and by a workforce shortage, driven in part by the “burn out” factor, and the need to hire expensive contract labor to backfill those who retired or took less stressful jobs.
The pandemic should have been a wake-up call. But now, 20 months after the end of the Covid public health emergency declaration—we don’t seem to have learned much, and have continued to operate largely “business as usual.” There might have been a time when a purely adversarial approach made sense, when individual groups of stakeholders in the health care system could advocate for their own economic self-interest, without regard to how it might affect other groups. That is no longer the case. Today, all of us—payers, providers, labor and health care consumers—exist in a larger ecosystem, which itself, is unsustainable, and drifting irrevocably towards a fiscal precipice.
To illustrate the increasingly interrelated nature of the various elements of our health care system, let me offer two examples: the nursing strike at Providence, and the way that OHSU and Legacy are responding to the very real fiscal pressure facing these two institutions. Let’s start with the health care workforce.
The workforce shortage, exposed and exacerbated by the pandemic, heightened tensions with organized labor, particularly between the ONA and hospitals, as we are witnessing with the Providence strike. Right now, we are in a crisis mode and the relationship between labor and hospitals is largely confrontational. The reality, however, is this: in the absence of new revenue and/or structural changes, anything that increases the cost of operating a hospital—including labor cost—will impact patient care by reducing access or compromising quality.
The cost of labor is the single largest driver of hospital operating budgets— over 55% for most hospitals, and at an academic institution like OHSU, it may be over 65%. And that’s the rub. How can we reduce the hospital cost structure—in order to keep these institutions solvent, so they can continue to provide the care that Oregonians need—when over half of that cost is in payroll and benefits? Answering that question is important—but it must be answered, not in the abstract, but within the context of what our health care workforce has been through.
In the depth of the pandemic—month after month, surge after surge—these workers shouldered the stress and the human tragedy of the COVID 19, risking their lives, working hours and days at a time, often lacking adequate protective equipment and other vital supplies, to save lives and keep the rest of us safe. And I am referring not only to the doctors, nurses, respiratory therapist, and all those involved in direct patient care, but also the housekeepers, janitors and food service employees, who also risked their lives to keep hospitals running during those dark days.
These workers deserve to be paid, and to be paid well. In fact, I don’t think anyone who works for a hospital—or for any other part of the health care system—should be paid so little that they qualify for the Oregon Health Plan. One way to ensure good pay is through labor unions and collective bargaining agreements—both of which I have supported throughout my career in public service, and continue to support. But the simple fact is that we are facing a math problem: the current cost structure of hospitals is unsustainable, and nearly 60% of that cost is labor.
By the same token, minimum staffing ratios are also important. If the patient-to-nurse ratio is too high, it undermines the quality of care, compromises patient safety and contributes to burn out. But we are in uncharted territory. Mandatory, minimum staffing ratios, introduced into an environment where many hospitals cannot fill existing nursing positions, could negatively impact care. If a hospital is unable to meet the staffing ratios because they simply don’t have enough nurses, their choices are limited.
One choice is to hire more contract nurses, further widening the gap between operating revenue and operating expenses. Another choice would be to close some existing beds in order to meet the ratios, further compromising access to care by reducing capacity, which is already strained. Both choices exacerbate the current crisis, and ultimately will not serve the long-term interests of labor, hospitals or our fellow Oregonians who cannot access the care they need and deserve.
Another example of the interrelated nature of the various elements of our health care system, can be found in the way OHSU, and other providers, are responding to fiscal pressure. In the case of OHSU, this pressure is due, in part, to a demand for inpatient services that is twice the statewide average. This has strained the capacity of their facilities, especially the ER and NICU. The response to this to generate more revenue in order to expand these facilities. This is an example of a “business as usual” approach: when demand goes up, make the system bigger, seek more funding for the status quo, without questioning it.
This point is illustrated by an ongoing ecosystem population analysis of the 450,000 Medicaid recipients in the Portland metropolitan area, that started in the summer of 2022. The analysis focused on members who fell into one or more of four specific diagnoses: (1) opioid use disorder, (2) stimulant use disorder, (3) psychosis, or (4) substance associated overdose. The ecosystem analysis showed that this total cohort of 26,000 individuals, out of a denominator of 450,000—about 6% of the metro area Medicaid population—accounted for approximately 40% of costs, 40% of ER visits, and 40% of inpatient admissions.
These people are showing up in the ER, and being admitted to the hospital for things like wound infections and respiratory infections –which are treated in an expensive acute care setting, and then they are discharged, without any coordinated inpatient or outpatient effort to address the underlying mental health and substance use disorders that brought them to the hospital in the first place. This strategy essentially ignores the demand side of the equation. It is also inflicting a kind of “moral injury” and “burn-out” on the medical staff, associated with seeing some of the same people over and over again, and treating only the medical consequences of much deeper disorders.
The fact is, that without addressing the six percent of this population that is driving 40% of ER visits (many of whom I expect are contributing to the ER boarding problem) we will never be able to expand ER capacity fast enough to keep ahead of demand. The ecosystem population analysis, also revealed the same problem with pressure on the NICU—11% of maternity inpatient stays in this population are high acuity. As with ER capacity, without addressing this through primary prevention—beginning before or at conception—the demand for NICU beds will continue to outstrip capacity … not to mentioned the long-term, downstream human, health system and social cost of infants born to addicted mothers.
It is worth noting that the ecosystem analysis showed these high acuity members to be “plan agnostic.” That is, when they need care, they go to the most convenient ER. This means that the cost is being absorbed by all the systems, not just OHSU and Legacy.
The message here, is that all of this is interconnected. Our challenge is not just a health care problem, it is a community problem, a state problem and, of course, a federal problem. Many of the factors that are driving demand in our hospitals, for example, are the result of longstanding socioeconomic disparities. They are beyond the direct control of the health care system itself, which means we cannot address the escalating cost of health care in our silos. We are trapped in a downward vicious cycle, and by clinging to the status quo, we are both perpetuating it, and accelerating our collective drift toward the precipice.
As the cost of care continues to increase, hospitals and medical practices need more money to maintain their economic viability. And regardless of whether those costs are the result of increased demand, the lack of investment in very young children and their families, better pay for the health care workforce, or the obscenely inflated cost of pharmaceuticals, there are only two places that money can come from.
One is by hiking rates in the commercial market. This is not a sustainable long-term strategy, because it simply shifts the cost of facility expansion—and the additional staffing cost that accompanies it—to employers and employees in the commercial market, through higher premiums. The ACA individual market is already unaffordable for many Oregonians, as is the small group market, where over 90% of Oregon’s employers purchase health care coverage for their employees. Yet this year, Oregonians will see yet another rate increase—an average increase of 8.3% in the individual market and over 12% percent in the small group market.
Furthermore, employers in the small group market are not required by the ACA to provide employment-based coverage. At some point, these employers will respond to the cost shift by dropping coverage altogether, or by further shifting the cost to their employees, through higher copayments and deductibles. The cost shift to individuals in all markets has been profound over the past decade. Indeed, the leading cause of personal bankruptcy is the inability to pay a medical bill, and the majority of those who go bankrupt from health care debt are insured. The eventual outcome of this cost-shifting strategy will be an increase in uncompensated or undercompensated care, absorbed by medical clinics and hospitals, including OHSU and Legacy—perpetuating the cycle.
The other source of money is from the public sector, which already pays rates significantly lower than commercial payers. To expect a sudden infusion of public resources to maintain the current, unsustainable health care business model, is fanciful thinking. The Congressional Budget Office has identified health care as one of the largest drivers of our rising $35 trillion national debt, and that spending on major health care programs is projected to rise by 73 percent over the next decade and will exceed all other categories of federal spending by 2028.
According to the Penn Wharton Budget Model, under current policy, the United States has about 20 years for corrective action, after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt. This time frame is the “best case” scenario for the United States, under market conditions where participants believe that corrective fiscal actions will happen ahead of time (i.e. in the next ten years).
Making the current system larger is not a “corrective fiscal action,” nor is negotiating labor contracts in a vacuum, or pretending that our failure as a society to address widening economic inequality is not a huge cost driver in our health care system.
The Chinese General Sun Tzu wrote in The Art of War, “He will win who knows when to fight and when not to fight.” The “enemy” here is not better pay for our health care workforce, nor is it hospitals trapped in a business model that is no longer fiscally sustainable. The enemy is that payers, providers and labor continue to operate in silos, when only coordinated action can create a path forward. This is an all hands on deck moment.
Do hospitals need more money to stabilize the system in the short term? In many cases, yes. But that money must be part of a larger intentional, and coordinated strategy to transition the system to one that is both affordable and sustainable. The only way we can move beyond day-to-day crisis management is to have a clearly articulated and broadly supported vision of where we want Oregon’s health care system to be five years from now—and then walk that back to determine the steps we must take to get us there.
Breaking this cycle requires that the health care, civic, business, labor and political leadership of our state, come together to forge a shared vision of Oregon’s health future, and a pathway by which to get there. It demands a statewide response, and probably obtaining additional federal flexibility, and investment to transition to a new more sustainable and affordable system—something at which Oregon has been singularly successful over the past three decades.
Indeed, a decade ago, in the depth of the Great Recession, it was our shared commitment to put the interest of Oregonians first, that led to the overwhelming bipartisan support for the bill that launched the CCOs, a bill that passed with a vote of 57-1 in the House and 22-7 in the Senate. I share this as a reminder that we are capable of coming together, even in the most difficult of times.
The central question is whether we will continue to operate within the false security of our individual silos, blaming others for our predicament, while feeding the vicious cycle that is accelerating our drift toward the lip of the falls. We are all in the same canoe, whether we are willing to acknowledge it or not. We can paddle together toward a safe shore, as we have done in the past, or we can continue to grip our individual stakeholder paddles, trying desperately keep our end of the canoe headed upstream—comforting ourselves in the knowledge that those in the other end will go over the precipice before we do.
We can do better—and we must do better. Failure is not an option because the ultimate losers in this scenario are the very people we are supposed to be serving: our fellow Oregonians who need and deserve timely access to quality, affordable health care.
The question before us is simply this: are we going to lead or are we going to react? Will we remain the passive victims of the status quo, or will we become the proud architects of a new and brighter the future?
