Top officials at Oregon Health & Science University are facing a prospect that not long ago would have been unthinkable: a year where the institution just breaks even.

Rapidly growing labor costs are outpacing revenue increases, driving OHSU leaders to propose a zero-profit budget for the coming fiscal year, according to the financial plan OHSU’s Board of Directors will review Friday. 

That’s a sharp departure from pre-COVID years that typically yielded annual operating margins, or profits, of about 5%. Tnhe development follows a series of public warnings issued by administrators in recent months.

LIke other large health care institutions nationwide, OHSU, a public research university and hospital system, is struggling to find skilled health care and other workers as it pushes to increase revenue-generating services that were curbed during the pandemic. 

 “We recognize the seriousness of the financial situation,” Chief Financial Officer Lawrence Furnstahl wrote to the board.

Among other things, the budget calls for adding 19 positions in human resources to address deficiencies – notably the handling of complaints about bias and harassment– that were detailed in a scathing report issued by the Covington law firm last year.

Overall, the budget’s projected operating revenue of $4.3 billion for the fiscal year starting July 1 is up 7.8% from this year’s estimated revenue. That budget proposal covers higher wages plus the addition of about 400 full-time-equivalent positions across the institution, taking total budgeted staffing to 17,858 positions, according to the plan submitted by Furnstahl.

The institution needs to add staff in part to replace extremely costly temporary traveler nurses and other contract workers, Furnstahl wrote.

The state had used federal funds to provide traveling nurses to augment those hired by institutions, but that practice came to an end in April when Gov. Brown declared the state’s public health emergency over.

Last winter, OHSU had as many as 440 contract workers in healthcare services. Furnstahl wants to cut that to the equivalent of 95 -full-time positions by next spring.

Furnstahl is predicting a $77 million operating loss for the fiscal year that ends June 30. That includes an estimated $16 million loss in May — much greater than anticipated, he wrote.

Among the recent nasty surprises OHSU and other hospital systems have faced: this spring’s sharp decline in the stock market. The drop has cut the value of OHSU’s $1 billion-plus investment portfolio by about $80 million this year,according to Furnstahl’s report. That follows years of healthy returns generated by the long bull market. In the past four years, OHSU reported average annual returns of $52 million.

But much of the administration’s focus now is on increased salaries and staffing levels, and how to produce a budget that at least breaks even.

Even if OHSU scales back the number of contract workers, it faces pressure across the board to increase pay and benefits for staff.

More than 10,000 OHSU workers are represented by labor unions, with contracts that give workers annual cost of living increases — plus, for many, annual step increases tied to job experience. Non-unionized workers, especially the 2,250 doctors and other faculty, are lobbying for increases too.

OHSU and AFSCME are in the midst of negotiating a new contract for roughly 7,000 classified staff, such as cleaning and food service workers. The current contract expires June 30. OHSU’s roughly 3,000 nurses are represented by the Oregon Nurses Association. That contract runs through next summer.

The budget proposes a 3.9% pay increase for faculty in the coming fiscal year, boosting the average salary in the School of Medicine, the research department and the provost’s office to $197,339. In the School of Medicine, where salaries are higher, it would grow to $210,098. 

The OHSU Senate, which represents faculty, has reviewed the budget plan and is seeking more money. In its response to the budget, the Senate wrote that OHSU has not brought some faculty salaries up to benchmarks set for faculty, and that further cost of living increases are merited.

In the healthcare segment of OHSU, salaries and benefits will rise 11.7%, to $1.2 billion in the coming fiscal year, largely due to a mix of increased hiring and salary and benefit increases.

To balance the budget, the administration has proposed an assortment of measures.

These include reducing pre-payment of OHSU’s Public Employees Retirement System liability, Furnstahl wrote to the board.

OHSU is part of the state’s PERS system because it is a quasi-governmental public corporation, spun off from the state bureaucracy by the Legislature in 1995.

Pre-paying a portion of the PERS liability is much like pre-paying on or paying down a mortgage early : it can save a lot of money in the long run. But OHSU can’t afford to make so much pre-payment if it wants a break-even budget, Furnstahl wrote.

OHSU’s PERS liability stands at about $600 million. Government agencies such as OHSU must make annual payments into the system to gradually pay down that obligation. OHSU had been making larger-than-required payments, but now will reduce those even though they provide a “37% return on investment” and “direct relief to the operating budget in future years,” Furnstahl wrote.

Also OHSU must raise donations of $285 million for an ongoing hospital expansion project, up from $100 million in donations the institution had previously set as a goal, Furnstahl wrote. The more OHSU raises in donations, the less it has to borrow and pay interest on.

Meanwhile, staff are making headway implementing the Covington report’s recommendations, the administration reported. The OHSU team handling employee and labor relations has grown to 32, up from 17. The HR department has finalized disciplinary guidelines to address the report’s findings and is planning a new “employee engagement survey” for August, according to an update from the internal committee implementing the Covington report.

Work for the summer includes hiring to increase the number and diversity of human resources investigators who handle complaints, and providing them with “sophisticated training,” according to the document.

You can reach Christian Wihtol at [email protected].