By MIKE FRANCIS and NICK BUDNICK/The Lund Report
Corvallis-based Samaritan Health Services has formally notified its bank that it likely violated its bond terms last year due to financial losses.
While Samaritan chief executive officer Doug Boysen downplayed the notice in an interview with The Lund Report, he said the finances in Oregon health care appear untenable statewide and it’s his organization’s “duty” to seek growth while considering possibilities such as a merger, outside partner or sale.
“All options are on the table,” Boysen said. “It’s a really uncertain environment right now and we are looking at all different potential options to make sure that Samaritan is sustainable into the future.”
In a Feb. 25 letter to U.S. Bank, Samaritan chief financial officer Daniel Smith wrote that Samaritan’s final 2024 income likely won’t meet its debt-service terms with the bank, and that would constitute “a nonpayment related default.”
Boysen said the violation would be a technical one. He said the nonprofit system, which includes hospitals, clinics and a coordinated care organization under the Oregon Health Plan, has reserves and does not have a problem making payments.
That said, Samaritan’s situation reflects what he’s seeing and hearing all over the state, Boysen said, with payments under Medicare and the Oregon Health Plan remaining flat or even declining.
“I believe that health care is unsustainable right now in the state of Oregon,” he said. “I do believe if it continues on this track in five to 10 years, the configuration of how health care systems are made up in the state are going to change dramatically.”
Nearly 90,000 low-income residents of its three county service area are served by the InterCommunity Health Network operated by Samaritan. Past sales of organizations overseeing care for the Oregon Health Plan have been controversial.
For Samaritan, it makes sense to follow the “movement in the state” toward growth and finding a larger partner, Boysen said, as hospitals like Mid-Columbia Medical Center in The Dalles, Bay Area Hospital in Coos Bay and Legacy Health in Portland have done.
“We believe that it’s our duty to be thinking about that and talking about that,” he said, adding that the system has not made specific plans at this point and is not in conversations with other systems.
Samaritan’s notice to its bank cited “decreasing payments from health insurance companies, declining payor mix, and increased utilization on its health plans in excess of premiums received, as well as other industry-wide pressures on expenses, such as labor, supplies, and general inflation.”
Under the terms of the bond covenant, Boysen said, Samaritan was required to retain a consulting firm to help it improve its financial picture. Samaritan hired Warbird Healthcare Advisors of Atlanta, a firm that advises health care organizations on everything from analyzing productivity of physician practices to negotiating sales of client organizations.
Newport a bright spot
Samaritan is facing crosswinds that bedevil many rural and small regional health care systems. A February analysis by the Center for Healthcare Quality & Payment Reform said financial difficulties threaten to close more than 700 rural hospitals — about a third of all rural hospitals in the country — including seven in Oregon.
It said the primary driver of rural hospital financial problems is that they are losing increasing amounts of money serving patients with private insurance coverage. But hospital systems around the country also lament stagnant Medicaid and Medicare reimbursements even as care expenses continue to rise.
According to figures reported to the Oregon Health Authority, Good Samaritan Medical Center, the flagship hospital in the Samaritan system, suffered an operating loss of $7.6 million last year, an improvement over the $28.5 million operating loss the previous year. Samaritan also operates Samaritan Pacific Communities Hospital in Newport, Samaritan North Lincoln Hospital in Lincoln City and hospitals in Albany and Lebanon. It also operates two insurance plans.
But the Newport hospital is one of the financial bright spots in the five-hospital system, according to state and federal records as reported by YachatsNews in January. The 25-bed Newport hospital made a profit of $23 million in 2023, according to state and federal reports, but that dropped to $8 million for the first six months of 2024.
North Lincoln hospital, which has 16 beds, rarely makes much of a profit — $2 million in 2023 and none for the first six months of 2024.
But the Samaritan system’s finances are pooled, with profits from some facilities and services covering money-losing services or going into reserves for capital projects. Profits from the system’s three smaller hospitals, especially Samaritan Pacific in Newport, historically have been enough to offset the two bigger hospitals’ losses and keep the chain in the black, Samaritan’s financial disclosures showed in 2024. But that balancing act is now wobbling.
Boysen announced in December he would resign from his job this year, and that the company would recruit a replacement. He said this week the board has been evaluating candidates and he expects a decision will be announced within the next 45 days.
Since last year, Samaritan, which employs more than 6,000 people, cut 200 jobs systemwide and reduced hours for some employees and temporarily reduced executive pay. In a prepared statement, Samaritan cited pressures ranging from inflation to a national cyber incident caused it to lose money in 2024.
Boysen said this week that the cost-cutting measures launched last August are already paying off. “Our January financial metrics look like they’re heading on a much more positive pathway right now.”
Expanding to Stayton
Boysen said the system’s proposed absorption of Stayton-based Santiam Memorial Hospital, a financially challenged 40-bed hospital that serves Stayton and surrounding communities east of Salem, reflects its quest for “economies of scale.”
Under the terms of the proposed acquisition, Samaritan said it would build a $15 million medical office building in Stayton and supply the smaller hospital with $10.5 million for capital expenses. It also said it would assume about $25 million of debt Santiam owes to the federal government and Key Bank.
While that purchase is not final, it would expand Samaritan’s coverage area deeper eastward into Linn County and eastern Marion County, and buttress the system’s already dominant market position in its core region of Lincoln, Benton and Linn counties.
As Samaritan weighs its options in the months ahead, Boysen said, it is conscious of the need to make sure residents have access to local health services, even if absorption by a larger partner means they are not provided under the name Samaritan.
“The core issue for us is that you have this hyper-rising inflation market where our supply expenses, pharmaceutical expenses, all our labor expenses have gone up exponentially over the last three or four years,” he said. “Seventy-five percent of our revenue, our payer mix, is from Medicare and Medicaid (in which) we’ve seen hardly any increase to the revenue side.
“And there is a point where the math doesn’t work.”
- The Lund Report is an independent, nonpartisan, nonprofit, online news source covering health care issues in Oregon and southwest Washington. Mike Francis can be reached at mike@thelundreport.org; Nick Budnick can be reached at nick@thelundreport.org.
Rural hospitals, which Sam Pac is, have received higher Medicare reimbursements, as is indicated by the statement that, “.It said the primary driver of rural hospital financial problems is that they are losing increasing amounts of money serving patients with private insurance coverage.”, although I can certainly understand Samaritan’s concern for regarding future reimbursements from Medicare & Medicaid.
How does it make sense for a chain/”network” that states it’s already “Corvallis-based Samaritan Health Services has formally notified its bank that it likely violated its bond terms last year due to financial losses.” tbut will still pour money into an already in debt hospital system–not stabilize the existing system, but expand it during such uncertain times? While cutting services at the hospital that’s been producing a substantial portion of the network’s profits?
Boysen mentions “economies of scale” without explaining how this would work in a hospital system. I understand how economy of scale works in manufacturing, ships and airplanes but I don’t see how it would work in a system of hospitals operating relatively independently. Also, Aziire is correct. Why would Samaritan, whose operating revenue apparently does not support its debt load take on a financially failing hospital and make major capital investment in that hospital?
I don’t understand:The Samaritan Health Syervices is designated as a nonprofit health system, originally with charitable religious affiliations and yet the Pacific Communities Hospital with 25 beds had a profit of $23 million in 2023? Why should there be any profit for a non-profit system? Information provided in one of the references indicated that the primary reason for the difficulties suffered by the hospital chain is the severe reduction in payments to the system by private insurers, not Medicare or Medicaid. How much does Warbird Healthcare Advisors of Atlanta get paid each year? And the solution to the problem is to sell the healthcare system to some for-profit hedge fund managing group in Missouri? What a sad situation for which the residents of Western Oregon will suffer physically, socially, and economically.
Non profits can make “profits”. That means that total revenues exceed total expenses. In a non profit that income stays with the organization for uses the organization deems in its best interests.
I don’t understand how private/employer insurance, which apparently is only about 25% of Samaritan’s revenue (the other 75% or so being Medicaid/Medicare), is their primary money loser.That certainly isn’t reflected in the soaring private insurance premiums my husband and I pay, and the ever more outrageous copays, out of pocket and deductibles. Where is our money going? Are we propping up Oregon’s free and low care health insurance? What’s going on with health insurance companies? They ask for more and more money from their customers but hospitals say their payments are not covering costs. What a mess, don’t know who is telling the truth, only know some things don’t make sense and it sounds like Oregon is in for a shake up of Its health care system if things don’t change and that can’t be good.
I wonder in what ways the situation is complicated by the fact that Samaritan Pacific Communities Hospital is owned by Pacific Communities Health District which leases it to Samaritan Health Services to operate, with the lease expiring in 2031.
Does public ownership of the building and land somehow make the facility more profitable for the operator, Samaritan?
Additional note on this important story. The Newport hospital, unlike the Lincoln city hospital, which is owned by Samaritan, is wholly owned by the Hospital District which voters voted for some years ago. That means the Hospital district will have a say in what happens with the Newport hospital.