Increased demand ramped up financial pressure on Oregon community hospitals during 2016.

A report released this week by the Oregon Association of Hospitals and Health Systems indicated hospitals saw fourth-quarter operating margins shrink to the lowest levels in three years as more Medicaid patients sought services.

Oregon hospitals reported a median operating margin of minus 0.1 percent, down from 2.6 percent a year earlier. It's the largest operating margin decrease in the past three years.

The influx of Medicaid patients and harsh weather conditions contributed to increased labor costs that outstripped revenue growth by 5 percent during the quarter, said Asante Chief Administrative and Financial Officer Greg Wojtal. The operating margin was 4.5 percent for the corresponding fiscal quarter October through December 2015.

"What we're seeing is very consistent with state reporting, we're pretty much in the same boat," Wojtal said. "We had a break-even quarter. The numbers are obviously a little different from the state report, but expenses are growing substantially faster than revenues."

Patients admitted to Asante hospitals tended to have greater intensity of sickness than a year ago, Wojtal said, noting a bump from the flu and elderly patients affected by the harsh winter.

In the past year, Asante's employee count has grown by nearly 9 percent to 5,514 from 5,066 a year ago.

"We have to provide staffing to meet those needs and end up paying substantially more for labor, overtime, contract labor and premium pay," Wojtal said.

Staff providing direct patient care, related support staff, lab techs, radiology, housekeepers and food service all work overtime, he said. If overtime can't fill the need, Asante's hospitals in Ashland, Medford and Grants Pass turn to contract labor agencies for nurses and lab technicians.

"When we pay overtime, it affects our whole delivery arena in terms of pay structure," Wojtal said. "If we have to turn to contract labor, obviously that's more expensive."

Premium pay goes to fill shifts needing additional staffing.

Providence Medford Medical Center and Providence Medical Group employ more than 1,200 people at the hospital and 16 clinics in Jackson and Josephine counties.

Providence's executives were in Portland for meetings Friday. Providence Medford Medical Center CEO Cindy Mayo said that her group is experiencing similar results.

"As the report shows, the costs of providing care are increasing faster than the reimbursement for these services," Mayo said. "We devote resources to managing our expenses, such as pharmaceuticals, equipment and supply utilization. We are also able to leverage being part of one of the largest not-for-profit health care delivery systems in the country. While working on costs, we simultaneously look at doing all we can to improve our processes and care delivery to provide the best patient experience with high-quality outcomes.”

The OAHHS reported median charity care as a percentage of total charges has reversed course with a slight increase after the initial post-ACA expansion drop.

Association charity care totaled $94 million in the fourth quarter of 2016, demonstrating hospitals are still seeing uninsured patients and those with high-deductible health plans. Meanwhile, patient volumes remained stable, but emergency department visits increased 2.97 percent as compared with the same quarter in 2015, with 330,135 total visits in the fourth quarter of 2016.

Wojtal said Asante provides charity care on a graduated scale up to 200 percent of the federal poverty level. With more and more people taking high-deductible plans with higher out-of-pocket expenses and co-pays, payment on those billings has fallen farther behind. He said charity care grew to 5.5 percent in December 2016 compared to 4 percent in 2015.

Asante budgets for 3 percent revenue growth, enabling it to fund capital improvements. This year, Asante is updating its nurse call system and purchasing a CT scanner, which costs between $1.5 million and $2 million.

"Capital expenditures are a little separate," Wojtal said. "But ultimately they're funded from business operations."

— Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter at www.twitter.com/GregMTBusiness, on Facebook at www.facebook.com/greg.stiles.31.