Construction of a 16-bed, nearly $4 million alcohol and drug treatment center in Lebanon has been put on hold until Samaritan Health Services gets a clearer picture of how the state’s expanded health care tax (House Bill 2391) is going to affect the system’s bottom line.
Larry Mullins, Samaritan’s president and CEO, said tax changes and a capping of state reimbursement for current and retired employees medical care could cost Samaritan as much as $24 million annually.
“We are looking at cutting programs, especially those that might not be profitable,” Mullins said. “We have always known that alcohol and drug rehabilitation would not be profitable, but we believe it is needed in our communities. We are still prepared to move forward with it, but we need more solid information at this time.”
Mullins said it would not be fiscally responsible to begin construction of the facility in Lebanon “until we know we have enough money to move forward with it.”
Mullins said all departments throughout the system — which employs more than 5,200 people at five hospitals and numerous clinics — are being examined for possible cost-cutting measures.
New hires have been frozen except in critical areas, Mullins said, adding the system is renegotiating vendor and supplier contracts and delaying non-emergency capital acquisitions.
“This Legislative session has really created some challenges for hospitals,” Mullins said.
Mullins said health care systems currently pay a 5.3 percent annual tax on net revenues. Those funds are paid to the state, which then receives matching grants from the federal government. The original assessments are then funneled back to the health care systems.
Under the new tax plan, the assessment will increase to 6 percent and the additional seventh-tenths tax increase will not be reimbursed to the hospitals.
Mullins said taxing hospital systems on gross receipts could create significant financial issues and in some cases, cause the system to end up losing money.
He added that a more fair way of taxing hospitals would be to tax earnings, after the hospitals have paid expenses.
“That’s the only way to know if there is money available to pay the assessment,” he said.
According to Mullins, Samaritan Health Services is down about 75 employees in recent months, but will likely have to cut another 150 to 200 positions. Consolidation of programs and clinics is likely.
Mullins said Samaritan grosses about $900 million per year with net earnings of about $600 million. The margin on that is 1 to 2 percent.
The new tax rate is expected to generate $673 million statewide to fund the Oregon Health Plan, which covers one of every four Oregonians.
The tax would be 6 percent for the state’s largest hospitals and 4 percent for rural hospitals.
Insurers and managed-care organizations will also pay a new 1.5 percent tax on their premium incomes.
Mullins called the Legislature’s actions, “a burden to health care systems that require us to do some things that will be harmful to our communities. We are trying to get through this without massive layoffs. This scenario is as dramatic as anything I’ve seen in my career.”
Mullins spoke with Gov. Kate Brown this week and told her this legislation “will have damaging effects on health care delivery, programs, people and jobs.”