St. Charles Health System, central Oregon’s largest employer, said it would lay off 105 employees, or about 2% of its workforce, in a bid to control operating costs. St. Charles is also eliminating 74 vacant positions.

The people who will be laid off had not yet been told their fates Wednesday afternoon when hospital officials made their announcement. Terminated employees will receive severance packages.

St. Charles leaders said after two years of responding to multiple COVID-19 surges, staffing shortages and declining revenues have thrown the health care system into financial distress. So far this year, St. Charles has lost $21.8 million on operations, an operating loss of 6.7%.

Federal pandemic aid, which helped keep the hospital afloat for the first two years of the pandemic, is now contributing to its cash flow problems. When the governor of Oregon issued a statewide stay-at-home order in March 2020 and ordered hospitals to suspend all elective procedures, hospitals across the state lost a critical source of revenue. In April, St. Charles received a $95 million cash advance from the Centers for Medicare & Medicaid Services, part of a federal program pandemic relief program. The initial $95 million loan represents more than half of the total federal pandemic assistance St. Charles has received, according to the hospital. financial disclosures.

Last year, the US Department of Health and Human Services, which administers Medicare, began clawing back the cash advance by not paying St. Charles for the services it provides to Medicare patients. In 2021, the federal government thus recovered more than $34 million of its advance. St. Charles still owes $60,967,000. The federal government will begin charging St. Charles a 4% interest rate on the outstanding balance later this year.

Even though it is laying people off and cutting some jobs, St Charles has around 400 vacancies it is still recruiting for in nursing and acute care. Temporarily filling those roles with travel nurses — who are paid at a higher rate than full-time local staff — to fill those shifts has been a major driver of the financial crisis in St. Charles. This widespread practice is causing financial hardship in health care systems across the country, according to the American Hospital Association.

Rising equipment and supply costs and an increase in the cost of employee benefits also contributed to the problems at St. Charles, executives said.

Meanwhile, the number of ongoing elective surgeries remains low.

“It hasn’t been long since the omicron push in our region subsided,” said Matt Swafford, St. Charles’ chief financial officer, “and it’s had a huge financial impact.”

Managing rising costs is especially difficult, Swafford said, for systems like St. Charles that see a high percentage of patients on Medicare and Medicaid. (Medicare is the public program that covers health care costs for the elderly, and Medicaid covers people who cannot afford private insurance.) These government health insurance programs reimburse at a lower rate than insurers private companies and generally only adjust their reimbursement rates once a year. This means that rapidly rising labor and supply costs, like those felt across the country this winter, are not easily priced in.

Hospital executives said the layoffs were a “last resort”, after it exhausted other strategies to inject cash into its operations. The health system spent $65 million of its long-term reserves, about 10% of its portfolio, and extended its line of credit. If the hospital’s financial performance deteriorates, it could violate the terms of the hospital’s bonding agreements, Swafford said.

“It’s a very serious threshold that we don’t want to cross,” he said.

St Charles estimates the layoffs will save it around $20 million a year. Even with the layoffs, he expects to end 2022 reporting losses.