PeaceHealth making cuts to close $130 million budget gap


PeaceHealth St. Joseph Medical Center

PeaceHealth St. Joseph Medical Center is located at 2901 Squalicum Parkway in Bellingham.


PeaceHealth is making cuts and other changes to close a $130 million gap in its budget system-wide as it grapples with "an unprecedented budget challenge," Alan Yordy, its president and chief mission officer, wrote in memos to managers and employees.

The amount is about 5.5 percent of PeaceHealth's projected operating revenue of $2.4 billion in the fiscal year, which began July 1. It has hospitals and medical facilities in Washington state, Alaska and Oregon.

What kind of an impact that could have on PeaceHealth in Whatcom County was unknown, Tuesday, July 16.

"It's going to vary by clinic or by outpatient center or by hospital," said Peter Adler, chief strategy officer for the PeaceHealth system.

PeaceHealth provides most of the health care in the county and operates the only hospital here.

Adler added: "Patients will not see any change in their care. In fact, they'll continue to see an expansion in access and expansion in services."

Employees are being asked to share their ideas for reducing costs.

Adler said PeaceHealth will continue to look for ways to bring in additional revenue; the new Cancer Center in Bellingham is an example of that.

PeaceHealth has 2,767 employees in the region that includes Whatcom County, the Peace Island Medical Center on San Juan Island and a specialty clinic in Sedro-Woolley.

In a July 11 memo, Yordy stated that $100 million in savings have been identified, although not yet put into place. "Achieving that level of savings will require some sacrifice," he stated.

Another $30 million must be found in the next two months, he added.

"If we don't achieve the full $100 million in identified savings, then the difference will be added to the $30 million goal; the total savings must reach $130 million," he stated in the memo.

Cost-cutting measures being looked at by PeaceHealth include voluntary furloughs and early retirement, reducing travel, not filling vacant positions that don't deal directly with patient care and prioritizing those vacant positions that do, curbing overtime, and consolidating the number of contractors for services such as linens and food.

Layoffs weren't ruled out.

"Our first priority is to minimize workforce reductions through responsible hiring practices, staffing and avoidance of unnecessary premium pay practices such as overtime pay," PeaceHealth stated in a memo that covered frequently asked questions.

Yordy and Adler said PeaceHealth is facing the same challenges as other health care providers across the country.

"This is not a crisis. This is health care in the United States right now," Adler said. "PeaceHealth is very strong financially."

Factors leading to what PeaceHealth is calling the "largest budget gap in recent memory" include:

• Reductions in reimbursement associated with sequestration - the automatic federal budget cuts that totaled 2 percent from the Centers for Medicare & Medicaid Services - and federal and state health reform.

"Expenses don't go down overnight by 2 percent but our revenue did," Adler said of the sequestration impact.

• Fewer patients, particularly in its Columbia Network in Oregon where Kaiser Permanente Northwest is switching its referrals from the PeaceHealth Southwest Medical Center in Vancouver and instead sending its 100,000 members in Clark County to Legacy Salmon Creek Medical Center, beginning in October.

Adler said PeaceHealth is still negotiating with Kaiser.

Other reasons why PeaceHealth is seeing fewer patients include people who lost their insurance during the recession, or people who still have insurance through their employers but are waiting to get non-emergency care because of large deductibles or co-pays, Adler said.

• Required investments in its electronic health record systems as part of federal health care reform. Those will cost PeaceHealth $350 million in the next few years.

In addition, its charity care program has grown since the recessions as more people with no health insurance sought medical care.

"We're seeing that increase for which we get no reimbursement," Adler said.

Reach Kie Relyea at 360-715-2234 or

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