To: From: Date: RE:

All Employees, Medical Staff and Volunteers Norman F. Gruber June 14, 2012 Financial update

As we navigate through uncertain financial times, we committed that we would provide you with regular updates on what is happening. In May, we notified you that our financial challenges continue. The overriding problem is lower volumes than we had budgeted. We are seeing, on average, about 50 fewer patients per day. This is not an isolated situation as other hospitals in Oregon and across the nation are experiencing similar declines in volumes. The uncertain economy has caused some consumers to postpone elective procedures as copays and deductibles rise, and we have seen a shift in our payer mix. In February, we called this the new normal in health care, with fewer patients and changes to health-care delivery necessitated by both state and federal health-care reform efforts. Given that we now believe these changes are a trend and not just a temporary flux, our efforts need to focus on how we structure and manage the organization in order to meet community needs for health care. As you heard earlier this year, this involves taking a hard look at what services we provide to the community. Importance of transparency

Our intention throughout this process is to be transparent. To do that, we need to let you know the issues and the steps we are taking to address them. There are positives and negatives with transparency. The negative is that people have information early whichcauses them anxiety while decisions are in process. The positive is we have an opportunity to apply the experience and understanding of those most involved to come to the best decision. Our commitment to transparency must also fit with the need to first let those affected know about changes, and give them an opportunity to participate in discussions, before we tell the entire hospital team. We know this approach has fueled speculation, but we stand firm in our belief that the members of the hospital team (which includes physicians, other providers, hospital staff and volunteers) who are most directly involved and affected need to learn about the discussions before everyone else. We have now begun conversations with the various stakeholders in the affected areas. The reviews To be clear, our focus is not on closing programs. We are looking at why some operations are not profitable and seeking to understand the cause. It might be payer mix, or competition, or physicians referring business elsewhere, or our costs are too high, for example. We are asking those most involved to participate in these discussions. As a result, physicians who have a stake in the programs, and staff from those areas, are identifying the problems, looking at options and developing solutions.

Keep in mind that this review is not a referendum on whether or not these programs are worthwhile to our patients and the community; if they werent, we wouldnt have provided them in the first place. Several areas and services currently are under review. These include: Pediatrics Wound and Infusion Care Neuro-psychology services in outpatient rehab

Decisions In addition to the program reviews, we have made the decision to close both the Observation Unit and the Admit Unit. Observation patients will be consolidated into other units and patients will now be admitted directly to their unit. The patients will be filling vacant beds in other units and there should be no negative impact on patients. The Admit Unit was created before the new tower opened. We needed to relieve pressure on a congested emergency department, with patients waiting in hallways to be admitted to a floor. The new tower gave us more ED rooms and more patient rooms, and along with the decrease in volume, the need for the Admit Unit no longer exists. The concept for the Observation Unit had been to locate all patients who needed just observation in one place and run it cost effectively. Unfortunately, we have been unsuccessful in getting patients referred to that unit. We

simply havent been able to build the volume to sustain it. Approximately 45 staff may be affected by these changes. Neither of these decisions are a reflection on the quality or the commitment of the hospital staff who work in those departments. In addition, units that are not meeting budget or staffing ratios are working with their directors to bringbudgets back in line. And with 50 fewer patients per day, affected units are adjusting their staffing ratios to bring them in line with their actual census. Next steps We dont believe that the review and assessment of pediatrics, wound and infusion care, and neuropsychologywill be completed before the July board meeting. We continue to work hard toward resolution and to understand how any changes might impact staff, providers and our patients. While decisions about FTE reductions have not been finalized, we have reviewed our list of current openings and are putting positions on hold in anticipation of being able toplace redeployed employees into those vacancies. In addition, the recruitment team has been instructed to stop external recruitment on these positions for the time being. Internal candidates (with the exception of U status staff) are welcome to apply. If selected for the position it will create another vacancy that could potentially be held for a redeployed staff member. We are working hard to make thoughtful decisions as soon as possible and will not delay decision-making on affected positions any longer than absolutely necessary. We

appreciate your patience with the process. We will continue to provide regular updates of the status of the process, but wanted you to know the scope of services being reviewed.