In the depths of the 2008 recession, Jim Diegel, CEO of St. Charles Health System, was deeply worried about the immediate future of the hospital system.

The economic downturn had hit the hospitals hard. The Bend-based system needed to restructure its debt, but capital markets were largely frozen. The company had failed in its attempt to sell $75 million in bonds in October 2008, forcing its investment banker to buy them. If it couldn’t restructure the debt by February, the $75 million would be converted to a mortgage that would have to be paid back in 60 months.

But a monthly payment of nearly $1.5 million would have eaten into what little cash the hospital had left, down to just 80 days worth of operating costs. If the system’s cash-on-hand fell below 75 days, the hospital would be in technical default and probably facing bankruptcy.

“Then a trustee comes in, fires management, fires the board,” Diegel said in an interview this month. “I was really, really scared at that time. We came very close to losing the company.”

Diegel huddled together with the executive management and the board to find a way to keep the hospital afloat.

“It was sputtering out of control, not because of bad decisions, it was just what was happening,” Diegel said. “Fortunately, we restructured, at painfully high costs, but we restructured.”

The crisis required the hospital to cut its expenses, precipitating a difficult round of layoffs in 2009. But as the economy bounced back that year, so did the hospital, turning a $615,000 loss in 2008, into a $25 million positive margin.

“That was a very significant, a very worrisome time for the organization,” said Tom Sayeg, chairman of the hospital’s board of directors. “Jim’s leadership really saved the organization moving forward.”

Six years later, even as St. Charles is having probably its most financially successful year ever, Diegel is stepping down from his CEO post today.

He leaves behind a system that looks drastically different from when he came to Central Oregon 20 years ago. Diegel is perhaps most responsible for cobbling the region’s four community hospitals into a single hospital system and laying the foundation for a truly integrated network of hospitals and clinics focused on improving community health and patient care while reducing costs.

“He really has had a major role in shaping the future of health care in Central Oregon,” Sayeg said. “Without his leadership, we would be in a much different place.”

Midwest roots

Diegel, 55, grew up in the Detroit suburb of Warren, Michigan, four miles north of the infamous 8 Mile Road that divided the white northern suburbs of Detroit from the poorer, predominantly black inner city. His father was a highway engineer; his mother cared for him and his brother and sister. Each summer, he would travel with his father 60 miles out of town to farm wheat and soybeans, driving a tractor well before he earned his driver’s license.

He attended Michigan State University in Lansing, working a variety of health care jobs while completing a degree in physical science in 1982.

“At the end of college, I think I was trying to fit into this hippie culture of the ’60s,” he said. “I was very idealistic and chose to go into the Peace Corps.”

Originally slated to teach math and science in Africa, he was redirected to the Philippines, working with a tribal group in the rain forest. That’s where he met his wife, Vicky, a Philippine national working in the U.S. Embassy.

“I met him when he was in his loin cloth and long hair in the mountains with his tribe,” she recalled.

After 2½ years in the Peace Corp, the Diegels moved to San Jose, California, where Vicky’s sister lived. Their two sons were born there.

Diegel went to work as a pharmacy tech and enrolled in a graduate program in health administration at St. Mary’s College. Working full time, plus as much overtime as he could handle, he attended class two nights a week and one Saturday a month, finishing his degree in 22 months. He completed an administrative residency at the famed Eisenhower Medical Center in Palm Springs, California, home of the Betty Ford Center and the Barbara Sinatra Children’s Center. He then returned to the South Pacific, running a hospital in the Marshall Islands, caring for many patients who were exposed to radiation during the atomic bomb test there in 1954.

“We did that for a year, but that was hard on the family. It was hard on Vicky,” Diegel said. “And the kids were starting to get ready for school.”

They returned to the U.S., and Diegel ran the Columbia Basin Hospital in Ephreta, Washington, for 2½ years. In 1994, he was hired as the executive director of the Central Oregon District Hospital in Redmond.

The hospital was managed by Lutheran Health System out of Fargo, North Dakota. But by the end of the decade, it was clear the Redmond hospital was not going to survive on its own.

“The Redmond hospital district was fairly well-run. We had no debt. We had money in the bank, and the operating margin was OK, but we were capital-starved,” Diegel said. “And there was no way that Redmond would vote for a bond.”

Diegel and the district board explored various options, including selling to some of the larger hospital chains in the state, but ultimately decided an asset transfer to St. Charles in Bend made the most sense. It was a controversial move, particularly among Redmond locals who were worried about being swallowed up by Bend. There were concerns the Redmond hospital would have to adhere to Catholic health principles, and that any attention to Redmond’s needs would vanish along with the hospital district.

Initially, Diegel stayed with St. Charles Redmond after the 2001 merger, but when Jim Hobbs became CEO of St. Charles in 2005, Diegel joined the corporate office. After nine months and a number of scandals, Hobbs left the hospital system. Diegel was named interim CEO in January 2006, and four months later given the job outright.

“In many respects, I have grown up with the company,” Diegel said. “I’ve touched the system in many ways.”

Troubled times

While Diegel’s promotion to the top post initially smoothed over a fractured relationship between the staff and management at the hospital system, the subsequent years would prove tumultuous. The hospital system had entered into joint ventures with groups of specialists, which left many physicians feeling the hospital was playing favorites and gaining a competitive advantage with its partners. Bend Memorial Clinic, under the leadership of CEO Marvin Lein, began adding more services that brought it into direct competition with the hospital. Tempers flared between the two major organizations over a failed proposal to build a specialty hospital, and when several cancer doctors left BMC for the hospital in 2009, the feud hit its nadir. BMC officials filed a criminal complaint against the cancer doctors and the hospital, accusing them of accessing BMC patient records without permission.

“It was like, ‘Oh God, what have we descended into, that we lawyered up and went to our corners,’” Diegel said. “That felt like a low point.”

The complaint was ultimately dismissed by the Deschutes County district attorney, but it galvanized support among the physician community for the hospital. Scores of physicians signed a pledge of support, aligning themselves with the hospital and signing a code of conduct to avoid such combative actions.

“I think people were appalled at where we were going at the time, and that then precipitated this movement by some to say, ‘We’ve got to figure out how to do things differently,’” Diegel said.

The hospital seized on the momentum to launch a major restructuring of the health system, but riled many local physicians by hiring its own doctors and launching primary care clinics.

“We got through it, not unscathed, but we got through it,” Diegel said.

St. Charles now employs nearly 200 providers, including physicians, physician assistants, nurse practitioners and others who make up the medical staff.

“We’re really seeing meteoric growth with that,” he said.

The frosty relationship with BMC began to thaw in 2011, when Lein resigned and the clinic hired Greg Hagfors. One of Hagfors’ first moves was to meet with Diegel and offer an olive branch. Hagfors offered to sign the physician code of conduct and invited Diegel to do the same. That was the start of changing the relations between the two organizations.

“I think they’re much improved considering where they were many years ago,” Diegel said. “We’ve had some steps forward with BMC.”

“I do think the relationship thawed,” said Dr. Sid Henderson, a BMC physician who served as interim CEO of the clinic. “There’s been better communication than there had been with Marvin Lein, and I think that they have worked together for the last two years.”

Henderson, who has been in Bend more than 20 years, says despite the differences between the organizations, Diegel has always been professional and trustworthy, and never outwardly combative.

“He’s certainly, from our point of view, been competitive. There are choices he’s made, where I wish he’d made other ones. I think he’s missed some opportunities, but I think he did what he needed to do,” Henderson said. “I think he has a lot to be proud of in what he’s created. He’s strengthened his health care system and expanded it. He provided stability at the same time. I think we’ve been fortunate that quality of care has been maintained.”

Dr. Steve Mann, president and medical director of High Lakes Health Care in Bend, said he has a complex relationship with Diegel, often defined by whatever hats they are wearing at the time. (Mann is also the current president of the Central Oregon Independent Physician Association, which negotiates on behalf of the region’s physicians.)

“I have seen him take substantial risks to move St. Charles from a staid institution to a progressive entity pushing the envelope of not-for-profit institutional behavior,” Mann said. “I think he gets the big picture and really believes that large institutions are the vehicle that can lead us to better health care … I’ll miss his frankness and passion as we continue the transformation of health care in our region.”

Focus on trends

Sayeg, the board chairman, described Diegel as a visionary who has kept the organization focused on the emerging trends in health care.

“He really helped the board to see what changes were on the horizon,” Sayeg said. “I don’t believe we would be where we are today in positioning ourselves for the future without this leadership.”

He attributed Diegel’s longevity — 20 years with a single hospital system and nine years as hospital CEO when the national average is 3.5 years — to his ability to build consensus among disparate groups.

“Jim has been able to navigate those very troubled waters very well,” he said. “You’re not going to be able to make everybody happy all of the time, but Jim had a knack for trying to bring groups together to look at various perspectives and trying to reach consensus moving forward.”

Still, more than a dozen key players in the Central Oregon health care community, including some of Diegel’s former co-workers, declined to comment for this story, unwilling to offer up even the most basic of platitudes for someone who has put in two decades of service.

Diegel said he’s learned not to take criticism personally, and that he can’t try to please everyone.

“That at times paralyzed me. It felt like a no-win situation, because if you made this decision, this group was going to be pissed, and if you made that decision, that group was going to be pissed. You try to make everybody happy, they’re both going to be pissed,” he said. “Sometimes it was really difficult to know which way to go because you knew you were going to get slammed.”

Diegel said the decisions to let employees go weighed the heaviest on him.

“That disrupts people’s lives,” he said. “Sometimes the business case is justified, but you ask yourself, ‘What could we have done differently not to be in that position in the first place?’”

He also expressed regret about the contentious negotiations with the nurses union and the unionization efforts by the hospital’s service and maintenance workers that ultimately failed.

“We should have never put ourselves in the position to be organized anyway. That was a failure in our leadership,” he said. “We did a poor job and we didn’t take care of our caregivers, so they felt they had to do that.”

During Diegel’s tenure, St. Charles has added two more facilities to its system, leasing Prineville Memorial Hospital starting in 2008, and absorbing Mountain View Hospital in Madras starting in 2013. St. Charles is now building a replacement hospital in Prineville and has opened family medicine clinics in Bend, Redmond, Sisters, Madras and Prineville. The system has built heart and cancer centers on its Bend campus as well, and opened an immediate care clinic.

Despite the success, the mantle of leadership has been hard on Diegel, who has been stung by the harsh words of his critics.

“It has been incredibly lonely,” he said. “You’ve got everyone nipping at your heels, second-guessing every decision that you’ve made, incredibly lonely and stressful, obviously.”

At the end of 2013, Diegel decided it was time to move on. He notified the board of his decision, allowing it time to conduct a search for a new CEO. Joe Sluka, a hospital executive from Rapid City, South Dakota, takes over on Monday.

Diegel is officially a hospital employee until the end of the year and will be available to Sluka if needed. Then in January, Diegel plans to take some time for himself and do a lot of skiing, before he and Vicky head to the house they own in the Philippines in February.

He has no immediate plans to retire fully, and is considering many options for his next job. He’s been invited to serve on the faculty of the Institute for Healthcare Improvement and to be a senior fellow at the Health Research & Educational Trust. Both organizations are focused on transforming the nation’s health care system. He hasn’t ruled out taking on another hospital CEO role or leaving Central Oregon.

“I’ve told him it doesn’t have to be this kind of job, because he’s really aged since he got this job,” his wife said. “I’ve seen him kind of struggle with some issues.”

On the other hand, Diegel entered his final days at St. Charles somewhat rejuvenated. At the urging of his wife, he started taking better care of himself this year. He changed his diet and exercise and has lost 40 pounds. He’s had more than a year to prepare for his departure, but expected plenty of emotion in his last few days.

“This is hard, sitting in this job in the last year knowing I will be stepping down,” he said. “Now I’m kind of excited to be done. It’s really hard to hold the job, but it’s really hard after 20 years to let go.”

— Reporter: 541-617-7814,