Providence President and CEO Erik Wexler gave his employees a blunt appraisal of a “perfect storm” of economic headwinds the nonprofit health system is facing and how the organization plans to tighten its belt going forward.
Wexler, who stepped into the top role with the new year, penned a letter to employees late last week reflecting on his first 100 days on the job. In it, he pointed to recent reductions in leadership head count, department consolidations, service partnerships and a pause in hiring for nonclinical positions.
“I urgently ask each of you to be ready and willing to adapt to our new realities,” he wrote in the letter. “With significantly reduced reimbursement levels, the status quo will not be sustainable.”
Wexler painted the picture by evoking “unforeseen events” like the Los Angeles wildfires in January and system interruptions from the prior summer’s CrowdStrike outage. These added to ongoing pressures of the past five years, he said, when insufficient and delayed commercial insurer reimbursement built on increased supply and labor costs.
“All of these circumstances have caused our expenses to consistently outpace our revenue, requiring us to dip into our cash reserves to fund day-to-day operations,” he wrote. “As a result, our capital has been limited at a time when re-investment in our local ministries and our future is needed.”
Providence recently reported a $644 million operating loss across 2024 (-2.1% operating loss) and a $231 million net loss, which trimmed its year-end days of cash on hand down from 107 days to 99 days. To the organization’s credit, those numbers are still well ahead of the substantial losses of the years immediately prior, and included $183 million in reconstruction costs “related to asset rationalization, employee reductions and other items.”
Such work toward operating improvements will need to continue in the months to come, the executive warned.
“Recent government cuts to Medicare and Medicaid have reduced our funding by $500 million this year with more proposed cuts likely to decrease our reimbursement by another $1 billion,” he wrote. “Additionally, if tariffs on foreign goods move forward as proposed, our supply costs could go up by tens of millions of dollars annually.”
So far in the new year, Providence has reduced its leadership roles by 46 positions, including eight fewer roles at the vice president level and above, to free up administrative spending. The cuts came amid a consolidation of health system functions—for instance, combining marketing and brand, or integrating strategy and planning functions, Wexler said.
Additionally, Providence is putting a pause on major league sports sponsorships, restricting nonessential travel including for conferences and putting a stopper on nonclinical hiring, according to the letter.
On reimbursement and revenue, Wexler said the system is “aggressively holding insurers accountable” for unnecessary pay interruptions and pointed to lawsuits filed against “three major payers” related to claims denials and postponed payments. On Medicare and Medicaid, the system is petitioning lawmakers to rethink state and federal budget cuts, he said.
Other Providence teams and services are either getting a new focus, partnering with outside groups for scale or will fully be handed off to others.
For instance, Providence is “significantly reducing and redeploying the resources” of its Digital Innovation Group into a new Office of Transformation, which will target more immediate projects to reduce administrative burdens, and, at the top of the year, spun out its Providence Ventures as an independent venture capital firm “to include other partners.”
Wexler went on to highlight a joint venture with Compassus for home-based care (which just recently was flagged for a deeper regulatory review in the state of Oregon) as well as the sale of skilled nursing facilities to The Ensign Group—each in line with Providence’s new focus on “determining whether programs are best operated by us or if there are other providers that can deliver them more effectively.”
More broadly, Wexler called on employees to speak with their leadership about any “ideas for financial sustainability.” Providence will hear them out as it works to identify and deploy best practices, limit variation “that is not essential to providing the best care locally” and address redundancies, he said.
“I recognize this work will not be easy,” he wrote. “As we go through it, you have my word that we will keep our Mission, values and the needs of our communities front and center, and we will rely on our tradition of ethical discernment as we make critical decisions.”
Other hospitals and health system have voiced concerns similar to Wexler’s on potential government funding cuts, tariff policies and commercial reimbursement challenges. And though clinical hires are still in high demand, several provider organizations like Cleveland Clinic and Mass General Brigham have already turned to cuts across administrative and leadership roles to tighten their operations.