The top executive at Providence Health & Services told its employees Thursday the health system faces a “perfect storm” of economic pressures threatening the company’s financial sustainability.
In a letter Thursday addressed to all staff, Providence CEO Eric Wexler painted a sobering picture of Providence’s financial outlook, driven by reduced reimbursements, rising costs and unanticipated disruptions tied to federal budget cuts and proposed tariffs.
In response, Wexler wrote, the health system has cut costs by restricting hiring and cutting back on expenses like sports sponsorships. It also is pursuing lawsuits against insurers it says are delaying and shorting payments and will explore selling or contracting out for some of its programs.
“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.”
Wexler, who began his tenure as the president and CEO of the Renton, Washington-based health system on Jan. 1, said Providence is grappling with a combination of shrinking payments from commercial insurance companies and rising labor and supply costs.
He added that disruptions from last year’s global CrowdStrike tech outage and the January wildfires in southern California didn’t help matters. During the California wildfires, Providence was forced to temporarily close some outpatient clinics and halt non-emergency surgeries at some hospitals. One of its clinics in Pacific Palisades also burned down, the Los Angeles Times reported.
Wexler credited staff with putting the health system on a path to financial stability.
“(We) were making significant progress getting our costs in line with our revenue, and we were on track to finally break even this year,” Wexler wrote. “But just as we were nearing that goal, the external economic conditions in 2025 took a sudden turn.”
Providence is bracing for Medicare and Medicaid cuts this year that Wexler said would reduce the system’s funding by $500 million, with another $1 billion in cuts potentially on the horizon.
He added that if new tariffs on foreign goods are enacted as proposed, Providence anticipates its supply costs to “go up by tens of millions of dollars annually.”
The not-for-profit health system employs about 25,000 people in Oregon and operates eight hospitals and over 90 clinics across the state. Last year, the health system served about 1.25 million patients. Meanwhile, Providence’s insurance arm — Providence Health Plan and Providence Health Assurance — offers commercial, Medicaid and Medicare Advantage plans that cover roughly 670,000 Oregonians, according to filings with the state.
In his letter to staff, Wexler outlined steps that Providence has already taken to respond to the financial pressures.
The health system has paused non-clinical hiring, limited non-essential travel, and cut back on administrative costs. Since the end of last year, 46 leadership positions have been eliminated, Wexler said, including several executive-level roles.
Providence also reorganized some departments dealing with strategy, planning, information technology and cybersecurity.
The health system will also not enter into new major league sports sponsorships and has spun off its investment arm, Providence Ventures, to include outside partners.
Providence’s 15-year naming rights and sponsorship agreement with Peregrine Sports LLC, which owns the Portland Timbers and Portland Thorns FC, is slated to continue through at least 2029.
Wexler said Providence is now taking legal action against three major insurers — which it did not name — accusing them of repeatedly denying or delaying payments.
And the health system’s leaders are also reviewing programs to decide whether Providence should continue running them or allow other providers to take over, he wrote.
Providence last year announced plans to spin off its home health and hospice programs to private equity-backed Compassus, a deal that in Oregon is subject to a state regulatory review that started in earnest this week. In its preliminary findings, state health care regulators noted that Providence is the largest provider in Oregon for home health and hospice services.
— Kristine de Leon covers consumer health, retail, small business and data enterprise stories. Reach her at kdeleon@oregonian.com.