Providence targets 'leaner' operating structure, leadership layoffs to offset recent losses

Following back-to-back years of major net losses, one of the country’s largest nonprofit health systems is responding with a “leaner” operating model with fewer executives and larger regional divisions.

Renton, Washington-based Providence said Tuesday it will be reorganizing its existing seven operating regions into three divisions: South, Central and North.

The 52-hospital integrated system also said in would be “consolidating” the leadership of its Physician Enterprise, Ambulatory Care Network and Clinical Institutes business lines into a single executive leadership team.

Providence said the move will “support caregivers and patients by freeing up resources for the frontlines,” and stressed that it will be maintaining its push to retain and recruit “essential roles” such as registered nurses.

“Administrative support departments will adapt their structure to support the leaner operating model,” Providence wrote in the announcement. “Having completed an ethical discernment and established guiding principles, Providence is committed to going through this process with respect and compassion for each person involved.”

Providence did not specify how many positions are being eliminated or how many people may be leaving the company. 

The Catholic system has been hit hard by the pandemic, reporting operating deficits of $714 million and $306 million in 2021 and 2020. Although it added roughly $1.6 billion in revenue between those two years, an increase of over $2 billion in expenses tied to labor and supply costs kept Providence well in the red.

Losses in the hundreds of millions have persisted into the new year, with the system recently reporting lower revenues and higher expenses due to the omicron surge. 

This week’s announcement pointed to the “external forces” of workforce shortages, inflation and supply chain disruptions that have “strained patient care operations throughout the U.S. while also driving up the cost of care. Meanwhile, revenue and reimbursement from insurers have not kept pace, resulting in unprecedented net operating losses for healthcare delivery systems nationally.”

Providence said its efforts to right the ship aren’t limited to the administrative reorganization. Length of stay management, a review of real estate holdings and leases, discretionary spending reductions and revenue diversification are all in the works as well, the system said.

Erik Wexler, formerly president of strategy and operations for the health system’s southern regions, will oversee the three new divisions as chief operating officer, Providence said in the announcement. Executive Vice President David Kim, M.D., was chosen to lead the new executive team for its consolidated clinical business lines.

While Providence is still hammering down the leadership teams for its three new divisions, it announced Kevin Manemann, Joel Gilbertson and Guy Hudson, M.D., as the three division chief executives for the South, Central and North divisions, respectively.