Rising expenses and payer denial rates took a toll on Providence's operating performance in the past couple of years, and incoming President and CEO Erik Wexler still has work to do to continue the health system's recovery.
Providence suffered a $6 billion net loss in 2022, including losses related to its split from California health system Hoag, followed by a $596 million loss in 2023. The not-for-profit restructured its organization from seven regional divisions into three, shrinking its executive team and funneling more money toward frontline workers.
Providence reported $289 million in net income during the first six months of 2024, with third-quarter results expected to be released next week.
Related: Providence names Erik Wexler as next president, CEO
Wexler is chief operating officer and will take over the top job on Jan. 1, succeeding Dr. Rod Hochman, who announced his retirement in May. Wexler has high expectations for where Renton, Washington-based Providence can go next.
In an interview, Wexler said his goal is to break even on operations by 2026. Providence reported more than $1.1 billion in operating losses in 2023. Wexler also wants to keep growing Providence's health plan and improving the system through technology, including artificial intelligence. His answers are edited for length and clarity.
How is the leadership transition going?
Sometimes when leaders are promoted within the same organization, they assume they know what they know. I have observed that and felt that I wasn’t going to do that. I was going to immediately get out in the field, visit all of our geographies and check in. I think I’ve met with over 4,000 people. I’ve met with our stakeholders, including caregivers on the front line, core leaders, executives, physicians and board members. It’s been incredibly informative.
What is a top priority as you move into the CEO role?
We’re at an inflection point in terms of the technology that we can begin to advance in healthcare, mostly related to AI, that will truly ease the way of our caregivers. I am becoming more convinced that we are at this transformational point where we can really make a difference.
My first act as CEO is going to be to create an office of transformation. We’re going to focus in a very disciplined way on two or three things that will reduce the noise for those who are delivering care. I firmly believe if we do that, we’ll be able to spend more time with our patients, we’ll improve quality, and we’ll also be able to create a little more balance for [care providers], particularly physicians.
How are you going to set it up?
We are very stressed in healthcare right now to create a reasonable bottom line. I think adding more resources to the new office wouldn’t necessarily be the best way for us to proceed. We’re going to recapture resources within the organization and redeploy them by stopping things that aren’t necessarily going to ease the way for our caregivers. It’s about setting priorities.
One way of doing this is not just dedicating full-time people to do the work but asking other employees to be advisers to the group and finding a way of including people that would do this because they’re especially excited about it, in addition to what they already do in the organization.
What I don’t want to do, though, is see us break things in the organization that are still important.
How does AI factor in?
A lot of places around our organization are going after AI, and it’s not as coordinated as it could be. What we need to do is get discipline around it and put resources around the things that can have the biggest impact.
The office of transformation’s charge will be finding the most impactful opportunities to advance this technology. How do we keep focused on two or three things? Then, we might go to the information technology division or an outside vendor to implement those two or three things. The office of transformation is not going to be the creator, but it’s going to be the oversight.
Where is Providence with its restructuring and cost-cutting initiatives?
We've made a lot of progress. About two and a half years ago, we restructured how we are organized at the care delivery level. Not only was that deployed well and reduced our costs, but it has also optimized decision-making. It’s made us much more fluid.
We’ve also done a lot to optimize how we deploy supplies throughout the organization, and how we negotiate with manufacturers and other types of vendors to bring our costs down, including a big push in the pharmaceutical space.
From 2022 to 2023, we showed several hundred million dollars of improvement in operating performance. From 2023 to the end of 2024, we plan to show improvement well in excess of that. This will be a year when we will show material improvement in our financial performance, and we will be on a pathway to break even operationally. I think this is less than an 18-month journey.
Will there be more changes?
CEO Rod Hochman and I have had the chance to talk with each other about how we could refresh our structure a little bit. I don’t think we’re going to see anything overly stunning, but I do think there’s a way to adjust the dials that will allow us to have fluid decision-making. I think the key for us in healthcare is to be able to move quicker.
What dials do you plan to adjust?
In some cases, we have areas of responsibility that could be moved to create more effective operations. Our chief information officer left recently and one of his areas of responsibility was real estate and construction. I would not expect the new CIO to have responsibility for real estate and construction. That will go to another one of our executives.
Any updates on the expansion efforts for Providence Health Plan?
Most of the focus is still in the Pacific Northwest. The biggest expansion we had was a couple of years ago into California. We’re up to just under 10,000 members in California. It starts small, but you have to stick with it and continue the investment.
I do think with Medicare Advantage potentially getting new energy we may see membership growth. Our plan is set to become a four-star plan in 2025, and that will likely bring us additional membership as well.
Would you consider acquiring other health plans to expand?
If we were going to do something, it would be more partnering than acquiring. We’ve had success working with like-minded organizations. By doing partnerships and working with others, you get very different types of thinking that can advance where you're headed.
Are you seeing changes in claim denial rates?
It's across the board. We’re experiencing some of the most extraordinary denial rates we’ve ever seen in the history of healthcare. From 2023 to 2024, we are seeing well over a 50% increase in denials. There’s something terribly off because our systems haven’t changed.
We are also seeing our accounts receivable growing at some of the most material rates that I think organizations can even handle. There’s a transference of financial stability out of the provider space onto the balance sheets of the commercial payers. We’ve absolutely got to revisit this, and we’ve got to do it aggressively. I hope it doesn’t result in litigation, but I think insurance commissions need to be fully involved if the payers themselves are not at the table and willing to get this fixed.
What issues are you watching post-election?
I’m worried about where the 340B drug discount program ends up. If 340B went away, you’ll see many hospitals in the U.S. have to close their doors. What is ironic about 340B is that it is not funding that comes out of taxpayer dollars. Funding comes out of the discounts pharmaceutical companies are required to provide. Sometimes people think eliminating 340B will help us balance our budget. No. It will help balance out the profitability you see in the pharmaceutical space compared with the challenges we see in the care delivery space.
