PORTLAND, Ore. — Providence Health & Services, Oregon’s largest private-sector employer, is preparing an aggressive cost-cutting campaign that will include layoffs.

The move is clearest sign to date that hospitals face a difficult, uncertain future.

Providence saw its financial position deteriorate markedly in 2016, posting an operating loss of more than $255 million, filings show. Though its annual revenue topped $22 billion and, as a non-profit, it pays no income taxes, Providence is looking to cut costs across its seven-state network, multiple sources say. David Underriner, chief executive of the medical provider’s Oregon operation, would not disclose numbers or locations, but did say, “there will be an impact on people.”

Providence has already cut back in Oregon. Last year, it closed its open-heart surgery program at Providence Portland Medical Center and consolidated that work at St. Vincent’s Medical Center on the city’s westside, Underriner said.

Providence is not alone. St. Charles Health System in Bend has also scaled back spending as its own bottom line suffered in 2016. Oregon Health & Sciences University in Southwest Portland announced a hiring freeze in March.

The new financial weakness comes at a time of high anxiety in health care. A bill to foist a new multi-million-dollar provider tax on hospitals —which would help fund the state’s contribution to Medicaid —was signed into law this week. In Washington, D.C., meanwhile, Senate Republicans continue their efforts to repeal the Affordable Care Act, a move that Providence’s Underriner and many other hospital executives oppose.

Strangely enough, the hospitals contend that one of their chief problems is Medicaid, the massive federal health care program for the poor. Reimbursement rates are low and Medicaid patients tend to be in need of more intense care, a combination that has been hard on some hospitals’ bottom lines.

Providence’s 50 hospitals handled more than 1 million Medicaid patient visits in 2016. The Renton, Washington-based company was forced to subsidize the unfunded portion of Medicaid at a cost exceeding $1 billion, said Providence spokeswoman Colleen Wadden.

The current year is bringing more of the same, she said.

This is all a dramatic contrast to 2014 and 2015, when many large hospitals enjoyed windfall profits, in large part because Medicaid eligibility was loosened and millions of Americans joined the program. Oregon alone added more than 400,000 to the Medicaid rolls, and many flocked to hospitals for long-delayed treatment.

As the ranks of the uninsured plummeted, many large Oregon hospitals saw their charity care plunge and their bottom lines surge.

As much as hospital executives criticize Medicaid, the possible repeal of Obamacare and the radical downsizing of Medicaid envisioned by congressional Republicans pose a whole different set of problems. In its analysis of an earlier version of the Obamacare repeal put forth by House Republicans, the American Hospital Association estimated that Providence’s Oregon operation would suffer a $1.5 billion cut in revenue over the next 10 years if the Medicaid expansion is rolled back.

For Providence as a whole, “the loss would be more than $9.5 billion, risking our health system’s ability to adequately meet the needs of our communities,” Wadden said.

Providence’s problems are not solely due to Medicaid. It has expanded aggressively in recent years and launched initiatives far afield from the meat-and-potatoes of health care.

Providence bought hospitals and clinics in Seattle, the Tri-Cities area and Southern California. The expansion campaign culminated last summer in Providence’s merger with Saint Joseph Health, a 16-hospital system based in Irvine, California.

As its revenue topped $20 billion-a-year, Providence hired away a former Amazon executive to head its own $150 million venture capital fund. It formed an in-house digital innovation group to focus on software and other technology that could serve patients and clinicians. It launched its own business incubator for consumer-focused health startups.

In just two years, Providence added 15,000 new employees and now has 111,000 on its payroll. In Oregon, Providence and chipmaker Intel Corp. have vied for the title of Oregon’s largest private-sector employer. Providence Oregon currently has 21,500 employees, up from 19,000 two years ago.

As the economy heated up, so did the competition for skilled doctors, nurses and technicians. The company struggled to find enough bodies. It increasingly turned to high-cost staffing agencies for nurses. Total compensation jumped $820 million in a single year between 2015 and 2016.

Hospitals across Oregon are facing many of the same issues. St. Charles in Bend has seen its operating profit margin decline from 7 percent to 0.7 percent in the space of two years.

Jen Welander, St. Charles’ chief financial officer, said the company has instituted its own set of cost controls. It is thinking twice before filling any opening in hopes it can cut costs by attrition rather than have to resort to layoffs. It scaled back the size of a building expansion.

“There’s no end in sight to this,” Welander said. “It’s clear that health care in its present state is not sustainable.”


Information from: The Oregonian/OregonLive, http://www.oregonlive.com