Despite 'significant progress,' Providence ends 2023 with $1.2B operating loss

Renton, Washington-based Providence closed out its year with a -4.1% operating margin and a $596 million net loss but touted “significant progress in operating performance” and an 8.7% year-over-year gain in total operating revenues outpaced by a 7.3% rise in total operating expenses.

The 51-hospital Catholic system was coming off a year of heavy expenses and organizational upheaval. In 2022, it had logged a -6.4% operating margin from a $1.7 billion operating loss, which included $247 million tied to a restructuring it had launched to address spending, as well as a $2.7 billion net loss (excluding $3.4 billion tied to its split with Hoag Memorial Hospital Presbyterian).

This time around, Providence whittled its operating losses down to about $1.2 billion and highlighted gains in volumes. Specifically, it saw a 4% uptick in acute adjusted admissions, a 5% increase in case-mix adjusted admissions and a 3% decline in length of stay “as access to post-acute care improved.” Non-acute volumes also grew 2% on the back of an 11% increase in outpatient surgeries and procedures.

“Providence’s caregivers have been diligently working to strengthen our financial recovery,” Providence Chief Financial Officer Greg Hoffman said in a statement. “We made positive progress in 2023, and it was good to see us end the year serving more people as access to care improved and length of stay decreased. Those are important markers on our journey toward sustained renewal.”

The volume increases and a bump in payment rates helped boost operating revenues to more than $28.7 billion for the year, as did receipt of the government’s 340B $200 million lump sum remedy payment.

On the expense side, Providence attributed much of the increase to $29.9 billion to labor inflation and the higher volumes. Though salaries and benefits rose 6% year over year, the system was able to cut its contract labor by 15%. Supply expenses rose by 9% over 2022.

Providence added $575 million of net nonoperating gains to its final tally, thanks in large part to $652 million of investment gains. As of Dec. 31, it had 107 days of cash on hand, but noted that it has begun 2024 “on a strengthening financial position” as a result of an extra 10 days of cash on hand stemming from the 340B remedy and subsidiary divestitures.

The nonprofit system, which employs more than 122,000 people across seven states, said it delivered $2.1 billion in total community benefit during 2023. This included $1.4 billion in unpaid Medicaid costs and $240 million in charity care—an obligation it was recently chided on by Washington state law enforcement.

Providence’s report of increased volumes and persistent expense pressures falls in line with other large nonprofits like CommonSpirit, Trinity and Ascension that have been working to dig their finances out of the hole.