Providence logs yet another quarter of major losses, promises reorg will bring financial stability

Providence’s dire financial straits continued through the midyear mark as major expense increases and surgical volume declines gouged hundreds of millions from its operations.

The Washington-based nonprofit reported in a press release $424 million in net operating losses for the quarter ended June 30, building on the $510 million net operating loss of the first quarter for a six-month total of $934 million in the red.

The system's finances have been sinking through much of the pandemic, and Providence recently announced a “leaner” restructuring with fewer executives and larger regional divisions. Providence said this and other moves would support its caregivers by “freeing up resources for direct patient care” as it tackles workforce challenges impacting the entire industry.

"Creating a more sustainable model of health care by 2025 has been a key part of our vision since before the pandemic,” Chief Financial Officer Greg Hoffman said in a statement. “But it has become even more imperative today as health systems across the country face a new reality.

“Alongside our investments to simplify processes and modernize technology, streamlining our leadership and administrative structure is another way we will ensure we are operating as efficiently as possible, so that we can keep resources focused on direct patient care, especially for those who are most vulnerable,” Hoffman said.

Providence’s six-month operating revenues grew 2% on a pro forma basis to $12.7 billion, falling behind the 8% year-over-year growth of its operating expenses to $12.6 billion, according to the release. Six-month salary and benefits expenses grew by 13% year over year while supply costs rose 7%, due largely to a 13% increase in pharmaceutical spending.

Within the second quarter alone, Providence said it had spent $191 million more on premium labor compared to the same period in 2021. Year-to-date spending on premium labor increased by $379 million, the system said.

While COVID-19 volumes have fallen from their peak in January, Providence noted that it didn’t see the return in surgical volumes that followed prior pandemic waves. As a result, the quarter’s inpatient surgery volumes—often a source of profit for hospitals—was 4% lower than the same time in 2021 and 16% lower than in 2019 (after excluding volumes from now-disaffiliated facilities).

Not to be lost in the shuffle was $920 million in investment losses during the quarter, bringing Providence’s total unrestricted cash and investments to $10.1 billion. The system had already seen its investments dip by $359 million during the first quarter of 2022.

“Providence has lived through other economic downturns, past pandemics, and periods of political and social unrest,” President and CEO Rod Hochman, M.D., said in a statement. “With the steps we are taking to respond to the times, we will continue supporting caregivers and serving our communities throughout these challenging times, with the mission of Providence enduring for generations to come.”

Providence’s most recent financial challenges are shared across the industry’s major nonprofit systems. In recent weeks, Kaiser Permanente logged a nearly $1.3 billion net loss for the quarter, Sutter Health posted a $457 million net loss and Mass General Brigham reported a $949 million net loss.

Outside of earnings, Providence has also recently drawn the ire of more than 200 Oregon nurses who reportedly have joined a class-action lawsuit alleging wage theft after the organization switched over to a “faulty” payroll system. Providence responded that it has worked to manually address pay issues resulting from the switch and that it is working to resolve the issue for less than 2% of its caregivers who still have incorrect pay.