Renton, Washington-based Providence lessened its financial losses during the first quarter but is still staring down the barrel of a tough year for its balance sheet.
For the three months ended March 31, the 51-hospital nonprofit system reported an operating loss of $345 million (-5.1% operating margin) as opposed to the prior year’s $510 million loss (-8.1% operating margin). It attributed the favorable shift to a rise in patient volumes and revenues that was somewhat offset by costly length-of-stay increases.
Providence’s bottom line was softened by $259 million in investment gains, which, along with other nonoperating items, landed the organization’s net loss at $117 million.
This was a substantial turnaround from the first quarter of 2022’s more than $4.2 billion net loss, though the majority of that total was fueled by $3.4 billion lost due to the disaffiliation of Orange County, California-based Hoag Memorial Hospital Presbyterian.
Providence is still finding its footing after 2022’s $1.7 billion operating loss (-8.8% operating margin) and $6.1 billion net loss. The system worked to limit the damage with a midyear organizational restructuring as well as other expense-reduction initiatives. Health system leadership said those efforts contributed to the first quarter’s year-over-year margin improvements.
“Although external pressures are expected to persist into 2023, we are optimistic about the road ahead,” Chief Financial Officer Greg Hoffman said in a release. “Staying the course on our strategies for recovery and renewal is key to navigating the times and positioning us to continue improving the health of our communities well into the future.”
Total operating revenues across Providence rose 8.2% year over year due to a rise in volumes, particularly in the outpatient setting. Compared to the prior year’s first quarter, inpatient admissions were up 4%, acute adjusted admissions were up 6%, case mix adjusted admissions were up 7% and non-acute volumes rose by 7%, the system said.
Total operating expenses rose 5% year over year, “driven mainly by costs associated with serving higher patient volumes and continued elevated length of stay,” the system wrote. Salaries and benefits expenses were up 5% despite the system using less premium labor compared to the height of the omicron surge. Supply expenses rose 15% year over year.
Providence also highlighted discharge roadblocks as a contributor to higher-than-necessary spending during the quarter. Limited local supply of post-acute care capacity forced the system to keep patients longer than needed during the first quarter, it said, though Providence is addressing this through a "variety of community partnerships, patient progression and capacity improvement programs.”
The system’s financial report also outlined recovery programs focused on addressing “pent-up demand” for surgical care, reduced workforce expenses, streamlined payments from insurers and managing discretionary spending.
Providence’s unrestricted cash and investments dipped slightly from $9.5 billion on Dec. 31 to $9.4 billion on March 31. As of that time, it had 126 days of cash on hand.
The system also highlighted $563 million in provided community benefit, a $151 million year-over-year increase, “despite the challenges” hitting its operations during the quarter.
“Last year, we provided nearly $2.1 billion in uncompensated care and other community benefit activities, which is our largest investment in community benefit to date and represents an increase of $600 million since the pandemic began,” President and CEO Rod Hochman, M.D., said in a release. “Thank you to everyone at Providence for making this possible. Together, we will continue meeting the health care needs of our communities, no matter how challenging the environment gets, and will ensure the Mission of Providence thrives for years to come.”
Providence’s operating losses aren’t quite so bad as fellow Catholic nonprofit CommonSpirit Health, which recently posted a -8% operating margin for the most recent quarter. However, other nonprofits including Sutter Health, Kaiser Permanente, Intermountain Health and Mayo Clinic have reported coming out positive on the backs of rising demand for care.