Providence's operations down $857M in 9 months, but execs say strategic efforts yielding 'appreciable improvements'

Renton, Washington-based Providence’s operations tallied $310 million of net losses (-4.3% operating margin) during the third quarter and now sit $857.3 million in the hole (-4% operating margin) through nine months, according to filings and other financial information released this week by the nonprofit.

Providence’s leadership was quick to highlight the system’s performance improvements relative to 2022, when the Catholic organization had posted a nearly $1.1 billion operating loss (-5.6% operating margin) across nine months.

Rising demand, reduced length of stay, lower premium pay and better workforce retention and recruitment each helped Providence chip away at the losses, the organization wrote in an accompanying release, though lingering expense pressures and revenue roadblocks still held operations below break even.

“Health systems nationally continue to contend with significant macroeconomic pressures, including inflation, the shortage of health care personnel, and inadequate, delayed or denied reimbursement from payers,” Chief Financial Officer Greg Hoffman said in a release accompanying the financial filing. “Yet, with a steadfast focus on our recovery and renewal strategies, we are seeing appreciable improvements in many of our local markets.”

Providence’s operating revenues across nine months rose 8.3% year-over-year to $21.2 billion, while its operating expenses rose 6.7%. The system reported a bottom-line loss of $613 million, another improvement over the $2.4 billion net loss of the prior year ($5.9 billion when including the disaffiliation of Hoag Memorial Hospital in early 2022).

Volumes across the nine-month period exceeded those of the year prior. Inpatient admissions were 1% higher, acute adjusted admissions 4% higher and case-mix adjusted admissions 5%. Non-acute volumes were also 8% higher than the year before due in large part to a 13% increase in outpatient surgeries and procedures.

The volume gains also showed in the third quarter, with Providence pointing to a 4% year-over-year increase in acute adjusted admissions, 5% year-over-year increase in case-mix adjusted admissions and a 12% increase in outpatient visits.

The quarter’s net operating revenues were 5% higher than the year prior (11% after normalizing for prior period provider tax in Q3 2022) thanks to “double-digit growth in premium and diversified revenues,” the system said in a release. Still, the quarter’s operating expenses rose 7% year-over-year due to “wage increases, higher supply costs and higher cost to serve patient volumes,” Providence wrote in the filing.

Since early last year, Providence has launched a slew of strategic initiatives to improve its floundering operations. These have focused on workforce resiliency, discharge hurdles due to limited capacity in community-based post-acute facilities, surgical capacity to meet demand, payment rate renegotiations and and an administrative restructuring designed to reduce executive leadership roles—each of which has helped blunt Providence’s operating losses, the system said in its release.

Providence also reported non-operating gains of $244 million across nine months, largely driven by $298 million of investment gains. It had lost $1.4 billion on its investments by this time last year.

As of Sept. 30, the nonprofit said it has provided $1.5 billion in community benefits and is sitting on $8.2 billion of unrestricted cash and investments.

“Though these are challenging times for health care across the country, our Mission is well positioned to endure and thrive for generations to come thanks to everyone at Providence,” President and CEO Rod Hochman, M.D., said in a release. “Together, we are making important strides and advancing the healing ministry, especially for those who are most vulnerable.”

Providence comprises 51 hospitals, more than 1,000 physician clinics and other locations and employs nearly 120,000 people across seven western states. The system has been working to turn around the $1.7 billion operating loss (-8.8% operating margin) and $6.1 billion net loss it logged across the entirety of 2022.

Providence joins fellow Catholic giant CommonSpirit Health as well as other major nonprofits like UPMC, Sutter Health and Cleveland Clinic in reporting operating losses during the calendar’s third quarter.