After weathering several years of financial losses, Providence, a large non-profit healthcare system based in Renton, Washington, appears to be on a path to recovery. The company recently announced a positive first quarter for 2024, boasting a $176 million operating income, a stark contrast to the consistent operating losses faced in previous years.
The first quarter of 2023 saw Providence experience a significant operating loss of $345 million, with a negative operating margin of -5.1%. This trend continued in 2022, with an even steeper loss of $510 million and a negative operating margin of -8.1%. However, the recently released first-quarter results for 2024 paint a much brighter picture.
Providence credits its financial turnaround to several key factors: an increase in patient admissions, improved reimbursement rates, and a successful effort to reduce the average length of hospital stays.
“Thanks to the dedication of our caregivers, Providence continues to meet the growing needs of our communities with high-quality, compassionate care,” stated Greg Hoffman, Providence’s Chief Financial Officer, in a press release. “Together, we are navigating the headwinds facing healthcare by focusing on our strategies for recovery and renewal. We expect the positive momentum to continue throughout the year and are excited for a strong 2024.”
Total operating revenue for the quarter ending March 31st, 2024, climbed 14% year-over-year, reaching $7.8 billion. However, excluding a one-time gain of $426 million from subsidiary sales in January, the increase settles at a still-impressive 8%.
Net patient revenue also saw a significant 11% increase compared to the same period in 2023. Management attributed this rise to higher patient demand and increased rates across all areas of hospital revenue.
Further positive indicators include a 3% rise in inpatient admissions, a 4% increase in both acute adjusted admissions and case mix adjusted admissions, all achieved while simultaneously cutting the average length of stay by 4%. This reduction is attributed to “improved access to post-acute care.”
Outpatient visits experienced a slight overall dip of 2%, though management clarified that this decrease stems from the divestment of laboratory services in 2023. Encouragingly, outpatient ER visits, home health visits, and physician visits all saw an increase of 2% compared to the previous year. Revenue from health plans and accountable care programs also grew by 4%.
Operating expenses naturally rose alongside increased patient volumes, reaching over $7.1 billion for the quarter. Labor expenses grew by 4%, with salaries and benefits contributing the majority of this increase. However, the system saw a significant 42% reduction in agency contract labor spending, likely due to a combination of lower utilization and negotiated rates. Supplies expenses increased by 5%, primarily driven by a 12% rise in pharmaceutical costs. Notably, non-medical supply costs decreased by 12% during the same period.
Non-operating gains for the quarter totaled $184 million, including $205 million in investment gains. These figures fall slightly short of those from Q1 2023, where non-operating gains reached $228 million due to $259 million in investment gains.
Providence highlighted their commitment to the community by emphasizing the $410 million invested in community benefit programs during the first quarter. Additionally, the company pointed to the recent divestment of certain subsidiaries, including modular services business Acclara, revenue-cycle company Advata, and laboratory services in California. These strategic maneuvers have strengthened Providence’s cash position.
“These transactions represent our strategies to diversify and deconstruct the traditional model of healthcare through partnerships, allowing Providence to expand access to care, become more nimble and collaborate with others to better serve our patients, caregivers and communities in a more affordable way,” Hoffman said.
Providence is a major employer, providing jobs to over 122,000 people across its network of 51 hospitals, 1,100 clinics, and various other programs spread across seven states. The system serves an impressive 29 million patients annually and manages a health plan with 2.6 million members. Although 2023 saw Providence generate over $28.7 billion in operating revenue, the year closed with a negative operating margin of -4.1%.
Looking beyond the financial results, Providence also recently announced a settlement with the state of Washington. This agreement involves refunding or erasing a total of $157.7 million in medical care payments, resolving an investigation into allegations concerning the company’s charity care practices. Currently, Providence faces similar investigations regarding charity care concerns in neighboring Oregon.
Finally, last week brought news that President and CEO Rod Hochman, M.D., plans to retire from his role and move into a CEO emeritus position at the top of 2025. Providence’s board has begun the process of selecting his replacement.
(Hero image credit: Providence Health & Services)
