Providence Posts $360M Net Income In First Quarter, Rebounding From Years Of Losses

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Dive Brief:

• Providence reported net income of $360.3 million in the first quarter, reversing a pattern of consistent losses over the last two years.
• In earnings results released Friday, the nonprofit health system attributed the turnaround to improved capacity management — including reducing patients’ length of stay — stronger admission volumes and improved reimbursement rates.
• Providence brought in $176 million in operating income during the quarter, compared to a $345 million operating loss in the same period last year.

Dive Insight:

Like many of its nonprofit peers, Providence has had difficulty navigating recent headwinds, including heightened labor costs, depressed investment markets and reduced admissions as elective surgery volumes took longer than expected to recover after the COVID-19 pandemic.

However, pressures on hospitals have begun to abate. Labor conditions, for example, have stabilized, allowing systems like Providence to decrease their spend on contract labor. During the first quarter, Providence cut its contract labor spend by 42% year over year.

The health system also launched its own turnaround initiatives. The nonprofit cut executive roles in 2022 to streamline operations and announced a recovery strategy last year to address multiple pressures, including reimbursement challenges. 

The efforts appear to have paid off. Providence, which operates 51 hospitals and over 1,000 clinics across seven states, reported an income for the first quarter of 2024 after being in the red for multiple years.

“[We] are excited for a strong 2024,” Providence CFO Greg Hoffman said in a statement accompanying the earnings.

Rising inpatient admissions — and a shorter length of stay — helped lift Providence’s operating revenue 14% year over year to $7.8 billion.

Outpatient services also saw higher demand, including physician, home health and emergency room visits. However, total outpatient visits declined by 2% due to the sale of Providence’s Oregon-based laboratory services business to LabCorp, which was finalized in August of last year.

However, improved volumes also drove up expenses to $7.6 billion, according to Providence. The system reported a particularly large spike in spending on drugs.

During the quarter, Providence netted $426 million from divesting its California-based laboratory services, revenue cycle company Advata and its modular service business Acclara.

Providence also reported clearinghouse delays associated with newly negotiated commercial rates as well as the Change Healthcare cyberattack.

“Action plans focusing on the reduction of billing and appeal backlogs, and the implementation of an escalation process targeting excessive payer processing delays continue to be refined and expanded,” management said in a statement accompanying the earnings.

Providence’s results come days after its longstanding CEO, Rod Hochman, announced he would retire at the end of the year. The health system’s board is currently seeking Hochman’s successor.