Dive Brief:
- Continued inflationary conditions, labor shortages and delayed payer reimbursements led nonprofit health system Providence to post a net loss of nearly $600 million for its 2023 fiscal year, according to financial results posted Thursday.
- Providence posted a $1.2 billion operating loss for its fiscal year ended Dec. 31, though the Washington-based provider reported higher demands for patient services in the back half of 2023.
- The system performed better in 2023 than 2022, when it posted a net loss of $6.1 billion on an operating loss of $1.7 billion.
Dive Insight:
Providence, which operates 51 hospitals and more than 1,000 clinics across seven states, reported operating losses each quarter in its fiscal year 2023, even while implementing a financial recovery strategy.
The nonprofit said the recovery strategy, dubbed Destination Health 2025, attempts to reduce its use of contract labor and “friction” with payers when seeking reimbursement. The system also cut executive roles in July 2022 when it transitioned to a new divisional model, as part of a corporation-wide restructuring and renewal plan occuring in parallel with Destination Health.
Despite these efforts, operational expenses climbed 7.3% from the prior-year period to total $29.9 billion. Salaries and benefits made up the majority of Providence’s expenses at $15.2 billion. Supply expenses increased 9%, on an increase in pharmaceutical expenses and medical supply costs.
Net operating revenues were $28.7 billion for the year, up 9% year over year, with growth in hospital, health plan and accountable care, as well as outpatient services revenues. Providence attributed its operating improvement broadly to higher patient volumes and improved plan rates.
The health system reported higher inpatient volumes. Acute adjusted admissions increased 4%, and case mix adjusted admissions rose 5% in 2023 compared to 2022. Outpatient visits were relatively flat year over year, rising 0.6%.
Providence was boosted by its non-operational income in 2023. The health system drew in $652 million in investment income for the fiscal year, compared with investment losses of $1 billion the prior year.
Credit rating agency Fitch Ratings assigned the operator an ‘A’ long-term outlook — signifying expectations of low default risk on approximately $8.2 billion in outstanding bond debt. However, Fitch affirmed Providence’s negative credit outlook.
Fitch said that while Providence’s balance sheet is notably weaker compared to recent peaks, the operator also saw an “unfinished but, meaningful operational improvement in operational losses and a return to positive cash flow” during 2023.
Providence’s recovery initiatives, alongside its efforts to diversify revenue, increase the probability the nonprofit will generate cash margins up to 7% in the coming years, according to the agency. Still, Fitch cautioned that another heavy year of operational losses — like the one experienced in 2023 — could throw off that timeline.
