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Reimbursement cuts, fewer commercial patients lead to depressed income at Providence Health


By Beth Kutscher
Posted: April 7, 2014 - 1:00 pm ET
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Providence Health & Services reported that its operating income came in lower than expected in 2013 as flat inpatient volume and an adverse payer mix depressed gains.

The Renton, Wash.-based system reported $37.7 million in net operating income (PDF) for its fiscal 2013, ended December, which was 81.5% below the $204.1 million it earned in 2012. Revenue increased about 5% to $11.1 billion, from $10.6 billion in 2012.

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While inpatient volume was nearly flat, declining only 0.1%, the system reported that its commercial volume was 4.9% lower than expected and instead it saw a greater percentage of Medicare and Medicaid patients. But reimbursement cuts under sequestration meant a $45 million reduction in Medicare revenue, and a delay in Washington's provider tax program further reduced Medicaid revenue by $23 million, according to the system's earnings report.

"For a mission-driven organization, our ability to increase community benefit spending is the measure of financial health," said Providence CFO Todd Hofheins in an e-mail.

The system in 2013 exceeded its target for community benefit spending and provided more than $951 million for programs that increase access to care and improve the health of communities, he added. It also increased cash and investments on its balance sheet by $473 million from the previous year.

Providence has forged a number of affiliations over the past two years, including its February 2012 acquisition of Swedish Health Services, Seattle, and its July 2012 tie-up with Facey Medical Group, which operates 10 clinics in Southern California.

The addition of Facey in particular led to a 39% increase in physician visits, according to the system. Providence also reported a 2.4% increase in care continuum services such as long-term care, home health and hospice.

The group's earnings report shows an $810 million contribution—or the benefit from assets over liabilities—from integrating Swedish in 2012, but its results were not broken out separately last year.

"We take a long term approach to remaining financially healthy so we can continue a 158-year history of serving our communities," Hofheins said. "Our approach has always been to look for the sustainable solution that doesn’t just cut costs for the near term, but actually changes how we work for the long term.

Follow Beth Kutscher on Twitter: @MHbkutscher


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