In a first-quarter earnings report this month, Providence disclosed that it had signed a letter of intent with the Greater Fairbanks Community Hospital Foundation. The January deal covered operations at Fairbanks (Alaska) Memorial Hospital; Denali Center, a long-term-care facility; and the Tanana Valley Clinic, all currently part of Banner Health.
Providence's secular division, Western HealthConnect, would have operated the facilities.
But the agreement fell apart after the two parties could not agree on deal terms, Fairbanks said in a news release.
Providence has been rapidly expanding in the western U.S. and has become a $12 billion operation.
This year also looks busy. In April, Providence took over the Seattle-based Institute for Systems Biology to build its research capabilities, particularly in personalized medicine. It also is waiting to finalize its deal for St. Joseph Health, a Catholic system in Irvine, Calif.
Yet Providence's earnings report for the period ended March 31 also revealed growing pains.
The system is making a big investment in population health, but the new healthcare model—designed to take costs out of the healthcare system and hold providers accountable for costs and quality—is less lucrative than fee-for-service.
The system reported that its first-quarter operating margin decreased to 0.4% (PDF) from 2.9% during the same period in 2015. Its operating surplus fell to $15 million on $3.8 billion in net operating revenue compared with the year-ago period's $103 million operating surplus on $3.5 billion in net operating revenue.
Revenue may be growing, but it's coming from lower-margin capitation and insurance premiums rather than patient services, Providence said in its earnings report. But it still needs to staff up for that additional volume, and higher agency staffing meant higher salary and wages in the first quarter.
The system added 5,700 full-time equivalent employees, an 8% increase. It also used additional contract labor to staff open positions in California and Seattle. Higher negotiated rates for union members in California and Oregon also put upward pressure on salary costs.
Admissions increased 2%, or 3% when adjusted for outpatient activity. Emergency visits were up 4% while the number of surgeries was 7% higher. Physician visits increased 16%.
Enrollment in its health plan also grew 23% year over year as measured by covered member months.