Providence's net loss nears $2B as industry trends dent results

Providence, a not-for-profit health system based in Washington, on Tuesday reported a first-half net loss of $1.84 billion, as the industry's higher expenses and staff shortages plague another heath system.

The loss excludes the $3.41 billion impact of Providence’s disaffiliation from Hoag, a California-based healthcare network, earlier this year. Hoag filed a lawsuit in 2020, seeking to end its nearly decade-long partnership with Providence.

In reporting its performance, Providence said it plans to focus on core operations, such as surgeries, and lessen the use of contract labor, among other factors.

Last month, Providence cut its executive team, condensing its seven regional divisions into three, with plans to funnel cost savings toward resources for front-line workers.  

Providence said Tuesday it is reassessing the services it provides “within the context of the current and expected future economic factors.” That could mean bringing on community partners to provide services, consolidating locations or closing them altogether, a spokesperson said.

Rick Kes, healthcare partner at professional services firm RSM, said many systems are looking critically at service lines that aren’t profitable, such as home health or hospice.

“They’re really focusing in on what they do best,” Kes said. “I think we’ll continue to see those large (service) operators look to perhaps acquire some of those types of business lines from health systems, specifically ones that are having margin pressures, which tend to be most health systems in the country right now.”

Providence is seeking higher reimbursements from payers as contracts come up for renewal to help offset rising costs. It is also considering more value-based agreements.

Kes said the contracts will evolve as both sides have more pricing information, and health systems may agree to take on more risk in exchange for higher reimbursements. 

These issues aren’t unique to Providence. Mass General Brigham in Boston, which released earnings last week, reported a $949 million net loss in its fiscal third quarter, with market volatility hurting its results.  Other health systems have showed mixed earnings results, as all navigate financial challenges.

Providence's first-half operating revenue was down 5.1% year-over-year, to $12.71 billion. Operating expenses rose 1.2% to $13.64 billion, driven in part by a 6.2% increase in the cost of salaries and benefits. Providence also took a $920 million hit in the investment market.