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Diving brief:
- Providence reported a net profit of $360.3 million in the first quarterreversing a model of constant losses in the last two years.
- In the financial results released Friday, The nonprofit health system attributed the turnaround to better capacity management, including reduced patient length of stay, higher admission volumes and better reimbursement rates.
- Providence generated an operating profit of $176 million during the quarter, compared to an operating loss of $345 million for the same period last year.
Dive overview:
As many of its nonprofit peersProvidence has struggled to weather recent headwinds including rising labor costs, depressed investment markets and reduced admissions as elective surgery volumes have taken longer than expected to recover from the COVID-19 pandemic.
However, pressures on hospitals began to decrease. Working conditions, for example, have stabilized, allowing systems like Providence to reduce their spending on contract labor. During the first quarter, Providence reduced its contract labor spending by 42% year-over-year.
The health system has also launched its own recovery initiatives. The reduction of non-profit organizations leadership positions in 2022 to streamline its operations and announced a turnaround strategy last year to address multiple pressures, including reimbursement issues.
The efforts seem to have borne fruit. Providence, which operates 51 hospitals and more than 1,000 clinics in seven states, reported revenue for the first quarter of 2024 after being in the red for several years.
“(We) are excited about a strong 2024,” Providence Chief Financial Officer Greg Hoffman said in a statement accompanying the results.
Increased inpatient admissions – and shorter length of stay – helped increase Providence's operating revenue 14% year over year to $7.8 billion.
Outpatient services also saw higher demand, including doctor visits, home care and emergencies. However, total outpatient visits decreased by 2% due to the sale of Providence's Oregon-based laboratory services business to LabCorp, which was finalized in August last year.
However, improved volumes also pushed spending to $7.6 billion, according to Providence. The system reported a particularly large increase in drug spending.
During the quarter, Providence earned $426 million from divesting its California-based laboratory services, its revenue cycle company Advata and its modular services company Acclara.
Providence also reported compensation delays associated with newly negotiated commercial rates as well as Cyberattack Change Healthcare.
“Action plans focused on reducing billing and appeal backlogs, as well as implementing an escalation process targeting excessive payer processing delays, continue to be refined and expanded,” management said in a statement accompanying the results.
Providence's results come days after its longtime CEO, Rod Hochman, announced that he retire at the end of the year. The health system's board of directors is currently searching for Hochman's successor.