Providence’s financial recovery plan shows results in third quarter

Diving brief:

• Providence made progress in implementing its financial turnaround plan during the third quarter, with operating income reaching $21 million, an improvement of $229 million from the same period last year.
• The Renton, Washington-based nonprofit health system attributed the improvement to the increase in patients. Hospital admissions, for example, increased by 5% for the three months ended September 30.
• President and CEO Erik Wexler welcomed the results in a press release Thursday. “When we started the year, we intentionally aimed to achieve a break-even point financial viability objective. It took a tremendous amount of hard work and decisive action from everyone at Providence St. Joseph Health, and those efforts are starting to make a real difference.

Dive overview:

Even though Providence has been in the black for a few recent quarters, the system hasn’t posted an annual profit in four fiscal years. Recently, the health system declared that it was experiencing a “polycrisis.” including new state laws on charitable care and staffing, pricing, inflation, and delayed or denied payments from commercial payers.

The health system, which runs 51 hospitals, has been working to become positive again. Providence restructured its leadership team in January, froze nonclinical hiring in April and laid off about 600 workers in June.

Today, the health system says these efforts are paying off.

Excluding revenues and expenses related to certain divestitures and partnerships, Providence’s operating revenues increased 5% during the third quarter to nearly $8. billion, increasing compared to $7.6 billion the previous year.

Operating expenses increased 3% in third quarter as Providence continued to focus on reducing labor costs. Contract labor spending decreased 33% year over year.

However, supply costs remained an issue, increasing 8% year-on-year. This increase is explained by the rising costs of pharmaceutical and medical supplies.

Wexler said Providence is considering possible headwinds related to the One Big Beautiful Bill Act, which was signed into law earlier this year. The law will cut federal Medicaid spending by nearly $1 trillion over a decade and result in changes to taxes on providers.

Wexler warned of the challenges posed by this law and other industry changes “reinforce the urgency of our transformation and our commitment to adapt.”

In the future, Providence plans to invest in artificial intelligence-based tools to help accurately predict and plan for demand for high-acuity procedures, including surgical procedures, and length of stay initiatives. It will also continue efforts to reduce payer delays and denials, the system said Thursday.