Providence’s multiyear turnaround effort hit a new milestone as the 51-hospital nonprofit’s operations returned to the black in the third quarter.
For the three months ended Sept. 30, Providence logged a $21 million operating income (0.3% operating margin), improvements of $42 million compared to the prior quarter and $229 million compared to the prior year’s third quarter.
“When we started the year, we intentionally set out to reach a breakeven financial sustainability goal,” President and CEO Erik Wexler said in a release. “It has taken a tremendous amount of hard work and decisive action from everyone across Providence St. Joseph Health, and that effort is starting to make a real difference.”
Operating revenues rose about 6% year over year to $8 billion (excluding those from some of Providence’s divestitures and deals), which the system attributed to higher volumes and better pay rates. Case mix adjusted admissions rose 4%, inpatient admissions by 5%, acute adjusted admissions by 5% and total outpatient visits by 2%.
Expenses (again excluding the divestitures and deals) rose by 3%, with Providence pointing to volume-related spending offset by a 33% decrease in contract labor spend and other reductions from expense management initiatives. The system’s supply spending rose 8% and included a 12% jump in pharmaceutical expenses.
Also of note, Providence launched a restructuring this quarter it said would trim 600 full-time equivalent roles, primarily among administrative and nonclinical responsibilities. The organization had already paused hiring, consolidated departments and began trimming its discretionary spending earlier in the year.
Providence is still sitting behind 2024 in year-to-date performance. Nine-month operating losses are $244 million, as opposed to 2024’s $155 million, and lower nonoperating gains from reduced investment returns have the system sitting at an $83 million bottom line, compared to $310 million a year prior.
However, those numbers for both years include one-time net gains related to divestitures and partnerships. Excluding those, Providence’s year-to-date operating loss was trimmed by $172 million.
Across 2024, Providence reported nearly $31 billion in total operating revenues but a $644 million operating loss (-2.1% operating margin).
Despite the upward trajectory during the most recent quarter, its executives warned of more challenges to come.
“Thanks to the dedication of our caregivers and a commitment to focus and discipline, we are seeing meaningful improvements in our performance,” Chief Financial Officer Greg Hoffman said in a release. “At the same time, the passage of H.R.1 and other external pressures continue to challenge the entire healthcare sector. These headwinds reinforce the urgency of our transformation and our commitment to adapt, so we can sustain our Mission and ensure continued access to high-quality care in the communities we serve.”
Providence’s steady progress from operating losses to profits along with warnings of new pressures on the horizon echo the recent quarterly releases of other large nonprofits. Ascension logged a -1.4% operating margin for its most recent quarter, up from -3% during the prior year, while Kaiser Permanente moved from a -2.1% operating margin to 0.7%.