Higher patient volumes have been essential to the nonprofit's improving finances, but they're also leading to more expenses.
Providence suffered its first negative operating quarter of the year for the three months ended Sept. 30, slowing down the momentum from its financial turnaround in the first half of 2024.
The Renton, Washington-based health system posted an operating loss of $208 million in the third quarter, marred by a jump in labor and supply costs as a result of an increase in patient volume.
While the operating loss was an improvement on the $310 million loss (-4.3% margin) during the same period last year, it was a significant downturn from the $53 million in operating income reported in the second quarter.
Providence also generated $176 million in operating income in the first quarter, which was indicative of the nonprofit steering out of the red and gaining financial stability.
Though higher admission volumes boosted revenue to the tune of a 5.7% increase to $7.6 billion in the third quarter, they also pushed operating expenses up 4% to $7.8 billion.
Salaries and benefits rose 4% year over year, whereas supplies ballooned by 8% over the same period, due in large part to a 12% increase in pharmaceutical costs.
Providence pointed to positive trends in patient volume, reimbursement, lengths of stay, and dependency on contract labor as reasons for optimism going forward.
โWhile macroeconomic pressures persist, including the national shortage of health care personnel and the rising cost of drugs and supplies, Providence has stayed the course on our renew and recover strategies, and as a result, our operating performance continues to improve in many of our local markets," Providence CFO Greg Hoffman said in a statement.
Within patient volume for the third quarter, inpatient admissions and case mix adjusted admissions both increased by 4% year over year, while acute adjusted admissions increased 5%, physician visits increased 4%, and home health visits increased 2%.
Through the first nine months of the year, Providence experienced an operating loss of $155 million and a net income of $310 million, compared to losses of $857 million and $613 million over the same period last year, respectively.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
After recording operating gains of $176 million and $53 million in the first and second quarter, respectively, Providence had a $208 million operating loss in the third quarter.
An increase in labor costs, including salaries and benefits rising 4% year over year, along with a jump in supply costs by 8%, drove the health system's expenses up.
To offset labor costs, Providence continues to reduce its reliance on contract labor, which has been a focus of systems everywhere.