The 51-hospital system, which traces its roots back to the 1850s, has maintained a stable ratings outlook amid industry headwinds and pursued tech partnerships this year to bolster its portfolio.
Providence St. Joseph Health, the fourth-largest U.S. nonprofit health system by number of hospitals, marked a busy 2019 with multiple efforts to dive into the tech sector and seek out partnerships to tackle the industry’s biggest challenges.
The Catholic system now operates 51 hospitals in eight states as the result of a July 2016 merger of Providence Health and Services and St. Joseph Health. While the organization is the dominant inpatient provider in all its markets, no single area accounts for more than 30% of its net operating revenue, showing good portfolio diversification, ratings agency have noted.
The system, which can trace its roots back to the 1850s when the Sisters of Providence set up hospitals, schools and orphanages throughout the Northwest, posted $24 billion in operating revenue last year. That metric has shown year-over-year increases since the $18 billion posted in 2014.
Providence CEO Rod Hochman told Healthcare Dive the health system hasn’t shied away from seeking partnerships as the industry swings toward value based care and other systemic changes.
“I think the message is: ‘You can’t do it alone,'” he said. “You can’t go out there and just do it yourself — you don’t have the scale to do it.”
In that vein, the system (which is formally rebranding to Providence over the next few years) was one of the founding members of generic drug company Civica Rx, which opened its headquarters and made its first delivery this year. That’s a coalition of hospitals working to make their own drugs, starting with antibiotics.
It’s also grouping up with One Medical to increase access to primary care and teaming with Cedars-Sinai to build a patient tower in southern California. And in February, the organization launched the population health management company Ayin Health Solutions to provide benefits management as well as risk evaluation and care coordination tools.
Providence has maintained a stable outlook from the three main ratings agencies even as other nonprofits struggled to stay above water. Kevin Holloran, senior director at Fitch Ratings, said the system has managed to think about margins the way a public company must while still adhering to the mission-driven thought process nonprofit organizations trumpet.
“Blending those two thoughts together sounds easy, but it’s not,” Holloran told Healthcare Dive. “It’s hard to do.”
Moody’s Investors Service issued a credit opinion recently on Providence, finding the system’s integrated structure that includes a health plan and 7,600 employed physicians creates “further cashflow diversification, and strengthens the organization’s competitive position.”
The analysts wrote they expect operating margins to continue to improve going into next year as it implements dozens of initiatives updating operating practices, cost structures and revenue systems. They note, however, the organization faces a challenge in transitioning disparate EHRs and its numerous joint ventures “may also entail a certain amount of execution and integration risk.”
Holloran pointed to two relatively recent hires as leading the way for Providence — both poaches from Microsoft. CFO Venkat Bhamidipati joined the organization two years ago and CIO B.J. Moore came on in January.
They migrated from the tech world to the traditionally loathe-to-change healthcare landscape, and have made a difference for Providence.
It puts the company in a strategic place for growth, Holloran said. “Now they’re sort of adding that missing piece, which is optimizing what they’ve got,” he said. “And a big piece of that is the technology, and they’re doing it in a unique and interesting way.”
This year, Providence acquired Lumedic, which uses blockchain tools for revenue cycle management, and Bluetree, an Epic consultancy. The health system also allows patients to schedule appointments through Amazon’s smart speaker Alexa.
In July, the health system announced an agreement with Microsoft to use the tech giant’s cloud and artificial intelligence tools in an effort to foster interoperability, improve outcomes and drive down costs.
The organization still has traditional struggles, however. Hochman, who is also the incoming chairman of the American Hospital Association, said the ongoing litigation surrounding the Affordable Care Act, coupled with payment changes and other CMS changes, creates a chaotic environment for providers.
“Every day they come up with something new, and it’s been the lack of predictability that’s been the biggest problem for us,” he said.