- Though the COVID-19 pandemic hampered Providence’s operational performance in 2020, the regional nonprofit powerhouse still ended the year in the black with net income of $1 billion, down about 9% from 2019.
- Providence ended 2020 with an operating loss of $306 million, compared to an operating income of $214 million in 2019. However, healthy non-operating income recouped operating losses and offset reimbursement shortfalls from Medicaid and Medicare coverage, Providence said in full-year financial results released Monday.
- The system, which operates 51 hospitals spanning seven states, posted drastic net losses in the first half of 2020 due to the pandemic, but seems to have closed out the year on more stable financial footing though volumes remain down.
Like other major systems, the pandemic railroaded Providence’s operational performance in 2020, as state and local lockdowns and orders to pause non-emergency procedures contributed to an unprecedented drop in patient volumes starting in March. As a result, the West Coast system reported a significant dip in patient revenue, along with skyrocketing expenses for personal protective equipment, pharmaceuticals and labor.
Volumes as measured by adjusted admissions were down 9% for the fiscal year ended Dec. 31, Providence said. Despite the lower volume, operating revenues were actually up 3% year over year to $25.7 billion, driven by growth in capitation, premium and diversified revenue streams — and supported by the recognition of $957 million in federal COVID-19 grants to providers from the Coronavirus Aid, Relief, and Economic Security Act passed a year ago.
However, operating expenses climbed 5% year over year to $26 billion, resulting in operating earnings before interest, depreciation and amortization of $1.1 billion, compared with $1.6 billion in 2019.
Overall, Providence’s financial results suggest the system was able to sidestep the worst of the pandemic’s financial effects, and mirrors 2020 reports from other major nonprofits.
Kaiser Permanente, which reported in early February, was also able to stay in the black despite COVID-19 deflating operating and net income, which fell about 19% and 15% respectively from 2019. Similarly, nonprofit Mayo Clinic reported a shrinking bottom line, with net income down almost 24% from 2019 though it remained profitable.
California-based nonprofit Sutter Health also squeaked to overall profitability in 2020 despite a operational loss of $321 million. The system, which said it expected to take several years to fully recover from COVID-19, launched a systemwide operational and financial review as a result of its weak operational performance.
A number of hospital executives have called out CARES grants and other federal aid as a key help in turning their finances around in 2020. However, despite the pandemic’s financial pressures, numerous major operators, including Kaiser Permanante, Mayo Clinic and HCA said they would return all or a portion of congressional aid, even as powerful hospital lobbies call on Washington for additional funds.
A recent Kaufman Hall report suggests providers could be overwhelmed by ongoing COVID-19 expenses following a surge in cases over the winter. Researchers estimate hospitals could lose anywhere from $53 billion to $122 billion in revenue in 2021 if pandemic pressures don’t abate, despite the glimmer of hope brought by ongoing vaccination efforts.
Despite increasing distribution of coronavirus vaccines, Moody’s Investors Service has placed a negative outlook on nonprofit hospitals in 2021.
Providence came together in 2016 with the merger of Washington-based Providence Health & Services and California-based St. Joseph Health to create the nation’s fourth-biggest Catholic hospital chain. Its full-year earnings come a week after California Attorney General and Biden nominee for HHS Secretary Xavier Becerra disclosed his office is investigating whether Providence violated legal commitments in applying religious restrictions to medical care at a hospital in Orange County.
- Sutter Health is launching a “sweeping review” of its finances and operations due to the pandemic’s squeeze on the system in 2020, which led to a $321 million operational loss, the system said Thursday.
- The giant hospital provider in Northern California said it will take “several years to fully recover,” adding that it plans to restructure and even close some programs and services that attract fewer patients, and will reassign those employees to busier parts of its network.
- Sutter, which spent $431 million to modernize its facilities last year, is also reassessing its future capital investments due to its current financial situation.
The pandemic “exacerbated” existing challenges for the provider, including labor costs, Sutter said.
Expenses again outpaced revenue in 2020 and Sutter fears the trajectory is “unsustainable.”
In 2020, Sutter generated revenue of $13.2 billion which was eclipsed by $13.5 billion in expenses, which was actually lower than its total expenses reported in 2019.
Last year, the system invested heavily to prepare for the pandemic, buying up personal protective equipment and other supplies all while volumes declined. Sutter estimates it spent at least $121 million on COVID-19 supplies, which does not include outside staffing costs.
Sutter said labor costs represented 60% of its total operating expenses, blaming high hospital wage indexes in Northern California, which it said are among the priciest in the country.
Still, Sutter was able to post net income of $134 million thanks in part to investment income, which was also deflated compared to the year prior.
Volume has not rebounded to pre-pandemic levels, the system said.
Admissions, emergency room visits and outpatient revenues all fell year over year, according to figures in Sutter’s audited financial statements.
Other major health systems were pinched by the pandemic but were able to post a profit, including Kaiser Permanente.
“For the most part providers were dependent on that CARES funding. I think they would have been in the red or break even without it,” Suzie Desai, a senior director at S&P Global Ratings, said.
The pandemic weighed heavily on the financial performance of not-for-profit hospitals in 2020, but some of the larger health systems remained profitable despite the upheaval — in large part thanks to substantial federal funding earmarked to prop up providers during the global health crisis.
Industry observers have been closely watching to see how health systems ultimately fared in 2020. Now, with the fiscal-year ended and accounted for, analysts say the $175 billion in federal funds was crucial for providers’ bottom lines.
“Without the stimulus funding, it is very likely we would have seen more issuers [hospitals/health] systems experience either lower profitable margins, or outright losses from operations,” Kevin Holloran, senior director of U.S. public finance for Fitch Ratings, said.
Still, the pandemic put a squeeze on nonprofit hospital margins last year, according to a recent Moody’s report that showed the median operating margin was 0.5% in 2020 compared to 2.4% in 2019.
The first half of the year hit providers especially hard as volumes fell drastically, seemingly overnight. Revenue plummeted alongside the volume declines as the nation paused lucrative elective procedures to preserve medical resources.
One estimate showed hospitals lost more than $20 billion as they halted surgeries in the early months of the outbreak in the U.S.
But as the year wore on, the outlook improved as some volumes returned closer to pre-pandemic levels. At the same time, health systems worked to cut expenses to mitigate the financial strain.
Still, some health systems did post operational losses even with the federal funds meant to help them. Moody’s found that 42% of 130 hospitals surveyed posted an operating loss, an increase from 23% the year prior. Yet, the 2019 survey included more hospitals, a total of 282.
Sutter Health, the Northern California giant, reported an operating loss for 2020 and said it was launching a “sweeping review” of its finances as the pandemic exacerbated existing challenges for the provider. Washington-based Providence also reported an operating loss for 2020. However, both Sutter and Providence were able to post positive net income thanks in large part to investment gains.
Investment income can aid nonprofit operators even when core operations are stunted like during 2020. Though, initially, the pandemic put stress on the stock market as uncertainty around the virus and its duration ballooned. The stock market took a dive and it was reflected in some six-month financials as both operations and investments took a hit.
“COVID and the stimulus is (hopefully) a once in a lifetime disruption of operations,” Holloran said, who noted analysts have been trying to assess whether the top line losses can be placed squarely on COVID-19. If that’s the case, analysts are typically more apt to keep the provider’s existing rating.
“For the most part providers were dependent on that CARES funding. I think they would have been in the red or break even without it,” Suzie Desai, a senior director at S&P Global Ratings, said.
For example, Arizona’s Banner Health would have posted an operating loss without federal relief, according to their financial reports. Banner Health was able to work its way back to black after it reported a loss through the first six months of the year. The same was true for Midwest behemoth Advocate Aurora.
The providers that were able to weather the storm of the pandemic tended to be integrated systems that had a health plan under their umbrella.
Kaiser Permanente ended the year with both positive operating and net income and returned relief funds it received.
“The integrated providers, yeah, were one group that just had a natural hedge with the insurance premiums still coming in,” Desai said.
Still, the hospital lobby is hoping to secure more funding for its members as the threat of the virus is still present even amid large scale efforts to vaccinate a majority of Americans to reach a blanket of protection from the novel coronavirus and its variants.
RWJBarnabas Health sued an insurance carrier for allegedly refusing to cover the West Orange, N.J.-based system’s pandemic-related losses, according to NJ.com.
The health system is suing Zurich American Insurance Co. for breach of contract, alleging the company refused to honor its obligations under a $2.5 billion “Zurich Edge Healthcare Policy.”
The health system, which treats 3 million patients annually, claims Zurich’s policy should cover losses caused by illnesses like COVID-19. The lawsuit, filed March 19, alleges Zurich failed to acknowledge COVID-19 caused property damage after employees and patients died from the virus in its facilities, according to Law360.
“Zurich has known, or should have known, for decades that its policy could be called upon to pay up to its full limits — here $2.5 billion dollars — to RWJBarnabas for losses associated with viruses and pandemics,” the lawsuit states.
Ridgewood, N.J.-based Valley Health System is also suing Zurich, alleging the insurance company wrongfully denied covering its losses tied to the pandemic under a $550 million policy, according to Law360.
A Zurich spokesperson declined to comment on RWJBarnabas’ lawsuit, telling NJ.com that it is not the company’s practice to comment on pending litigation.
In Virginia, Carilion Clinic filed a similar lawsuit against its insurance provider, American Guarantee and Liability Insurance Co., on March 18. The Roanoke, Va.-based system says it lost more than $150 million because of the pandemic, and the insurance company allegedly refused to provide coverage or properly investigate its losses.
“To cushion the impact of the coronavirus and COVID-19, Carilion Clinic turned to its property insurer, AGLIC, to whom Carilion Clinic had paid nearly $1 million in premiums in exchange for $1.3 billion in property damage and time element (also known as business interruption) coverage effective June 1, 2019 to June 1, 2020,” the lawsuit states. “AGLIC, however, declined to fulfill its obligations to Carilion Clinic under the policy.”
Carilion is seeking damages for breach of contract and a judgment declaring the scope of American Guarantee’s obligation to cover the losses under the policy.
Read the full NJ.com article here.
Read the full Law360 article here.
Providence Health posted a $306 million operating loss for 2020 as the system’s patient service revenue declined by nearly $1 billion due to COVID-19.
Providence struggled with a major decline in patient volumes, which were down 9% compared to 2019 and led to a 5% decline in net patient service revenue.
While volumes have recovered since an initial decline at the onset of the pandemic, “operational recovery continues to be variable and market-specific as the pandemic continues across our footprint,” the 51-hospital system said in its earnings report released late Monday.
Providence generated $25.6 billion in operating revenue in 2020, slightly above the $25 billion that it generated the year before. However, Providence’s expenses shot up to $25.9 billion, a major spike from the $24.8 billion it paid for in 2019. This led to an operating deficit of $306 million.
A major reason was the system’s response to the COVID-19 pandemic, which Providence got a jump start on as it was the first U.S. hospital system to treat a patient with the virus.
“The impact included a significant reduction in revenue, coupled with an increase in costs incurred for [personal protective equipment] and pharmaceuticals, and increases in labor costs for staffing to serve those impacted by the virus,” Providence’s report said.
Net patient service revenue was $19 billion for 2020, down by nearly $1 billion from the $19.9 billion it posted in 2019.
Providence’s non-operating income totaled $1 billion in 2020 compared to $1.1 billion the previous year. The non-operating income, which is made up of investment gains, helped to “recoup operating losses resulting from the pandemic and offset reimbursement shortfalls from Medicaid and Medicare coverage, allowing us to serve vulnerable populations while balancing our financial standing,” the report said.
Providence’s operating earnings before interest, depreciation and amortization (EBITDA) was $1.1 billion, or 4.4% of its operating revenues. This was a decline from the $1.6 billion (6.2%) in EBITDA for 2019.
The system also got $957 million in relief funding under the CARES Act, which partly offset the losses from lower volumes, the report said.
Providence is an outlier among other larger for and not-for-profit systems that ended 2020 in the black. For instance, Mayo Clinic posted a net operating income of $728 million, helped by $587 million in donations and a massive increase in business from its lab division to help provide COVID-19 tests.
University of Pittsburgh Medical Center also posted a $1 billion profit for 2020 thanks to a boost of enrollment in its insurance business.
Here are 11 health systems and hospitals with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.
1. Morristown, N.J.-based Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The credit rating agency expects the health system to continue to generate favorable operating performance and to maintain double-digit operating cash flow margins and solid debt coverage.
2. Charlotte, N.C.-based Atrium Health has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. Atrium and Winston-Salem, N.C.-based Wake Forest Baptist Health merged in October. The addition of the Winston-Salem service area and Wake Forest Baptist’s academic and research programs enhances Atrium’s position within the highly competitive North Carolina healthcare market, S&P said.
3. Dallas-based Baylor Scott & White Health has an “Aa3” rating and stable outlook with Moody’s. The system has strong liquidity and is the largest nonprofit health system in Texas, Moody’s said. The credit rating agency expects Baylor Scott & White Health to continue to benefit from its centralized operating model, proven ability to execute complex strategies and well-developed planning abilities.
4. Pittsfield, Mass.-based Berkshire Health System has an “AA-” rating and stable outlook with Fitch. The health system has improved its liquidity while investing in facilities without increasing its debt load, Fitch said. The credit rating agency expects the system to maintain a strong financial profile.
5. Mishawaka, Ind.-based Franciscan Alliance has an “Aa3” rating and stable outlook with Moody’s. The system has leading positions in key markets and a strong cash position, Moody’s said. The credit rating agency expects the system to sustain double-digit operating cash flow margins.
6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile, and Moody’s expects Inova’s balance sheet to remain exceptionally strong.
7. Palo Alto, Calif.-based Lucile Packard Children’s Hospital at Stanford has an “AA-” rating and stable outlook with Fitch. The hospital is nationally known, has a strong market position and is one of two key clinical partners of Stanford University, Fitch said.
8. Grand Blanc, Mich.-based McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile and a leading market position over a broad service area that covers much of Michigan, Fitch said.
9. Winston-Salem, N.C.-based Novant Health has an “AA-” rating and stable outlook with Fitch. The system has strong margins, and each of its markets has met or exceeded budgeted expectations over the past four years, Fitch said.
10. Renton, Wash.-based Providence has an “Aa3” rating and stable outlook with Moody’s. Providence has a large revenue base and a leading market share in most of its markets, according to Moody’s. The credit rating agency expects the system’s operations to improve this year.
11. Livonia, Mich.-based Trinity Health has an “AA-” rating and stable outlook with Fitch. The rating is driven by Trinity’s national size and scale, with significant market presence in several states, Fitch said. The credit rating agency expects the system’s operating margins to improve in the long term.
Mercy Hospital & Medical Center in Chicago filed for bankruptcy protection Feb. 10, amid its plan to close that has been contested in the community.
The Chapter 11 plan includes the discontinuation of inpatient acute care services, Mercy’s owner, Livonia, Mich.-based Trinity Health, said in a bankruptcy filing.
Mercy said it plans to cease operations of all departments, except for basic emergency services, on May 31.
“There have been many steps that preceded the difficult decision to file for Chapter 11,” Trinity said.
In a news release announcing the bankruptcy, Mercy said it was losing staff and “experiencing mounting financial losses” that are challenging its ability to provide safe patient care.
Mercy said its losses have averaged about $5 million per month and reached $30.2 million for the first six months of fiscal year 2021. Further, the hospital has accumulated debt of more than $303.2 million over the last seven years, and the hospital needs more than $100 million in upgrades and modernizations.
The Chapter 11 bankruptcy filing comes just weeks after the Illinois Health Facilities and Services Review Board rejected Trinity’s plan to build an outpatient center in the neighborhood where it is closing the 170-year-old inpatient hospital. The same board unanimously rejected Trinity’s plan to close the hospital in December.
The December vote from the review board came after months of protests from physicians, healthcare advocates and community organizers, who say that closing the hospital would create a healthcare desert on Chicago’s South Side.
The state review board has a meeting to discuss the closure March 16.