Providence, after Hoag, plans $712 million California expansion

Providence is investing $712 million to expand inpatient and outpatient care in Southern California, the health system announced Monday.

Providence Mission Hospital in Mission Viejo will add a 100-bed patient care tower and a multidisciplinary outpatient surgery center.

The tower will have separate wards, operating rooms and cardiac catheterization laboratories, which will improve neurology, cardiovascular system and obstetric care. Providence will move its inpatient mental health services from Laguna Beach Hospital to a new tower.

The health system plans to add two outpatient centers in Mission Viejo and San Clemente, where emergency physicians, primary care physicians, obstetrician-gynecologists and other specialists will provide emergency emergency care. Construction is due to begin in the fall of 2023 and will last at least five years.

According to Kevin Manemann, Executive Director of Providence South, the Orange County South area is growing significantly. Many residents are at least 55 years old and will need more medical services, he said.

“We want to provide the 800,000 people south of El Toro ‘Y’ with a modern center and all the help they need without having to travel,” Manemann said.

The Southern California market accounted for about 31% of Providence’s operating revenue as of the end of 2021. But in the six-month period ending June 30, that share fell to about 27% after the emergence of Providence and Hoag, a small but profitable healthcare system in Southern California. — terminated their merger earlier this year.

Hoag argued that the 51-hospital Catholic system based in Renton, Washington, had not delivered on its part of its public health initiative. According to Fitch Ratings, Hoag represented 7% of Providence’s operating income and 17% of the system’s unrestricted cash and investments, which downgraded Providence’s $6 billion long-term rating on outstanding debt from ‘AA-‘ to ‘A+’ in April. Hoag’s split resulted in $3.4 billion in non-operating income.

While successive years of operating losses were the main reason for the downgrade, Hoag’s split played little role and had a dilutive effect, said Kevin Halloran, Fitch’s senior director.

“The main credit issue is operating profit losses for the second year in a row, with losses expected again in 2022 as Providence returns to positive operating margins,” he said.

Halloran added that the amount of cash on hand and Providence’s cash-to-debt ratio look about the same before and after Hoag’s divorce.

In 2021, Providence recorded an operating loss of $714 million on operating revenue of $27.33 billion, driven by a double-digit increase in labor costs. However, the healthcare system generated $1.23 billion in non-operating profits.

In 2020, Providence posted an operating loss of $306 million on operating revenue of $25.68 billion. As of June 30, the company has received more than $1.3 billion in COVID-19 grants.