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About Providence Health & Services in Oregon
February 7, 2007
ProvidenceWatch continues with the second in a series of profiles on each of the states and major markets in which Providence Health & Services (PH&S) operates. The goal is to help ProvidenceWatch readers better understand PH&S’s place in the Western U.S. hospital market by taking a deeper look at their community operations.
Providence Health & Services in Oregon
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PH&S in Oregon - 2005
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PH&S Oregon hospitals, total | All Oregon hospitals, total*
| | Number of hospitals | 7 | 56
| | Oregon market share, by inpatient discharges | 22.2% | 100.0%
| | Operating profit | $90.2 million | $303.4 million
| | Operating margin | 6.8% | 5.0%
| | Total profit | $112.9 million | $381.5 million
| | Total margin | 8.4% | 6.3%
| | Percent markup** | 115.7% | 103.7%
| | Available bed occupancy rate | 78% | 66%
| | Payor mix, as a % of total charges
| | Medicare | 40% | 39%
| | Medicaid | 8% | 12%
| | Commercial insurance and other | 46% | 44%
| | Self-pay | 5% | 5%
| | * Comparable general acute care hospitals are all non-federal general acute care hospitals licensed in each area. Portland area includes Multnomah, Washington, Clackamas and Yamhill Counties. Medford area includes Jackson County. This group does not include state hospitals or psychiatric health facilities. Kaiser Sunnyside Medical Center is excluded from all tables, charts and figures in this article because comparable financial data is not available for that hospital. Cottage Grove Community Hospital is excluded from occupancy rate calculation only, because only the Hospital Discharge Data is unavailable for this facility.
** Markup is the difference between the actual cost of providing care and the sticker price charged for care. Average mark-up is expressed here as a percentage of actual cost, calculated as [(1/Cost-to-Charge Ratio)-1] x 100. The Cost to Charge Ratio is calculated as [(Total Operating Expense — Other Operating Revenue)/Gross Patient Revenue], where Other Operating Revenue is the difference between Total Operating Revenue and Net Patient Revenue.
Sources: 2005 Hospital Discharge Data, Oregon Office of Health Policy and Research; 2005 Audited Financial Statements; 2005 payer mix data from Oregon Office of Health Policy and Research
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PH&S is now the largest hospital system in Oregon. It has the greatest number of hospitals, the greatest number of inpatient discharges, and the highest operating and total profits. In 2005, PH&S produced 22% of all Oregon inpatient discharges.
PH&S operates the following in Oregon:
- seven acute care hospitals,
- two freestanding long-term care facilities,
- seven housing and assisted living facilities,
- one primary care network of clinics,
- one health insurance company,
- one day care center,
- home health and hospice services, and
- six for-profit joint ventures in imaging, rehab and outpatient surgery.
Five of the seven hospitals operate in urban hospital markets — four in the Portland area (Providence St. Vincent Medical Center, Providence Portland Medical Center, Providence Milwaukie Hospital, and Providence Newberg Medical Center) and one in southern Oregon (Providence Medford Medical Center). The other two hospitals operate in smaller communities — Providence Seaside Hospital in the north coast area and Providence Hood River Memorial Hospital in the Columbia River gorge.
Operations and Finances
PH&S Oregon hospitals as a group have consistently produced operating margins at least 30% higher than the average Oregon hospital over the last five years. In 2005, PH&S hospitals produced $90.2 million in operating profit (6.8% operating margin) and $112.9 million in total profit (8.4% total margin). By either measure, PH&S earned nearly 30% of all the hospital operating profit in Oregon in 2005 — out of proportion to their 22% market share.
Hospital services are reimbursed at lower rates by Medicaid than by Medicare or private insurance. PH&S has a consistently lower percentage of Medicaid charges than the average Oregon hospital. In 2005, Medicaid patients generated 12% of all hospital charges in the state, but just 8% of charges at PH&S hospitals. PH&S hospitals matched the state average level of self-pay (generally uninsured) patients at 5%.
Portland area
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PH&S in Portland — 2005
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PH&S Portland-area hospitals, total | All Portland-area hospitals, total
| | Number of hospitals | 4 | 13
| | Portland market share, by inpatient discharges | 39.9% | 100.0%
| | Operating profit | $76.0 million | $177.1 million
| | Operating margin | 6.7% | 5.8%
| | Total profit | $97.5 million | $221.4 million
| | Total margin | 8.5% | 7.2%
| | Percent markup | 116.0% | 115.5%
| | Available bed occupancy rate | 81% | 73%
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Payor mix, as a % of total charges
| | Medicare | 38% | 34%
| | Medicaid | 8% | 12%
| | Commercial insurance and other | 48% | 49%
| | Self-pay | 5% | 5%
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Sources: 2005 Hospital Discharge Data, Oregon Office of Health Policy and Research; 2005 Audited Financial Statements; 2005 Oregon Databank
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There are thirteen hospitals in the Portland area. PH&S dominates the market, where it had four hospitals and 39.9% of the market share (measured in inpatient discharges) in 2005. The system’s main competitors are Legacy Health System, with four Portland hospitals and 27.8% of the market, and Oregon Health Sciences University, with one hospital and 15.3% of the market. Four other hospitals have smaller portions of the market.
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Portland-area hospital companies (number of hospitals in the Portland area) |
Portland-area market share, by % of 2005 inpatient discharges |
Portland-area operating margin, 2005 |
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| Providence Health & Services (4) | 39.9% | 6.7%
| | Legacy Health System (4) | 27.8% | 4.3%
| | Oregon Health & Science University (1) | 15.3% | 5.2%
| | Adventist Health System (1) | 6.6% | 5.7%
| | Tuality Healthcare (1) | 4.4% | 2.9%
| | Willamette Falls Hospital (1) | 3.1% | -0.5%
| | Triad, Inc. (1) | 2.9% | 26.2%
| | Sources: 2005 Hospital Discharge Data, Oregon Office of Health Policy and Research
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PH&S’s most profitable hospital in the Portland area is Providence St. Vincent Medical Center, with an operating profit of $47.0 million (operating margin 8.2%) and a total profit of $64.0 million (total margin of 10.9%) in 2005. Its least profitable hospital in the market is Providence Milwaukie Hospital, with an operating margin of just $553,000 (operating margin of 0.9%) and a total profit of $754,000 (total margin of 1.2%) in 2005. Providence Milwaukie Hospital is the only Portland-area hospital in the PH&S system that reaches the Portland average of 12% Medicaid charges.
PH&S is aggressively expanding in the Portland area, with major construction projects underway at Providence St. Vincent Medical Center and Providence Portland Medical Center and large medical office facilities planned in Hillsboro and Tualatin. In 2006, PH&S opened an entire new hospital built to replace its existing hospital in Newberg.
PH&S has also announced plans to build a new hospital and a medical office building in Happy Valley, the highest-income city in Clackamas County, on a site less than ten miles away from Providence Milwaukie Hospital. A PH&S spokesperson told the Oregon Health News in February 2006 that the Milwaukie facility would stay open despite the proposed developments in Happy Valley.
Medford area
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PH&S in Medford — 2005
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PH&S Medford-area hospital | All Medford-area hospitals, total
| | Number of hospitals | 1 | 4
| | Medford market share, by inpatient discharges | 22.8% | 100.0%
| | Operating profit | $5.8 million | $26.5 million
| | Operating margin | 4.9% | 5.2%
| | Total profit | $6.3 million | $27.8 million
| | Total margin | 5.3% | 5.5%
| | Percent markup | 135.8% | 120.0%
| | Available bed occupancy rate | 67% | 64%
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Payor mix, as a % of total charges
| | Medicare | 52% | 51%
| | Medicaid | 10% | 10%
| | Commercial insurance and other | 32% | 33%
| | Self-pay | 6% | 6%
| | Sources: 2005 Hospital Discharge Data, Oregon Office of Health Policy and Research; 2005 Audited Financial Statements; 2005 Oregon Databank |
PH&S operates one hospital in the Medford market, where its profits have been erratic. Providence Medford Medical Center operating margins in the last five years ranged from a low of 0.1% in 2001 to a high of 8.0% in 2003. The two-hospital Asante Health System dominates that market, with 70.8% of discharges in 2005.
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Medford-area hospital companies (number of Medford-area hospitals) | Medford-area market share, by % of 2005 inpatient discharges | Medford-area operating margin, 2005 |
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| Asante Health System (2) | 70.8% | 5.9%
| | Providence Health & Services (1) | 22.8% | 4.9%
| | Ashland Community Hospital (1) | 6.4% | 0.3%
| | Sources: 2005 Hospital Discharge Data, Oregon Office of Health Policy and Research |
Increasing its presence in the Medford market, PH&S is also engaged in a multi-year expansion program at Providence Medford Medical Center. An expansion of the emergency department is already complete. Construction is underway on a new parking garage and an expansion of the hospital’s birth center, and the hospital has announced plans to eventually add a new bed tower, medical office building, and cardiovascular center. Asante Health System’s largest facility, Rogue Valley Medical Center, already offers cardiac care and recently completed its own new bed tower. At one time, Providence Medford Medical Center had agreed not to build a cardiac care center, in return for which it received a share of revenue from the cardiac surgeries performed at Rogue Valley Medical Center. Asante’s CEO told The Medford Mail-Tribune in 2005 that the plan to add a cardiovascular center at Providence Medford Medical Center would be an unnecessary and irresponsible duplication of services.
Elsewhere in Oregon
| PH&S in rural Oregon — 2005
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PH&S rural (non-DRG)* hospitals outside Portland and Medford areas, total | All rural (non-DRG) hospitals outside Portland and Medford areas, total
| | Number of hospitals | 2 | 30
| | Operating profit | $8.4 million | $15.9 million
| | Operating margin | 11.0% | 2.0%
| | Total profit | $9.2 million | $32.1 million
| | Total margin | 11.9% | 4.0%
| | Percent markup | 79.4% | 73.5%
| | Available bed occupancy rate** | 47% | 39%
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Payor mix, as a % of total charges
| | Medicare | 45% | 43%
| | Medicaid | 11% | 12%
| | Commercial insurance and other | 37% | 39%
| | Self-pay | 7% | 6%
| | * Oregon hospitals are categorized as DRG, Type A, or Type B, or Type C for Medicare/Medicaid reimbursement purposes. Non-DRG hospitals are considered rural.
** Cottage Grove Community Hospital is excluded from occupancy rate calculation only, because Hospital Discharge Data is not available for this facility.
Sources: 2005 Hospital Discharge Data, Oregon Office of Health Policy and Research; 2005 Audited Financial Statements; 2005 Oregon Databank
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Together, PH&S’s two hospitals outside the Portland and Medford areas earn profits far above the average for rural hospitals while operating with a slightly lower-than-average share of charges to commercial payors.
Providence Hood River Memorial Hospital performs particularly well. Its operating margin of 14.1% ranked second in the state for 2005, after for-profit Willamette Valley Medical Center (26.2%).
PH&S has expansion plans underway at both hospitals.
Executive Leadership
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Russell Danielson has served as CEO of Providence Health System of Oregon since 2001. Prior to that he worked in the company's administration for sixteen years, first at Providence Portland Medical Center and then for the Portland Service Area. He had previously worked for Intermountain Healthcare in Salt Lake City, Utah. In 2005, Providence reports compensation to Danielson of $838,547.
Richard Cagen became Chief Strategic and Administrative Officer for Providence Health System of Oregon in 2006. He previously served as CEO of the Portland Service Area. Like Danielson, Cagen worked for Utah’s Intermountain Healthcare before coming to Providence. In 2005, Providence reports compensation to Cagen (as Portland Service Area CEO) of $369,722.
David Underriner became CEO of the Portland Service Area in 2006, replacing Richard Cagen in that role. He previously served as Administrator for Providence Portland Medical Center, and has worked for the company since 1984. In 2005, Providence reports compensation to Underriner (as PPMC Administrator) of $297,741.
Thomas Hanenburg was hired as CEO of the Southern Oregon Service Area in late 2005. Hanenburg had previously been a hospital CEO and COO in North Carolina. Hanenburg replaced Charles Wright, who resigned in 2005 to spend more time with his family but soon took a new job as COO of a hospital in New Mexico.
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Russell Danielson continues to serve as PH&S’s CEO for the Oregon region, and 2006 saw Richard Cagen promoted to the state’s number two spot as Chief Strategic and Administrative Officer. Before coming to PH&S, both men had worked for the Utah hospital company Intermountain Healthcare, which came under state legislative scrutiny in 2004 and 2005 for what some observers described as monopolistic business practices.
Filling Cagen’s former spot as Portland Service Area head is longtime Providence administrator David Underriner. The Southern Oregon Service Area also recently brought in new CEO Thomas Hanenburg, who comes to the system from North Carolina.
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