Lifespan eyeing deeper cuts in case Medicare for All passes

Business News

PROVIDENCE, R.I. (WPRI) — Top hospital group Lifespan has hired a restructuring firm on a two-year contract to help cut costs to a level that would be sustainable if the country moves to a Medicare for All health insurance system, a top executive revealed Wednesday.

During a conference call with bondholders, Lifespan Chief Financial Officer Mamie Wakefield said the issue has been on the mind of CEO Timothy Babineau for a number of years, but the need to reduce expenses has become more urgent after the not-for-profit corporation posted a $35 million loss for the fiscal year that ended Sept. 30.

Lifespan first brought in consultants from the turnaround firm Alvarez & Marsal last spring to help steady the ship at Rhode Island Hospital, but in September Babineau asked the company to expand its review to encompass all of Lifespan, which also owns Miriam, Newport and Bradley hospitals.

“In some cases they’re going to help us get back to profitability from an operating perspective,” Wakefield said. “But they’re restructuring us to really, over the next year-and-a-half, to manage what if Medicare for All does come to fruition. What do we have to do to position ourselves in the future?”

“Our plans are to do better than just getting back to break-even,” she said.

Wakefield also disclosed for the first time that Lifespan has terminated its relationship with GE Healthcare, which was announced with much fanfare just two years ago.

The deal was supposed to last for six years and save Lifespan $182 million. A spokesperson said under the terms of its deal with GE, Lifespan is not allowed to disclose how much money was actually saved.

Wakefield said the originally decision to bring in GE was partly spurred by growing alarm over what would happen if the country shifted to a single-payer health system, since government insurance programs like Medicare and Medicaid generally pay hospitals and doctors significantly lower rates than commercial insurers like Blue Cross.

“Four years ago maybe, Dr. Babineau had said, ‘What would Lifespan look like if it was Medicare for All — if what our rates were, were Medicare?’ And we looked at that and said at the time we would need to reduce costs by $150 million,” Wakefield recalled.

Lifespan managed to cut costs on its own by about $75 million over the following two years, according to Wakefield. “We then had said, we’re going to need a little bit of help for the second $75 million, and that is part of what we brought GE to help us with,” she said.

But while GE was looking to find savings at a “slow and steady place,” Wakefield said, “Things deteriorated faster.” Lifespan’s leaders then decided to ditch GE and switch to Alvarez & Marsal.

“The environment in which the [GE] partnership was conceived — nearly three years ago — changed more quickly and more adversely than any of us anticipated,” Lifespan spokesperson Jane Bruno said in an email. “The valuable learnings and progress in the areas of patient throughput, human capital and diagnostic imaging that resulted from the GE partnership have been transitioned into the work we are doing with Alvarez & Marsal.”

Looking ahead, Wakefield said Lifespan plans to limit capital spending in the near term as it seeks to shore up its finances. She said the organization’s biggest upcoming project is renovation work at Rhode Island Hospital’s Hasbro Children’s unit, funded by the Every Child, Every Day fundraising campaign, which had raised over $25 million of its $35 million goal as of September.

After that, she said, Lifespan’s next big capital project will be renovations to Miriam Hospital, which has been under increasing strain due to an influx of Medicaid and Medicare patients following the closure of Memorial Hospital in Pawtucket. She said that work is not expected to start until 2022.

Ted Nesi (tnesi@wpri.com) is WPRI 12’s politics and business editor and a Target 12 investigative reporter. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook

An earlier version of this story misstated the names of Lifespan’s hospitals.

Copyright 2020 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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