Top RI hospital group Lifespan eyes cost cuts after $35 million loss

Business News

PROVIDENCE, R.I. (WPRI) — Rhode Island’s largest hospital group and biggest private employer is announcing new steps to cut costs after finishing its most recent fiscal year deep in the red.

Lifespan suffered a net loss of $35 million in the 2018-19 fiscal year that closed Sept. 30, the not-for-profit company revealed Wednesday. It was a sharp reversal from the previous fiscal year, when Lifespan earned a profit of $24 million.

A closer look at the numbers made them appear even more alarming: Lifespan said its regular operations lost $55 million during the fiscal year, but that was partly offset by income from its investments.

Lifespan owns Rhode Island Hospital as well as The Miriam, Newport and Bradley, and at last check had over 15,000 employees. Dr. Tim Babineau, its president and CEO since 2012, said he is taking steps to stabilize the organization’s finances, including offering early retirement to workers starting in March.

“While the fiscal year 2019 financial results are concerning, as Rhode Island’s largest and most preferred provider of health service, and the state’s largest employer, we are committed to regaining our financial viability,” Babineau said in a statement.

In a follow-up interview with WPRI 12, Babineau said, “From a long-range standpoint, we knew this was coming. However it arrived harder, faster and deeper than we expected.”

Lifespan also confirmed that the president of Rhode Island Hospital, Dr. Margaret Van Bree, will be leaving at the end of the month.

“Dr. Van Bree’s departure is a personnel matter, and we do not comment on personnel matters,” Lifespan spokesperson Jane Bruno said in an email. Van Bree earned over $1 million in Lifespan’s 2017 fiscal year, IRS filings show.

Lifespan’s struggles come amid continued turmoil in Rhode Island’s hospital sector, after its latest effort to merge with Women & Infants parent Care New England collapsed over the summer when CNE pulled out. Gov. Gina Raimondo had pushed the negotiations — their third merger attempt in two decades — out of concern about CNE’s original plan to become an arm of Boston-based Partners HealthCare, owner of Brigham & Women’s.

Care New England — which until recently had been in poorer financial health than Lifespan — announced more positive numbers on Tuesday, saying its hospitals made a $9.7 million profit in the 12 months ended Sept. 30, compared to a $15.8 million loss in the same period a year earlier. CNE’s operations were $5 million in the black.

“The year-end financial information reported today demonstrates Care New England’s continued commitment and focus on improving quality, service, access, and financial performance,” Care New England President and CEO Dr. James Fanale said in a statement.

Lifespan pointed the finger for its challenges in part at Care New England, saying the latter’s decision to close money-losing Memorial Hospital in Pawtucket in late 2017 has put “excessive demands” on Rhode Island Hospital and The Miriam.

The number of Medicaid patients using Miriam’s emergency room jumped 30% last year, according to Lifespan. Local hospitals have long complained that the reimbursement rates for both Medicare and Medicaid do not fully cover costs, and the two government programs now account for roughly 70% of Lifespan’s revenue.

In addition, Babineau said the overcrowding at Miriam caused by the closure of Memorial seems to be leading fewer patients with better-paying commercial insurance to use Miriam, which also hurts its bottom line.

“They may have closed the door of Memorial, but those patients still need care and we’re providing it,” Babineau said. “But we’re providing it with an infrastructure and a workforce that’s not yet prepared to do it.”

In addition, Lifespan cited “a dramatic and unexpected reduction in Medicare rates” that cost the group nearly $25 million. The culprit was a change in the federal government’s complex formula for determining rates, which Lifespan said was caused by an inability to get all of Rhode Island’s hospital systems to agree to the same request.

Lifespan said it is also suffering from “the continued steerage of tertiary care to Boston,” echoing a repeated complaint the group has directed at Care New England in recent years; Care New England’s CEO has insisted his organization is not sending significantly more patients north.

Babineau said he is hoping Lifespan’s operations can generate $1 million in profit in the current 2019-20 fiscal year with help from recently hired consultants Alvarez and Marsal. In addition to the early retirement program, Babineau said Lifespan has implemented “an ongoing restructuring effort throughout the system.”

Asked whether Lifespan is considering job cuts, Babineau said, “Layoffs are always the last resort – always. That being said, if that’s what is required to get our financial performance back on track, we will consider it. But we’ll consider it only after some very thoughtful analysis to ensure that patient care is not impacted.”

“We don’t have a volume problem; we have a reimbursement problem,” he added. “We’re taking care of more patients. So it’s hard to imagine if we had to even talk about layoffs that would impact care at the bedside, because we’re trying to take care of more patients.”

Frank Sims, the head of the United Nurses and Allied Professionals union, criticized Babineau’s comments as “callous and alarmingly out-of-touch.” UNAP represents about 2,700 Rhode Island Hospital employees, who went out on strike just last year.

“Frontline caregivers and support staff are already stretched thin and constantly asked to do more with less,” Sims said in a statement. “Layoffs will dramatically and adversely impact patient care, and I would strenuously caution Dr. Babineau to consider that before his decisions cripple Rhode Island’s only level one trauma hospital.”

He added that UNAP will “strenuously oppose” any effort to cut jobs.

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

Copyright 2019 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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