(Updated, 9 p.m.)
PROVIDENCE â€“ With a decline in net income of 59 percent for its fiscal 2013, Lifespan gave tangible evidence that its financial prospects are becoming more challenging.
In financial statements released Thursday, the stateâ€™s largest private employer â€“ parent to Rhode Island Hospital, The Miriam Hospital, Newport Hospital, Emma Pendleton Bradley Hospital, Gateway Healthcare and a number of other entities â€“ posted total revenue of $1.82 billion, an increase of 4.7 percent on the fiscal 2012 year, ended Sept. 30.
However, thanks in part to a 23 percent increase in its provision for bad debt to $110.98 million, as well as a 6.9 percent increase in compensation and benefits expense to $1.07 billion, the health care system saw its net income for the year drop 59 percent to $16.99 million.
The fiscal 2013 results make clear what Lifespan is facing in the near future, and why its board of directors approved a fiscal 2014 budget in September that projected a negative bottom line, the first time in more than a decade that that was the case.
One immediate result of the poor showing for the year was a requirement that Lifespan establish a debt-service reserve fund in the amount of $14.9 million to satisfy the terms of its bond-insurance policy with Assured Guaranty Ltd.
The policy covers $192 million that Lifespan borrowed from the New York-based lender in 2006 and contains a provision stipulating that Lifespanâ€™s net income be at least twice the amount of its maximum annual debt service.
For fiscal 2012, Lifespanâ€™s net income stood at 3.68 times its debt service, but that figure dropped to 1.69 times the debt service in the just-concluded year when net income fell to $16.99 million.
During the same period, Lifespanâ€™s days cash on hand â€“ or the number of days of operating expenses that Lifespan could pay with its current cash available â€“ fell from 154 days to 141 days.
Since Lifespanâ€™s net income has fallen below the predetermined minimum, the hospital network must now commit to establishing a debt-service reserve fund to ensure the money owed bondholders will be there if needed.