Despite facing financial challenges in the recent fiscal year, Lifespan Corp. is confident its $175 million purchase of two cash-strapped hospitals in Massachusetts will be a boost to the Rhode Island-based health system.
Lifespan purchased Saint Anne’s Hospital in Fall River and Morton Hospital in Taunton from Steward Health Care LLC, which has been unloading its Massachusetts facilities after filing for Chapter 11 bankruptcy in May.
The purchase comes after Lifespan failed to hit its goal of a 3% operating margin in fiscal 2024, posting a 1.3% operating margin in the third quarter.
But Peter Markell, Lifespan’s chief financial officer, is optimistic, previously telling Providence Business News that the fiscal 2025 budget has Lifespan reaching a 2.8% or 2.9% operating margin.
“We just need to execute,” he said.
The transaction was financed with a $100 million loan from Apollo Global Management, with Lifespan putting up $75 million of its own cash. Massachusetts officials have said they would offer financial assistance to the purchased Steward hospitals, but it’s not yet clear how much.
In the long term, growing patient volume can generate more revenue for the health system while offering opportunities to save money, says Robert Hackey, a professor of health policy and management at Providence College.
The purchase increases Lifespan's in-patient capacity by more than 30% – going from 1,165 beds to 1,520, with Saint Anne’s adding 211 beds and Morton Hospital adding 144. Markell says the two hospitals had “$500 million-plus” in annual operating revenue, marking a 16% to 18% increase over Lifespan’s $3 billion annual revenue.
Hackey cautions that blending Lifespan’s existing hospitals with the new ones will be challenging but adds that the health system can leverage its bigger size to negotiate better deals with insurers and suppliers.
Expanding into southeastern Massachusetts was the best way for Lifespan to grow, observers say. The health system likely would have faced antitrust issues if it tried to purchase hospitals in Rhode Island, but not in southeastern Massachusetts, which is still in Lifespan's “catchment” area. The health system will also have the opportunity to refer more patients who would normally go to hospitals in Massachusetts to its Rhode Island facilities for specialized care.
While Lifespan paid more for St. Anne’s and Morton than buyers of the other Steward hospitals, Saint Anne’s was financially stronger than the others, according to Alan Sager, a professor at Boston University’s School of Public Health.
Boston Medical Center paid $140 million for both Good Samaritan Hospital and St. Elizabeth’s Medical Center, and Lawrence General Hospital paid $28 million for the Holy Family Hospital facilities in Methuen, Mass., and Haverhill, Mass.
Markell now says Lifespan got a good deal on the hospitals, based on an analysis of their cash flow under Steward. He declined to share financial details, saying they’re not public information. Now Lifespan is in the process of determining the hospitals’ capital budgets, and Markell declined to comment on financial projections until the process is done.
Lifespan had already been looking to expand into Massachusetts, where commercial insurance rates are better, Markell says.
Work needs to be done before Lifespan will see much benefit from the purchase, such as combining hospital administrations and merging operation and information technology systems over the next year, Markell says.
A long-term task will be combining the clinical operations and figuring out how Lifespan’s resources can meet the needs of patients St. Anne’s and Morton serve.
“There’s a couple of attractive things, but it’ll still be hard work and a heavy lift,” Markell said. “There is a high degree of agreement between Morton and Saint Anne’s and the Lifespan hospitals and physicians about the clinical integration. It’s just a matter of executing.”
