Our Lady of Fatima Hospital. Landmark Medical Center. Westerly Hospital. Memorial Hospital.
Over the last decade, mergers, acquisitions, affiliations and closures have consumed all but one of the state’s independent hospitals: South County Hospital.
The South Kingstown facility, too, faces financial pressures, skating on increasingly thin operating margins, according to its annual reports. And the pandemic, which has slashed revenues and spiked operating expenses for hospital systems around the country, certainly hasn’t helped.
Meanwhile, a proposed merger between Lifespan Corp. and Care New England Health System threatens to make it even harder for the small South County Hospital to survive.
Aaron Robinson, CEO and president of South County Health, the hospital’s parent company, openly acknowledged the toll COVID-19 has taken, to the tune of $20 million in lost revenue. But with the return of elective procedures – a chief moneymaker – and a combination of federal and state aid, he anticipated the hospital would still post a slight profit for the fiscal year that ended Sept. 30.
His projections for a 1% operating margin were “a testament to the work that’s been done through the pandemic – managing expenses, supporting our employees and putting patients first,” he said.
That the broader South County Health also includes a home health aide company, a medical group and urgent care centers also proved critical to bringing in cash when elective procedures and emergency room visits dried up, Robinson said.
Compared with larger health care systems such as Lifespan and Care New England, which reported losses of $75 million and $44 million, respectively, in March alone, South County’s financial woes might seem tiny. But larger hospital systems also have advantages: greater access to capital, higher debt capacity and better contracting prices with vendors, according to Ken Marlow, chairman of the health care department for national law firm Waller Lansden Dortch & Davis LLP and co-author of a recent report about the future landscape for hospital systems post-pandemic.
While Marlow was reluctant to predict the independent hospital model will die out entirely, he predicted a sea change in the hospital system landscape in the next few years, including a marked rise in mergers, acquisitions and other partnerships intended to shore up finances of struggling hospitals.
Indeed, becoming part of a larger hospital system was crucial to Westerly Hospital reversing a history of financial losses, said Patrick L. Green, CEO of Lawrence + Memorial Hospital and Westerly Hospital. The formerly independent hospital was in receivership when it was bought by L+ M Healthcare in 2013. It was through L+M’s subsequent merger with Yale New Haven Healthcare, and the resources of a larger hospital system, that Westerly Hospital broke even for the first time in years in fiscal 2019, Green said.
While Yale New Haven has also suffered serious financial blows from the pandemic, with Green estimating a $450 million loss for fiscal 2020 before government aid, the situation would be “dramatically worse” for Westerly Hospital if it were still independent, he said.
‘The ability to sustain independence is not superior to maintaining our mission.’
AARON ROBINSON, South County Health CEO and president
Joseph F.X. Casey, CEO and president of Sturdy Memorial Hospital in Attleboro, offered a different take. That the hospital is independent was somewhat irrelevant to its financial stability compared to other factors, such as a history of strong management and no debt, Casey said.
Exactly how a Lifespan-Care New England merger will impact hospitals outside of the two systems, including South County Hospital, remains to be seen. Whether it happens at all, after a storied history of failed negotiations, is also unclear.
Marlow named a number of other recent merger announcements that never made it beyond the negotiating table, though he added that the financial toll of the pandemic increases the likelihood that the two systems will be willing to set aside differences that might otherwise unravel a potential partnership.
The merger plans do not include any other hospitals beyond those already in the two health care systems, according to Lifespan spokeswoman Kathleen Hart. However, it will create more competition for other hospitals, particularly in their ability to attract new physicians and top health care providers – already a problem amid national shortages of qualified workers, Marlow said.
Robinson acknowledged the additional challenges the merger would pose for South County, but added that antitrust protections around the agreement would allow South County Hospital to remain competitive, particularly in southern Rhode Island, where it has already cornered a majority of services. Asked if he was open to an acquisition, Robinson said not at this time, although the hospital’s board of directors has explored partnerships that would allow local control but to be fully acquired under a new system.
But should the hospital’s financial standing change, so too might his answer on acquisition.
“The ability to sustain independence is not superior to maintaining our mission,” Robinson said.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
