Brown University Health is in a tough spot.
The nonprofit health system is considering cutting several crucial services and programs in order to reach its goal of a 3% operating margin. This benchmark is crucial to sustaining Brown Health’s mission of “caring for our patients, advancing research and training future generations” as Brown Health braces for continued financial difficulties, CEO John Fernandez said in a May 27 internal memo obtained by Providence Business News.
But news about the potential cuts has upset community members where programs are under threat, such as in Newport, where Brown Health is considering closing labor and delivery services at Newport Hospital.
The possibility of the birthing center being shuttered drew dozens of worried residents to a recent Newport City Council meeting, where they voiced their support of the center.
Other changes being considered, according to Fernandez's memo: closing behavioral health and addiction service provider Gateway Healthcare Inc., closing Samuels Sinclair Dental Center in Providence, halting renovation projects at Rhode Island Hospital, and reducing adult inpatient psychiatric services and ending service contracts for certain state programs such as those in prisons.
But when weighing such financial decisions, observers say, the health system must also factor in its community obligation – especially as a nonprofit – to provide needed health care services to the community.
It’s a tough balancing act, many acknowledge.
“[The financial numbers are] important. But in health care, this is not a business of creating a product – it's a business of improving lives,” said Anna Matos-Mournighan, director of the health care administration graduate program and visiting assistant professor at Salve Regina University. “They should expect that the community would have a reaction because they are there for the community. Their whole mission is to serve the community.”
Any health care organization should be focused on serving patients, Matos-Mournighan says. But unlike for-profit companies, nonprofit health systems – such as Brown Health – aren’t beholden to stakeholders to get returns. They are instituted for the community's well-being.
So, when considering cutting services, the health system should keep the community’s needs and their mission in mind, Matos-Mournighan says. The leaders should consider whether there are alternatives for those services available in the community and whether any vulnerable or underserved populations will have even more hurdles to accessing care.
At the same time, health care leaders should think about how the cuts would affect the community’s trust in the health system and overall brand.
And some aren’t convinced Brown Health needs to make any cuts.
James Bailey, associate professor of economics at Providence College, notes that the health system closed its 2024 fiscal year in the black. The health system reported a $44.7 million operating income for fiscal 2024 and more recently posted an $8.8 million operating income in the second quarter of this year.
Also, Bailey says that not every service or facility needs to be profitable to remain operational – especially since nonprofits are obligated to provide community benefit.
While the health system seems to be in no immediate danger financially, Bailey suspects that they could be preparing a cushion against future headwinds.
“Going forward, it is a big balancing act,” Bailey said.
In October 2023, the health system was not meeting the goal of a 3% operating margin, but Fernandez told PBN at the time that he was optimistic that the health system would close the gap, citing the need to boost low reimbursement from Medicaid, Medicare and commercial insurers.
For hospital operators, widening that margin is vital to allow for investment into health services, improving patient access and teaching and research programs.
More recently, the health system says it has lost almost $138 million over the past two years because of underpayment for patient care from Medicaid, says Jessica Wharton, Brown Health spokesperson.
The move to cut services was based on whether the General Assembly would approve the $90 million increase in Medicaid reimbursements, which in turn would generate $270 million in funds because of a federal matching program, Fernandez said in the memo.
Lawmakers did add $15 million in state funding to increase Medicaid rates and topped up hospital funding by $38 million for increased reimbursement rates and direct support payments for hospitals.
However, hospitals nationwide are bracing for even more financial challenges as recently passed legislation in Congress would slash almost $1 trillion in federal funding for Medicaid over 10 years.
This comes on top of expensive hurdles health care organizations face such as staffing problems, rising supply costs, more administrative work and needed technology upgrades.
And Brown Health is not the only one with difficult choices ahead.
The effects of the federal budget aren’t yet clear, but any cuts to government funding for health care will further destabilize the industry, said Howard Dulude, interim president of the Hospital Association of Rhode Island.
“Providers are looking at ‘What do we think is going to happen? What are the services that we can afford to continue to provide, particularly if payment rates are cut or fewer people have health insurance,’ ” Dulude said. “Every health care organization is looking at that right now.”
