Fitch affirms Lifespan bond rating but downgrades outlook to negative

PROVIDENCE – Fitch Ratings downgraded their outlook for Lifespan Corp. from stable to negative, while affirming the health system’s revenue bond rating of BBB+, the ratings agency announced on Thursday.

Fitch cited Lifespan’s “weakened operating results” as the impetus for the downgrade. It said that Lifespan would need to resolve its financial issues in the next 12-18 months to prevent a downgrade in its bond rating.

The bonds are the Rhode Island Health and Educational Building Corp. revenue refunding bonds series 2016 issued on behalf of Lifespan.

Fitch noted that Lifespan is addressing its fiscal situation with a turnaround consultant, Alvarez and Marsal, which the system hired in September. The firm was said to have an 18-month engagement in which it will seek improvements for the system. The firm’s emphasis will be on delays in discharge times, productivity, reducing premium staff pay and optimizing the use of the Epic Electronic Medical Record application. The firm will also look for inefficiencies in the corporate structure and operations of Lifespan.

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Fitch also noted that the only major capital project the health system has planned currently is an addition to The Miriam Hospital, calling it a bed-replacement project. The project will only be undertaken if Lifespan returns to “stronger financial results,” because it would require debt issuance.

Fitch noted that Lifespan was said to have a reported 62% market share in Rhode Island in 2018, more than twice that of the next largest health system, Care New England Health System.

Fitch said that Lifespan’s operating risk was already weak prior to poor results in 2019. The ratings service said that part of the financial struggle was due to a “challenging operating environment.” The report cited the previous attempt of Partners Healthcare to acquire Care New England, as well as the failed talks between Lifespan, CNE and Brown University.

The report said that Lifespan is already seeing losses of some patients to Boston, including cardiac and cancer patients.

Another risk Fitch cited for Lifespan was Rhode Island’s “weak” population growth.

Fitch said that the health system’s fiscal 2019 was impacted by the closure of CNE’s Memorial Hospital driving up costs at The Miriam Hospital, as well as higher pharma costs, particularly cancer drugs.

Lifespan’s management expects to finish 2020 with, at minimum, a break-even operating income.

Chris Bergenheim is the PBN web editor. You may reach him at Bergenhiem@PBN.com.