PROVIDENCE – Fitch Ratings is keeping Brown University Health's outlook negative, while S&P Global Ratings has a stable outlook for the state's largest health system.
Both agencies on Thursday gave Brown Health a BBB+ rating for the 2016 and 2024 bonds issued by the R.I. Health & Educational Building Corp, Massachusetts Development Finance Agency's $160 million series 2025A and $85 million series 2025B tax-exempt fixed-rate bonds and the health system's $245 million series 2025C taxable fixed-rate bonds.
While Brown Health, formerly known as Lifespan Corp., made some improvements in fiscal year 2024, the health system still fell short of expectations, according to Fitch.
Fitch originally changed its outlook for Brown Health’s 2016 and 2024 bonds from stable to negative in January. Its Thursday report for the 2025 bonds is also negative.
Brown Health closed out fiscal 2024 with a $44.7 million operating income, an improvement from $8.6 million operating income the year prior. The health system reported a 4.4% operating margin of earnings in 2024 before interest, taxes, depreciation and amortization, up from the prior year's 3.3%, but short of the 6% Fitch expected.
Fiscal 2024 was certainly eventful. The health system rebranded from Lifespan Corp. to Brown University Health and purchased two Massachusetts hospitals for $175 million from Steward Health Care, which filed for Chapter 11 bankruptcy in May 2024. The hospital purchase was supported by the 2025 bonds.
But the debt issued to support the acquisition of the Massachusetts hospitals has curbed the health system’s balance sheet, Fitch said. Integrating the two Massachusetts hospitals could also be risky and hinder cash flow, limiting Brown Health’s ability to “support elevated capital spending or improve liquidity metrics."
Fitch did say the acquisitions could help Brown Health’s revenue diversity and ability to expand services in markets with better opportunities for growth. Also, Brown Health’s expanded affiliation agreement with Brown University and rebranding is beneficial: it could boost the health system’s ability to recruit staff, access research and secure capital funds over the next seven years.
To earn a stable outlook, Fitch said Brown Health must get its EBITDA margins up to 6%.
Meanwhile, S&P had a stable outlook for Brown Health, saying its expansion into Massachusetts and stronger ties to Brown could produce a debt service coverage ratio of 2.
"The outlook reflects our view of Brown Health's growing enterprise profile, including expanded operations in Massachusetts, a dominant market share in Rhode Island, and a more comprehensive relationship with Brown University," said S&P Global Ratings credit analyst Cynthia Keller.
Fitch considered Brown Health’s revenue defensibility “midrange” as it has a strong market share, even with a challenging payor mix and service area.
Fitch said Brown Health’s operating risk profile is “weak” because the health system has averaged a 4.6% EBITDA over the past five years and needs more capital investments to improve facilities and boost strategic spending. Brown Health has also faced staffing challenges that added to labor costs and saw higher-than-expected drug and supply costs in fiscal year 2024.
In the first quarter of 2025, Brown Health reported a $17.7 million operating income – translating to a 1.7% operating margin and 4.8% operating EBITDA. This was driven by the system’s Rhode Island facilities, as the Massachusetts assets broke even during the quarter. Brown Health saw increased volumes and improved rates and payor mix. However, risk-based contracts and labor expenses continue to be a challenge.
Brown Health’s leaders are focused on specific strategies including, reducing the length of stay, raising surgery volumes and optimizing workforce. The health system has budgeted operating EBITDA margins of 6% in 2025 and expects the Massachusetts facilities – which make up 17% of Brown Health’s revenue – to improve operations.
The health system is also investing in upgrading its facilities. In 2023, Brown Health announced it was planning to spend about $3 billion over the next decade on facility improvements. The largest piece of this is reworking the Rhode Island Hospital Middle Campus, which would be done in three phases resulting in a new 200-bed inpatient facility to replace the Jane Brown Building. About $170 million will come from the tax-exempt 2024 bond proceeds and planning for phase two is underway.
Brown Health is also using $65 million of bond proceeds to replace a wing of the Miriam Hospital, which would improve the emergency department and add private beds. The project is expected to cost about $125 million and be completed in 2028.
The ratings highlight the ongoing challenges facing Rhode Island’s health care system, said Brown Health spokesperson Jessica Wharton.
“Brown University Health’s goal is to achieve a 3% operating margin as we continue to provide high-quality care and fulfill our mission to serve the community. We remain focused on improving operational performance, strengthening our financial position, and ensuring long-term sustainability."
(CORRECTS lede to note Fitch is maintaining a negative bond rating first issued in January. ADDS fourth paragraph with detail on ratings.)
Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.
