Lifespan behind on financial goals; capital improvements to come

LIFESPAN CORP. posted a $4.6 million operating income in the second quarter of 2024, but the state’s largest health system has some work to do, says Chief Financial Officer Peter Markell. Pictured is Rhode Island Hospital, which is operated by Lifespan. / COURTESY RHODE ISLAND HOSPITAL

PROVIDENCE – Lifespan Corp. posted a $4.6 million operating income in the second quarter of 2024, but the state’s largest health system has some work to do, says Chief Financial Officer Peter Markell.

The positive operating income marks improvement over last year’s $3.7 million loss and was largely attributed to out-of-period and one-time, or unusual, items.

The one-time items totaled $71.2 million throughout the first six months of 2024 and include: $27.8 million in Federal Emergency Management Agency funds throughout the first two quarters of fiscal 2024, compared with $9.7 million in the same period last year; $34.8 million in patient service revenue related to the final 340(b) settlement, which the Centers for Medicare & Medicaid Services issued a ruling for on Nov. 2; and $8.6 million from a change in the Disproportionate Share Model that affected last year.

Markell expects to receive some more FEMA funds, but the items are not expected to repeat.

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While the state-directed payments are an ongoing program, they are identified as a one-time item to account for revenue that was generated and not recognized in the last quarter of 2023 when the program was approved. Now the health system will be recognizing revenue from the program on a quarterly basis as it’s expected to continue, Markell said.

Without these one-time items, Lifespan would have reported an $11.2 million operating loss through the first two quarters of 2024, compared with a $16.9 million loss in the same period last year, Markell said.

Markell previously said he had hoped Lifespan would reach a 3% operating margin in 2024, but that is likely not going to happen.

“We are not where we want to be on a run-rate basis,” Markell said.

Among the challenges Markell identified were the acuity level, or case mix, for inpatient discharges, uncompensated care and denials, losses on risk-based contracts, labor spending, as well as medical and surgical supplies and drug expenses.

Through risk-based, or value-based care contracts, Lifespan shares in the deficit or surplus of the payors. Historically, Lifespan has done fairly well, but the health system has gone into a deficit in the last year because of higher utilization and more pharmaceutical drugs.

In terms of labor, Markell said Lifespan is making progress, but more work needs to be done to replace contract labor with employees.

For medical supplies and drugs, Lifespan has been part of a group purchasing organization that improves prices on supplies. Along with this, the health system is making an effort to ensure that all supplies are used efficiently and that as little as possible is wasted.

Notably, there has been a dramatic increase in the use of a variety of weight-loss drugs within employee health plans and among patients.

Also, during the quarter Lifespan issued a $300 million bond for construction and renovation of its facilities. Among the major projects is a $120 million renovation to The Miriam Hospital that would increase the number of private beds and improve emergency room efficiency. This project will not only help patients, but it will boost revenue, Markell said.

The Lifespan Finance Committee and board of directors approved the project and now a Certificate of Need will go to state regulators.

“We just feel very strongly that we have to continue to make these infrastructure improvements, whether it’s physical assets, digital assets,” Markell said. “That’s really why we need the 3% margin – so we can invest and make it a better experience for our patients, our physicians, our clinical people and all our employees.”

Lifespan also invested around $28 million into Workday, a platform that helps with capital spending and supply chain systems.

So far, the project is on time and on budget and is expected to go live in October 2025, Markell said. Implementation of the platform fully kicked off in March and it is about halfway through the design phase, after which there will be an “application configuration.”

Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.

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