R.I. hospitals saw sickly finances in '08

Richard Salit

Oct. 18, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- The slumping economy dealt a serious blow to the finances of Rhode Island hospitals in 2008, according to a Department of Health report. And with independent hospitals hurting the most, the report emphasizes the value of being part of a network, just as more hospitals are seeking relief through mergers.

The study concluded that, overall, the health of the state's 13 private, nonprofit hospitals "weakened" and that the cause was "primarily due to investment losses." After earning $80 million on investments in 2007, the hospitals cumulatively lost $20 million in 2008.

The top three strongest financial performers were Newport, Bradley and Butler Hospitals. The weakest three were Westerly and Memorial Hospitals and Landmark Medical Center.

By the end of 2008, long-ailing Landmark, in Woonsocket, had fallen into receivership and the "future solvency" of St. Joseph Health Services, operator of Our Lady of Fatima Hospital and other health care facilities in Rhode Island, was in jeopardy, according to the report. Landmark entered into merger talks in 2009 with Caritas Christi Health Care, a chain of six Catholic hospitals in Massachusetts, and St. Joseph is awaiting state approval to consummate its long-standing plans to merge with Rogers Williams Medical Center, in Providence.

While these and other independent institutions collectively saw their profit margin dip to negative 4 percent, those in networks performed substantially better. Lifespan, the network that includes Rhode Island, Hasbro (NYSE:HAS) Children's, The Miriam, Newport and Bradley hospitals, posted a 2.5-percent profit margin. Care New England Health System, which includes Butler, Kent and Women and Infants hospitals, had a profit margin of .07 percent.

"All of the top six hospitals were Care New England or Lifespan network hospitals and, with the exception of Kent, all six of the seven bottom-ranked hospitals were independent facilities," the report notes.

"Market share plays a role in financial success. Whether the superior performance of the network hospitals is because of, or in spite of, the weakness of the independent facilities is unknown. Using their market strength to negotiate higher reimbursement rates is expected of the networks, but does this success come at the expense of their independent competitors? Do network hospitals enjoy economies of scale unavailable to the independents, or are they simply better stewards of their organizations?

"The answers to these and other related questions will help shape the future of inpatient health care in Rhode Island for years to come."

The report, "The Health of Rhode Island Hospitals," produced by the Health Department's center for health data and analysis, relies upon the hospitals' audited financial statements and comparative regional and national hospital statistics. This is the 10th edition of the report, which in the years after its first publication in 1988 was put out sporadically but which in recent years has been undertaken annually.

"Rhode Island's 13 private, non-profit hospitals are a $3 billion industry comprising 5.8 percent of the gross state product in 2008. Because of the hospital's importance to health care delivery, their impact on the economy, and the large public investment they represent, there is interest and utility in monitoring their performance," the report reads.

The 2008 report paints a generally dismal portrait.

Collectively, the profitability of all 13 hospitals declined from 3.5 percent to 0.1 percent and net worth fell 12 percent.

"These were both due to investment losses in the financial markets and not to weakening in operations," according to the report.

Operating income actually improved from $22 million to $23 million from 2007 to 2008.

Of 12 measures for financial performance, eight worsened during that period, some sharply, while the remaining four were largely unchanged. The report noted that net income, perhaps the most important measure of financial performance, fell from $102 million to $4 million.

"We know 2008 was a difficult year," said St. Joseph spokesman Otis Brown. "That's why we implemented an aggressive turnaround plan, which has resulted in significant improvements, including four consecutive profitable operating months." Brown was referring to the pay cuts and layoff of 36 employees it imposed in February after losing about $3.4 million between October and December of last year. The survey results that indicated the financial benefit of being part of a network "was not a surprise," he said.

"Financial stability is one of the reasons behind our impending affiliation with Roger Williams Medical Center," he said.

Meanwhile, Lifespan and Care New England are pursuing their own merger.

"We believe the report shows the continued value of belonging to a health care system which can more efficiently provide corporate services, purchasing and other functions to save money and allow the hospitals to focus on providing high quality care for our patients," Linda Shelton, a spokeswoman for Lifespan, said.

"The fiscal environment at the state and federal levels for hospitals likely is going to continue to be challenging, which is why we are more committed than ever to the proposed Lifespan/Care New England merger."

Edward J. Quinlan, president of the Rhode Island Hospital Association, said the dire portrait painted by the report is reflective not only of a difficult year, but of long-time financial challenges particular to Rhode Island. Medicare reimbursements are among the lowest in the nation and reimbursements from private insurers are the lowest in New England, he said.

"The pattern of independent versus hospitals systems isn't that clear historically. But the financial pressures that face all hospitals, independents and networks, is clear," he said. "The report confirms the warning signals. Only they are getting louder."

To see the report online, go to www.health.ri.gov and search for "health topics/hospitals." Ranking of hospitals' 2008 financial performance from best to worst

Newport

Bradley

Butler

Miriam

Women and Infants

R.I. Hospital

Roger Williams

Kent

South County

St. Joseph

Westerly

Memorial

Landmark

rsalit@projo.com

Newstex ID: KRTB-0161-38940013