Fitch cuts Lifespan’s outlook to negative after weak Q3


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diving letter:

  • Fitch Ratings lowered its longevity outlook to negative from stable, citing the Rhode Island-based healthcare system’s “remarkably” weaker operating results in the third quarter as the latest sign of financial distress for hospitals.
  • Increased labor costs, reduced patient counts due to staff shortages and closed beds, and inflationary pressures on non-labor costs contributed to Lifespan’s operating loss for the nine months ended June 30, the rating agency said on Friday.
  • Fitch affirmed Lifespan’s BBB+ issuer default rating and BBB+ rating for Rhode Island income-yielding bonds issued on Lifespan’s behalf due to the hospital system’s still strong liquidity position and leading market position and a detailed recovery plan designed to support improved operations.
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Dive insight:

The rating downgrade comes seven months after Lifespan and Care New England, Rhode Island’s two largest healthcare systems, canceled merger plans after the Federal Trade Commission and state attorney general sued to block the deal.

The FTC, which has challenged several hospital deals this year, claimed the Rhode Island combination would have increased prices and reduced the quality of care because the two systems control 70% of the state’s inpatient services.

According to Fitch, the merger could have created synergies and an opportunity to streamline some services, but also had the potential to dilute Lifespan’s operational and financial profile. Lifespan has a 57% market share in Rhode Island, twice that of Care New England.

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Going forward, Lifespan’s rating stability will depend on how well management executes its operational recovery plan in fiscal 2023, Fitch said. The strategy includes targeted cost reductions, revenue cycle transformation and other initiatives. Management is very focused on cutting losses, but staff shortages and significantly higher operating costs are expected to persist, the rating agency said.

Another downgrade is possible if operating EBITDA margins don’t stabilize at 5% or better, the agency warned. Ratings could also come under pressure if liquidity tightens further and cash-to-adjusted debt weakens significantly, Fitch said.

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Lifespan’s Board of Directors is conducting a nationwide search for a permanent CEO after Timothy Babineau stepped down from the helm in May. Arthur Sampson, who has spent 35 years at Lifespan hospitals, has meanwhile been appointed CEO.

Lifetime is hardly alone in its fight against declining margins. According to a Kaufman Hall report released last week, hospitals are expected to post billions of dollars in losses this year as a result of rapidly rising costs, particularly for labour. The American Hospital Association recently warned that deteriorating financial conditions could put more rural hospitals out of business, leaving patients with fewer opportunities for quality care closer to home.



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