R.I. Hospital president to leave as Lifespan announces losses, offers early retirements

Lifespan attributed the $55 million in operating losses last year to factors including “a dramatic and unexpected reduction in Medicare rates,” the lasting impact of the closing of Memorial Hospital in Pawtucket, and the continued loss of specialized medical care to Boston.

The company, which has revenue of about $2.4 billion, said that factoring in investment income, its net losses totaled $35 million.

“While the fiscal year 2019 financial results are concerning, as Rhode Island’s largest and most preferred provider of health service, and the state’s largest employer, we are committed to regaining our financial viability,” said Dr. Timothy J. Babineau, president and CEO of Lifespan.

The company said it is setting a goal of being $1 million in the black in fiscal year 2020. To achieve that, it has hired Alvarez and Marsal, a health care consulting firm, to conduct a “restructuring effort throughout the system.”

But the bigger immediate news for employees may be that Lifespan is announcing a voluntary early retirement program for eligible staffers, which will go into effect on March 31.

Lifespan has 15,674 employees, but early retirement will be offered only to those 65 or older, with 10 years of eligible service as of Oct. 1, 2019. Executives, physicians, advanced practice providers, psychologists, and research scientists requiring a doctorate are not eligible.

In total, 400 to 500 employees will be eligible, Babineau said. Typically, about half of eligible employees take such incentives, so 200 to 250 employees are expected to take the offer, he said.

Will Lifespan consider layoffs?

“Not as of today,” Babineau said Wednesday. “Layoffs are always something of a last resort. If that is what it took to get us back on financial footing, we would consider it in the future — but only after thoughtful analysis to ensure care at the bedside is not impacted.”

Later Wednesday, United Nurses and Allied Professionals Local 5098 president Frank Sims issued a statement in response:

“Dr. Babineau’s suggestion that layoffs be on the table represents a callous and alarmingly out-of-touch understanding of bedside care at Rhode Island and Hasbro Children’s Hospitals. Layoffs will dramatically and adversely impact patient care. I would strenuously caution Dr. Babineau to consider that before his decisions cripple Rhode Island’s only level one trauma hospital.”

Babineau emphasized that while others hospitals face challenges because they have fewer patients, Lifespan is treating more. “We don’t have a patient problem; we have a reimbursement problem,” he said.

Over the past decade, the proportion of patients using public health insurance has gone up, but Medicare and Medicaid don’t cover the cost of the care provided, Babineau said. At this point, Lifespan is losing money up on about 70 percent of its patients — a higher percentage than at many Boston-area hospitals, he said.

Formed in 1994 and based in Providence, Lifespan includes Rhode Island Hospital and its Hasbro Children’s Hospital, Miriam Hospital, and Bradley Hospital, the nation’s first psychiatric hospital for children. It also includes Newport Hospital, a community hospital offering a broad range of health services, and Gateway Healthcare, the state’s largest provider of community behavioral health care.

“Patients are relying increasingly on the Lifespan system to take care of all of their health needs,” Babineau said. “Rhode Island continues to be a very challenging environment for the health care industry. To succeed, we need to be agile, open to new ideas, and find innovative ways to provide high quality, compassionate care for more patients with less reimbursement. We are committed to doing just that.”

David E. Williams, president of Health Business Group, a Boston consulting firm, said he was struck by Lifespan’s remarks that its operating losses were due, in part, to “a dramatic and unexpected reduction in Medicare rates.”

Last month, about 600 hospitals filed lawsuits against the US Department of Health and Human Services, claiming they’ve been shortchanged on Medicare payments. Inpatient hospital reimbursements were reduced 0.7 percent, an adjustment that’s been in place since 2011 and is extended by Congress to recover overpayments.

The hospitals are suing over reductions in 2018 and 2019, which is estimated at about $200,000 per hospital, per year.

“If that’s what [Lifespan] is referring to, it was certainly unwelcome by providers, but whether you can say it was unexpected or dramatic, I wouldn’t agree with it,” Williams said.

He questioned if something else is going on. Lifespan says it is treating more patients who rely on Medicare and Medicaid, with lower rates of reimbursement, so it’s possible the hospitals are losing patients with private insurance to Boston-based Partners HealthCare or to Beth Israel Deaconess Medical Center, Williams said.

Williams said he sees this happening in Massachusetts, where patients with private health insurace have more choices about where they go.

Community hospitals in Massachusetts are losing those patients and gaining more who have public insurance, which can have “a dramatic impact,” he said.

Lifespan’s announcement comes after a proposed merger of Lifespan, Care New England, and Brown University fell apart earlier this year. Care New England pulled out of negotiations to form a local academic health center with Lifespan and Brown in July, less than two months after the three Rhode Island institutions agreed to spend the summer discussing a partnership.

The decision marked a setback for Governor Gina M. Raimondo, who said in June that Massachusetts-based Partners HealthCare would back off of its attempt to acquire Care New England to clear the way for a local partnership.

In a Globe panel discussion in November, Babineau, Raimondo and Brown University president Christina H. Paxson said they hoped to get another chance to form a Brown-Care New England-Lifespan unified academic medical center.

Edward Fitzpatrick can be reached at edward.fitzpatrick@globe.com. Follow him on Twitter at @FitzProv.