Lifespan, R.I.’s largest hospital system, posts $49m third-quarter loss: ‘The health care system in Rhode Island is in crisis’

Over a nine-month period ending June 30, 2022, Lifespan Corp.’s operating loss and net losses mounted to $69.5 million and $142 million, respectively

A registered traveling nurse during a night shift at a hospital set up to handle a surge of COVID-19 patients in 2021.David Goldman/Associated Press

PROVIDENCE — Lifespan Corp., Rhode Island’s largest health care system, reported a net loss of $49 million for its third quarter, which closed June 30, forcing the hospital owner to institute a recovery plan to address the ongoing effects of the coronavirus pandemic.

Over a nine-month period ending on June 30, Lifespan’s operating loss and net losses mounted to $69.5 million and $142 million, respectively, according to financial documents released to the Globe on Thursday.

“While we continue to prioritize investments in the resources that allow us to offer excellent care, the health care system in Rhode Island is in crisis,” said David Kirshner, Lifespan’s executive vice president and chief financial officer.

Lifespan operates the state’s only Level 1 trauma center and five of the state’s hospitals, which include Rhode Island, The Miriam, Hasbro Children’s, Newport, and Bradley hospitals. For Fiscal Year 2023, Kirshner said Lifespan plans on developing a budget that is “challenging but achievable,” which includes building out a talent pool, recruiting additional staff, decreasing reliance on contract labor, continuing Lifespan’s efforts to improve operational efficiency, and continued resumption of elective surgeries.

The Miriam Hospital, in Providence.Jonathan Wiggs/Globe Staff

The 2023 budget has not yet been finalized, according to Kathleen Hart, a spokeswoman for Lifespan. The corporation’s fourth quarter ends Sept. 30.

In an investor presentation that was shared with the Globe on Thursday, finance officials said Lifespan partnered with Alvarez & Marsal, a New York-based consulting firm, and performed a review and stress test in August. Lifespan finance officials are now incorporating the firm’s recommendations into the 2023 budget.

“Lifespan is not alone,” said Kirshner. “Hospitals across the country continue to be financially challenged by the labor shortage, increased cost of supplies and overall inflation, and lower than typical patient volume, particularly due to a decline in elective surgeries and bed closures.”

Kirshner said some of these issues were “somewhat mitigated” by government funding through the American Rescue Plan Act. Lifespan received approximately $20.9 million in total in ARPA funds, but Kirshner said he anticipates that this “level of support is unlikely to continue going forward.”

Kirshner said the “vast majority” of Lifespan’s additional costs are related to “outside factors” that he said Lifespan has limited control over. “We are not able to unilaterally raise rates with health insurers or the federal government to address these losses,” said Kirshner.

Much of Lifespan’s budget issues have been related to labor shortages, which have plagued the health care industry in Rhode Island since the beginning of the pandemic. By February 2022, Lifespan was looking to fill about 2,500 positions. To help with recruitment efforts, hiring managers have advertised sign-on bonuses worth tens of thousands per new employee, referral programs, workforce development opportunities, and tuition forgiveness. In January, President Biden announced he was sending military medical teams to six states, including Rhode Island, to help alleviate staffing shortages in hospitals during a COVID-19 surge. But those federal workers left by the first week of March.

Signs posted in the windows of Rhode Island Hospital in Providence serve as a send-off to the military medical team that helped the hospital through some of the pandemic’s darkest days in March 2022.Bill Murphy / Lifespan

Kirshner said Lifespan has looked to “address staff burnout” from the pandemic that has caused resignations and early retirements by making “target market adjustments for many” clinical and non-clinical roles and investing “multi-millions this year to ensure our professionals are paid at rates that compare favorably in our area.”

These investments and changes resulted in a $35.2 million increase in compensation and benefits during the most recent quarter, Kirshner said. On top of employee investments, Lifespan’s contract labor costs peaked in May 2022 at $13.1 million, but then decreased to $10.5 million in June and $9 million in July.

But in mid-August, Lifespan officials reportedly were still looking to fill more than 1,800 open jobs, forcing the company to hire travel nurses and temporary workers from staffing agencies, who in most cases, are paid more than a permanent employee of the hospital system.

Inflationary pressures added more than $4 million in costs to the bottom line for supplies alone, said Kirshner, and energy costs created an additional budgetary pressure.

“Now more than ever, investments in our health care system are needed to ensure our long-term stability,” said Kirshner. “We need the support of business, community and state leaders at this critical time that [share] our goals to keep excellent care and jobs in Rhode Island.”

The news comes almost three months after Lifespan’s longtime CEO and President Dr. Timothy Babineau stepped down at the end of May. The announcement of Babineau’s leaving came less than two months after after Rhode Island Attorney General Peter F. Neronha and federal regulators denied the proposed merger between Lifespan and Care New England, the state’s second largest health care system, which included a $125 million minimum contribution from Brown University. If approved the new system, which would have been called the Rhode Island Academic Health Care System Inc., could have been the state’s largest employer.

Arthur Sampson started as Lifespan’s interim president and CEO on June 1, coming out of retirement after 45 years working in health care — 35 of which were spent in Lifespan hospitals. Executive search firm WittKieffer is conducting a national search for a permanent president and CEO, which financial advisers at Lifespan believe will be pivotal in driving transformation and institutional security in the years ahead.