With Merger Dead, RI’s Second Largest Hospital Group Faces Serious Financial Issues

With Merger Dead, RI’s Second Largest Hospital Group Faces Serious Financial Issues

Care New England — the second largest hospital group in Rhode Island — has severe financial problems including nearly a $100 million unfunded pension obligation, annual capital investment far below the industry standard, and a decline in nearly every key revenue indicator.

For years, Care New England has been looking to merge and has failed. There have been multiple attempts to merge with Lifespan, there was a failed effort with Southcoast Health, and Partners HealthCare (now rebranded Mass General Brigham).

This past week, the Federal Trade Commission and Rhode Island Attorney General Peter Neronha announced they filed suit against hospital group giants Lifespan and Care New England to block a merger.

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After the FTC and Neronha announcement, Care New England President and CEO James E. Fanale, M.D., said, “Of course, we are disappointed, but I will say that we can truly know that we did everything we could over the past few years of hard work to get this done. We thought it was the right thing to do, but now we will need to move on to a new path forward. There is always a path forward, and we will explore all options to find the best possible - and acceptable to regulatory bodies –solution for access to affordable, quality, health care.”

But the clock is ticking.

The months of merger negotiations and regulatory review only shifted the focus from the dim financial realities of Care New England — a conglomerate that has suffered serious financial problems for years. The company owns Women & Infants, Kent, and Butler Hospitals.

According to Care New England’s most recent financial documents secured by GoLocal, all of their key volume stats are down including discharges, observation patients, and surgeries. The only indicator that improved was emergency room visits — and that was directly tied to the spikes of the Delta and Omicron COVID-19 variants.

One indicator of the seriousness of the financial situation is the income position. Due to federal COVID money, Care New England as of December 31 of 2020 generated $30 million in revenue for the quarter, but in 2021 that number inverted to a negative $20 million — a $50 million negative swing.

Another area demonstrating significant financial stress is the company’s cash position. Care New England’s cash went from 81.7 days to 57.3.

 

Care New England Received Nearly $170 Million in Federal COVID Grants

According to the financial report, Care New England has received in excess of $169 million in government grants, advance payment and deferred payment relating to the COVID-19 response.

 

Some Big Bills Are Coming Due

According to the financial report, "The CARES Act allowed employers to defer employer’s portion of the Social Security payroll tax (6.2%) on wager paid from March 27, 2020 through December 31, 2020. Care New England implemented the payroll tax delay and deferred approximately $21.5 million in payroll taxes. The first repayment installment of $10.8 million was paid in December 2021 and the remaining balance must be paid on or before December 31, 2022.”

 

$20M Operating Loss for the Quarter

Financials show that Care New England lost $20 million for the quarter in operation — these led to an increase in salaries of $13.8 million in part due to nursing shortages and “traveler usage, agency usage, premium pays in compensation adjustment to meet the market have escalated to provide adequate staffing levels, particularly at Kent" -- all of this while patient revenue decreased.