Healthcare Business News

$100 million Epic install dampens Lifespan's credit

By Bob Herman
Posted: June 6, 2014 - 5:45 pm ET

A multimillion-dollar electronic health-record system installation is eroding the cash flow, and bond rating, of Rhode Island's largest health system.

Moody's Investors Service downgraded the rating of Lifespan, Providence, R.I., to Baa2—only two notches away from junk-level status. The ratings agency also gave the system, which operates four acute-care hospitals and one children's hospital, a negative outlook.

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At the heart of the downgrade is Lifespan's new health IT system. In March 2013, Lifespan chose to implement an Epic platform, a system spokeswoman said. Lifespan expects to go live with Epic's EHR by the spring of 2015. Moody's analysts noted the investment will cost $35 million this year and $100 million total over the next several years.

This has slammed Lifespan's operating performance, Moody's analysts wrote. Lifespan is projecting a 2.8% operating cash flow margin for fiscal 2014, which is far below the Baa2 median of 8.8%. The operating margin is predicted to hover around -1.7%. And it's not likely to get better soon—executives told Moody's they don't expect to post improved results until 2016.

“The thin performance provides little cushion during a period of increased capital spending and the installation of a new IT system with short-term implementation risks that could disrupt cash flow,” the report said.

Other challenges facing the system, according to Moody's, are an underfunded pension plan, a consolidated payer market and high unemployment rates throughout the state. The latest figures from the U.S. Bureau of Labor Statistics put Rhode Island's unemployment rate at 8.3%—the highest in the country.

Lifespan executives were not immediately available for comment. In fiscal 2013, Lifespan lost $19.3 million from operations on $1.7 billion of revenue.

Follow Bob Herman on Twitter: @MHbherman

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