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.
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