Care New England downgraded after Memorial Hospital closure news

PROVIDENCE, R.I. (WPRI) – A Wall Street debt-rating agency has downgraded Care New England, Rhode Island’s No. 2 hospital group, after the company announced it would close Memorial Hospital following the collapse of a deal to sell the money-losing facility.

Standard & Poor’s cut Care New England’s rating one notch, from BB to BB-, and said the outlook for the company’s finances is negative. Another major debt-rating firm, Fitch Ratings, already downgraded Care New England back in August.

“The lower rating reflects CNE’s prolonged period of extremely weak financial performance across the entire health care system, thin balance sheet metrics, and declining volume trends that portend deeper utilization challenges and competitive threats within its overall service market,” Jennifer Soule, an S&P analyst in Boston, wrote in her report.

Soule warned of various “uncertainties” facing Care New England, including whether it will receive state approval to close Memorial, and suggested the company “will remain exposed to Memorial’s high operating losses probably through most of our one year outlook period.” She also asserted that CNE patient numbers are down in part because it “has lost volume to its largest competitor, Lifespan.”

Jim Beardsworth, a Care New England spokesman, did not sugarcoat the message from S&P. “This report underscores the imperatives Care New England faces,” he said in a statement.

Care New England has been struggling financially for a number of years, posting an operating loss of $68 million in fiscal 2015-16 and is projecting another operating loss of $49 million in the fiscal year that just ended Sept. 30. Memorial’s operations have lost more than $80 million since Care New England took over the hospital in 2013, but the system’s other facilities – including Women & Infants, Kent and Butler – have also been facing challenges.

The company is in the process of selling itself to Partners HealthCare, the largest hospital group in Massachusetts, and executives insist the transaction will not be jeopardized by the collapse of the parallel deal to sell Memorial to Prime and subsequent decision to close the Pawtucket facility.

Soule cautioned that the failure of the Prime deal, as well as an aborted effort last year by Care New England to merge with New Bedford-based Southcoast Health System, has created “significant uncertainty about whether an acquisition by Partners is achievable.” More positively, she suggested that if the Partners merger does go through it would benefit Care New England’s facilities “from a clinical and financial perspective.”

“We expect that Partners would likely collaborate more significantly with CNE post-acquisition and likely infuse capital into the organization, which could allow for CNE’s various growth strategies to gain traction even faster,” Soule wrote.

Beardsworth, the Care New England spokesman, argued the S&P report reinforces why the company needs to close Memorial and consummate the Partners merger.

“We have been aggressively working to manage our costs, increase our patient volume and minimize losses with some positive results,” he said, noting the company’s operations lost less than $10 million over the last six months after losing $40 million during the prior six.

“Further, we have an important obligation to strengthen our health system for both those throughout the region who rely on our services, and for our nearly 7,000 other employees,” he continued. “We must work unrelentingly to improve our prospects for future success, including our plan to close inpatient and emergency services at Memorial Hospital.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter and Facebook