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Care New England Takes Another Hit, S&P Downgrades Bonds

Tuesday, October 24, 2017

 

Care New England (CNE), one of Rhode Island’s largest private employers with more than 5,000 employees, has taken another financial blow.

Last week, Prime HealthCare walked away from the deal to purchase Memorial Hospital. Then, the Board of CNE voted to close Memorial impacting over 800 employees.

Now,  S&P Global Ratings has lowered CNE’s rating to 'BB-' from 'BB' on debt issued by the Rhode Island Health & Educational Building Corp. (RIHEBC) for Care New England Health System (CNE).  S&P has warned investors and deemed CNE’s outlook as negative.

"The lower rating reflects CNE's prolonged period of extremely weak financial performance, thin balance sheet metrics, and declining volume trends that portend deeper utilization challenges and competitive threats within its overall service market," said S&P Global Ratings credit analyst Jennifer Soule.  

“The negative outlook reflects uncertainties related to CNE's ability to achieve its financial targets for fiscal 2018 and close Memorial in a timely and cost-effective manner, along with its continued challenge formalizing a strategic partnership with another health care provider. Our outlook currently covers a period of one year,” wrote S&P.

Kent Hospital, a CNE facility

Impact of Partners Deal?

The impact of the downgrade on the now pending sale to Partners HealthCare in Boston is unknown. Partners is the proverbial 800-pound healthcare gorilla in New England as the company has more 70,000 employees and an annual budget in excess of $12 billion.

S&P went on to write, “We could consider a lower rating if CNE does not significantly improve its financial performance through the outlook period. We do not think the system's balance sheet has any flexibility given its current operating challenges--any further draw on its unrestricted reserves or addition of debt would be given negative consideration that could lead to a lower rating.” 

Partners merger could help stabilize CNE, “If the current CNE and Partners negotiation does lead to a definitive agreement, we could factor some of the benefits of that relationship into our outlook for CNE's credit profile, although we would not factor the full benefit of that credit boost into the rating on CNE until the relationship has been fully evaluated by regulators, is approved, and penned as final. We will continue to evaluate the timing and terms of this relationship as it unfolds.”

Recently, Partners refused to comment on the status of its relationship with CNE.

 

Related Slideshow: 7 Implications and Unintended Consequences of a Care New England and Partners Merger

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Providence does not usually do well in mergers

Remember Providence Gas, Fleet Bank, and Narragansett Electric?

Big employers, deep community involvement, and significant charitable donors — all were consumed and in each case, the number of employees left in Rhode Island by the succeeding company is a fraction of the once independent venture.

To the victor goes the spoils.

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As if the Boston economy isn't good enough, and the Providence economy couldn't be more stagnant

The cityscape of Boston is littered with cranes. Boston Business Journal maps the construction projects utilizing cranes in Boston (see image) and the number of projects is staggering. 

In Providence, there few construction projects and not a crane to be seen. The last thing Providence needs is for another one of its largest employers to be merged into a Boston mega-organization. The likelihood is that jobs will be lost or consolidated to Boston - basic functions like purchasing, accounting, etc. will be lost. 

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Harvard beats Brown in Ivy League match-up

Harvard Medical School is ranked as the #1 research-based institution in America by U.S. News and World Report.

Partners Healthcare’s academic partner is Harvard.

In contrast, Care New England’s academic affiliation is with the Warren Alpert Medical School of Brown University. Brown’s best ranking is 21st for primary care - and is ranked for research way back at #31.

One of the biggest losers in the merger could be Brown's medical school.

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Care New England is RI’s 2nd largest employer, so what will It be in 2 Years?

According to the RI Department of Labor and Training, Care New England is Rhode Island’s second largest employer.

Lifespan is the largest: 12,050

Care New England: 8,500

CVS: 7,800

Cities like "Meds and Eds" (the medical and educational business segments), but Providence and all of Rhode Island is likely to lose high paid, highly educated jobs as a result of this deal.

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Care New England is already healthier

It was announced on Wednesday that the Ontario, California-based Prime Healthcare Foundation has signed a letter of intent to acquire Pawtucket’s Memorial Hospital from Care New England.

Prime Healthcare owns 14 hospitals in the U.S.

Memorial has been a big, but not the only factor, in the demise of Care New England’s financial condition.

"It is certainly no secret that we have had significant financial challenges here (Memorial Hospital),” said Care New England President and CEO Dennis Keefe. "But at the same time it has been clear there is an important obligation to maintain the care and services offered to those in and around Pawtucket. The only way for this to continue is through the partnership we announce today with Prime Healthcare Foundation."

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Can the unions battle?

Within hours of GoLocal breaking the news of the merger, the United Nurses and Allied Professionals (UNAP) President Linda McDonald, RN, released the following statement today:

"This proposed merger has the ability to impact thousands of jobs and the quality of care in Rhode Island and should be thoroughly scrutinized. Like most Rhode Islanders, we only recently learned of this proposal but expect Care New England and Partners HealthCare to be transparent in their process and begin a conversation with our union about the effect any deal would have on our members and our patients.  

Memorial Hospital provides critical care to scores of Blackstone Valley residents every year and preserving its status as a fully-functioning community hospital will be among our top priorities as this process continues to unfold. 
The onus is now on Care New England, Partners HealthCare and Prime Healthcare Services to make the details of this proposal public and to do it quickly so that workers, patients and state regulators may begin asking the appropriate questions."

The nurses represents nearly 1,400 registered nurses, CNAs, ER techs, surgical techs, orderlies, endo techs, environmental employees and ancillary staff at Kent and Memorial hospitals.  But, will they have any impact on the decisions?
 

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Speaking of Lifespan - will they be forced to merge with a Boston partner?

Lifespan is having its financial challenges too. While Care New England lost $53 million last year, Lifespan's losses were $40 million. The Lifespan losses were smaller proportionately to the healthcare group's overall budget and it does not have the cash crunch that Care New England was battling.

In February, Lifespan announced it had has entered into another Boston Hospital agreement. This agreement with Dana-Farber Cancer Institute is a long term agreement with the goal of advancing cancer treatment and research. Lifespan previously entered into an agreement with New England Medical Center and that deal led to years of protracted litigation to unwind. Lifespan also ran into a legal battle with Tufts Medical Center.

Will Partners' potential arrival in the market force Lifespan to affiliate?

 
 

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