Six weeks ago, it was clear that Rhode Island’s largest health system stood on rocky financial ground when it contemplated closing the Newport Hospital birthing center.
What executives at Brown University Health didn’t say at the time: Its Rhode Island hospitals and physician groups are performing quite well. Brown Health posted a $28.4 million profit for its Rhode Island business in the third quarter of fiscal 2025, up 68% over a year ago, according to financial results published Wednesday. The third quarter ended June 30.
“We feel very positive about where we’ve brought Rhode Island,” Peter Markell, chief financial officer for Brown Health, said in a call with investors Thursday afternoon. “From the quality of earnings, we feel even stronger about [fiscal year] 25 than we do 24.
But the $175 million purchase of two Massachusetts hospitals from Steward Health Care last year has dragged down the bottom line, resulting in a combined quarterly operating loss of $3.8 million. The Massachusetts side of the business — which includes St. Anne’s Hospital in Fall River, Morton Hospital in Taunton, and associated physician groups — ended the quarter $32.2 million in the red, with a $53.3 million loss across the six months in which Brown has operated the Massachusetts facilities.
Markell acknowledged the company has struggled to resuscitate the Massachusetts hospitals, which were at risk of shuttering after Steward filed for bankruptcy. Yet, the company has held off on making cuts to staff or services, hoping that new hires and an image makeover will help turn around the Massachusetts segment.
“We can’t cut our way to glory,” Markell told investors during the hourlong, virtual conference call Thursday.
In July, the health system said it was looking at ways to cut costs in Rhode Island, including, potentially, shuttering the Noreen Stoner Drexel Birthing Center at Newport Hospital. The warning sparked an outcry from residents, local and state leaders, who insisted the award-winning labor and delivery unit was not only an institutional landmark, but a necessity for the Aquidneck Island community.
Health system executives subsequently agreed to keep the birthing center open, committing to its funding through the upcoming fiscal year 2026 which starts Oct. 1. Brown Health also committed to forming a task force to assess the birthing center’s operations. The group will be formed sometime this fall, Jessica Wharton, a company spokesperson, said in an email on Tuesday.
Cuts loom on the horizon
But CEO John Fernandez laid out a series of other cuts to Rhode Island hospitals and services, including the imminent closure of its medical equipment arm, Brown Home Health Medical, on Sept. 5.
Markell in a follow-up call with reporters Thursday, said the home health care supply segment was “very small,” and the patients served were being referred to alternative providers. Employees will be shifted to alternative parts of the company operations, Markell said.
Meanwhile, Brown Health is contemplating changes to its inpatient adult psychiatry program at Rhode Island Hospital, which continues to lose money due to a heavy reliance on contract workers and long-term stays of patients who don’t need hospital-level care but don’t have other options, Markell said.
Yet, he denied that Rhode Island was subsidizing the losses in Massachusetts. Nor did Markell regret the decision to buy the Massachusetts hospitals, which required selling $400 million in bonds earlier this year.
“We still think it was a smart decision for the long haul,” Markell said of the purchase. “We truly believe we can do well in the market.”
Especially because Massachusetts offers higher reimbursement rates to health care providers, including hospitals, than Rhode Island. The lack of competitive payments in the Ocean State has featured prominently in discussions about how to improve Rhode Island’s fragile health care ecosystem, with better pay seen as a driving force in attracting and retaining providers, and keeping health care facilities solvent.
State lawmakers greenlighted a boost to Medicaid reimbursement rates for primary care providers as part of the fiscal 2026 budget, and added more money in hospital payments than what Gov. Dan McKee had initially proposed. It still fell short of the $270 million that the Hospital Association of Rhode Island asked state leaders for. And with additional fallout expected from federal budget cuts, which threaten key sources of hospital funding like state-directed payments and provider taxes, health care leaders remain on edge.
“We may be OK right now, but I am still worried about what [fiscal year] 27 is going to bring, 28 is going to bring, with all the stuff going on in Washington,” Markell said.
Physician group acquisition
For the year ahead, the health system is focused on a strategy of efficient growth, including acquiring the independent physician practice, Brown Physician Inc. The nonprofit specialty practice was founded by faculty at Brown University’s Warren Alpert Medical School, but is not part of the university, and therefore, was not included in the 2024 partnership between Brown and Lifespan Corp. Adding the 500-physican practice, which includes specialties in dermatology, urology and neurology as well as primary care and emergency medicine, will allow the health system to better serve patients through referrals and expanded services, Markell said.
“Strategically, it’s really critical we have them,” Markell said.
The cost for the “integration” does not include a purchase price, but does reflect expenses tied to adding Brown Physician Inc. providers to the company’s electronic health care system, among other costs. Markell declined to provide a cost estimate, awaiting federal regulators’ approval for the deal, expected in September. The new Brown Health Medical Group will include primary care and specialty providers from Brown Physician Inc., as well as those from what was formerly known as Coastal Medical and the Lifespan physician network.
We still think it was a smart decision for the long haul. We truly believe we can do well in the market.
Brown University Health hopes to bring in another 30 to 40 primary care providers across Rhode Island, along with new hires in Massachusetts, Markell said.
Other upcoming investments include continued infrastructure upgrades, including the launch of a major renovation project at Rhode Island Hospital. The first phase of the renovation project relies on proceeds from a $300 million bond sold in the second quarter of 2024. But the bulk of the work, planned over the course of the next decade, hinges upon future financial results.
“Right now, we feel very positive about that,” Markell said Thursday.
Fernandez wrote in the July 29 memo that the project “has been revised,” but did not specify what had changed. The health system has also committed to keeping open through fiscal 2026 its behavioral health care services through Gateway Healthcare, and the Samuel Sinclair Dental Center, which provides dental care to children and people with special needs.
However, the staple behavioral and dental care programs will be eyed for “greater operational efficiencies,” Fernandez wrote.
Beyond the bottom line
It’s not just finances that are a concern. Markell stressed the need to evaluate programs for safety, efficiency and high-quality patient care.
Does it make sense to devote resources to a Newport Hospital birthing center with 400 births a year?
“We’re going to give it a good, hard look,” Markell said of the birthing center’s future. “There’s no magical date on when we’re going to make a decision.”
But the company will need to find money somewhere as it looks to raise its target operating margin in fiscal 2026, likely to 6%, Markell told investors.
A 3% operating margin has been the longstanding performance target, but it remained elusive for most of the last decade. In fiscal 2025 to date, the company reported a 1% operating margin, with enough cash on hand to sustain operations across its network for 103 days.
Quarterly net income was $48.7 million, up $13.3 million from a year ago, driven by a boost in investment income. Total quarterly revenue was $1.1 billion, up from $873 million a year ago.
In Rhode Island, the increase stemmed from higher patient revenues, primarily on the outpatient side, which rose 7.3% to $781.8 million in the third quarter of 2025, thanks to a better payor and rate mix. Quarterly income from its pharmacy line spiked more than 51% year-over-year, driven by expanded eligibility under the federal 340B program, and company incentives for employees to fill prescriptions through its own pharmacy.
However, costs soared faster than revenue coming in. Quarterly expenses were up across the board in compensation and benefits, supplies, purchased services, and licensing fees for a total of $1.2 billion, compared with $861.5 million in costs in the third quarter of 2025.
Brown Health ended the quarter with $2.2 billion in net assets, adding $76 million to its balance sheet during the quarter, reflecting rising net income and gains on investments.
Across all five Rhode Island hospitals, there were 14,370 discharges in the third quarter of 2025, with an average length of stay just over six days. The two Massachusetts hospitals reported 3,807 discharges, with average stays lasting 5.7 days.
This story was originally published by the Rhode Island Current.
