Partners HealthCare today reported operating income of $484 million (3.5% operating margin) in fiscal year 2019, which ended on September 30, 2019.  Health care provider activity generated operating income of $511 million (see Provider Activity) and insurance activity (AllWays Health Partners) generated an operating loss of $27 million (see Insurance Activity).  In 2018, Partners reported income from operations of $310 million (2.3% operating margin), including operating income of $273 million from provider activity and $37 million from insurance activity.

“Our primary areas of focus – the delivery of the best patient care possible and the pursuit of new cures through research – helped deliver very strong operating results for our system.  The results are a testament to the hard work, dedication and compassion of our 75,000 employees,” said Peter K. Markell, Chief Financial Officer and Treasurer at Partners HealthCare. “Next year, as we begin to implement our new strategy under the Mass General Brigham brand, we will continue to execute on efforts to manage our overall efficiency and improve the patient experience through major investments in digital health and new, more convenient ambulatory locations.”

For the year ended September 30, 2019, Partners absorbed $1.6 billion in Medicare, Medicaid, and Health Safety Net shortfalls due to government reimbursements that fell short of covering the full cost of providing care to Medicare, low-income, and uninsured patients, an increase of $120 million (8%) over the shortfall experienced in 2018.

Partners reported an overall gain of $486 million in 2019, including a non-operating gain of $2 million. Non-operating activity includes gains and losses on investments and interest rate swaps, which can vary significantly year to year due to volatility in the financial markets, and philanthropic and other activity. In 2018, Partners reported an overall gain of $827 million, including a non-operating gain of $517 million. The 2018 non-operating gain reflects the net impact ($157 million) of Mass Eye & Ear joining Partners on April 1, 2018. Accounting rules require the fair value of acquired net assets to be recognized as non-operating gains.

Health Care Provider & Other Activity (Provider Activity)
Provider activity generated operating income of $511 million (3.8% operating margin) in 2019 compared with $273 million (2.2% operating margin) in 2018. Revenue for provider activity increased $1.2 billion (10%), to $13.3 billion in 2019. This includes $212 million (2% of the increase) for an additional six months of Mass Eye & Ear activity in 2019 (results for Mass Eye & Ear are incorporated as of April 1, 2018).  Net patient service revenue increased $813 million (9%) to $10.3 billion (including revenue received by Partners providers from AllWays Health), reflecting higher patient acuity, growth in utilization of certain services and rate increases. Research revenue increased $151 million (8%) to $2.1 billion, reflecting growth in government-sponsored and corporate-sponsored research activity. Other operating revenue, excluding patient care and research revenue, increased $212 million (29%) to $952 million, primarily due to specialty pharmacy revenue, royalty income and intellectual property revenue.

Operating expenses attributable to provider activity increased $938 million (8%) to $12.8 billion in 2019. This includes $219 million (2% of the increase) for an additional six months of Mass Eye & Ear activity in 2019. Employee compensation and benefits increased $491 million (8%) to $7.1 billion, including increases in health claims ($37 million, 6%) and costs associated with a voluntary retirement offering to certain community hospital employees during the 2019 fourth quarter ($32 million). Supplies and other expenses increased $325 million (11%) to $3.3 billion reflecting increases in clinical supplies ($223 million, 19%) which includes an increase in system-wide pharmaceutical costs (inclusive of specialty and retail pharmacy costs), as well as implants, blood products and routine medical supplies. Depreciation and interest expense increased $13 million (2.0%) to $866 million.

Insurance Activity
Insurance activity resulted in an operating loss of $27 million (-3.3% operating margin) in 2019 and an operating gain of $37 million (2.6% operating margin) in 2018. The 2019 operating loss reflects ongoing challenges in implementing the MassHealth ACO program, achieving targeted profitability of the individual lines of business, and an elevated administrative expense ratio due to smaller scale. Underwriting margins in group commercial activity remain strong.

Premium revenue decreased $631 million (-44%) to $794 million and medical claims expense decreased $531 million (-43%) to $718 million in 2019. AllWays Health’s medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 90.4% in 2019 and 87.6% in 2018. The decline in premium revenue and medical claims expense is primarily related to the anticipated conversion of select commercial business from fully-insured to self-insured (administrative services only) status. As of September 30, 2019, approximately 47% of AllWays Health’s 237,516 members were in fully-insured plans and 53% were in self-insured plans (including approximately 100,000 Partners employees and family members).

“AllWays Health Partners remains focused on growing its commercial business as it continues to develop and introduce innovative products into the marketplace,” said Markell.  “At the same time, the transition to the MassHealth Accountable Care Organization model, which the state implemented in 2018, has created challenges as AllWays strives to align its administrative expense base with a smaller revenue base.” 

General and administrative costs decreased $15 million (-11%) to $126 million in 2019. However, the administrative expense ratio (the percentage of insurance premiums that are used to pay general and administrative expenses) increased to 12.3% in 2019 from 9.4% in 2018.

Fourth Quarter Consolidated Results
Partners reported income from operations of $34 million (1.0% operating margin) for the quarter ended September 30, 2019. Provider activity generated operating income of $47 million (1.4% operating margin) and insurance activity generated an operating loss of $13 million (-6.7% operating margin). In the comparable prior year quarter, Partners reported income from operations of $35 million (1.1% operating margin), including operating income of $42 million (1.3% operating margin) from provider activity and an operating loss of $7 million (-3.4% operating margin) from insurance activity.

Total operating revenue increased $263 million (8%) to $3.6 billion for the three months ended September 30, 2019, as growth in provider revenue ($286 million, 9%, including revenue received by Partners providers from AllWays Health) was partially offset by a decline in insurance revenue (-$8 million, -4%).  Total operating expenses increased $263 million (8%) to $3.5 billion, as increases in wages and benefits ($150 million, 9%, including $32 million for the voluntary retirement offering), supplies and other expenses ($87 million, 11%) and depreciation and interest ($3 million, 1%) were partially offset by a decline in medical claims (-$7 million, -5%).

Partners reported an overall loss of $28 million for the quarter ended September 30, 2019, including a nonoperating loss of $62 million. In the comparable 2018 quarter Partners reported an overall gain of $148 million, including nonoperating gains of $113 million.

Investing in Research and Innovation
Partners HealthCare is one of the nation’s largest research enterprises and last month, announced the creation of two new investment funds aimed at addressing the lack of translational funding in pre-clinical life sciences, Artificial Intelligence (AI) and digital technology development. The funds will support ventures that develop new drugs and technologies based on inventions originating from Partners researchers and investigators as well as companies who will work with Partners institutions to develop digital solutions. The investments will accelerate the application of medical research, enabling patients to more quickly benefit from life-changing breakthroughs and at the same time help to fuel the life sciences and digital health industries throughout the region.