Partners HealthCare reported operating income of $310 million (2.3% operating margin) in fiscal year 2018, which ended on September 30, 2018. Health care provider activity generated operating income of $273 million (see Provider Activity) and insurance activity (AllWays Health Partners, formerly Neighborhood Health Plan) generated operating income of $37 million (see Insurance Activity). In 2017, Partners reported income from operations of $53 million (0.4% operating margin), including operating income of $7 million from provider activity and $46 million from insurance activity. 

“Our health care delivery system and our insurance plan exceeded performance expectations, putting us in a stronger position to serve the health care needs of our patients going forward,” said Peter K. Markell, Chief Financial Officer and Treasurer at Partners HealthCare. “While a 2-3% margin is slim compared to our peers across the nation, it enables us to reinvest in patient care and provide for the future capital needs of our hospitals and facilities. Through our Partners 2.0 initiative we will continue to transform ourselves to meet the evolving needs of society. We will work to improve the patient care experience, empower our researchers to find the new treatments and cures of tomorrow, and educate the next generation of doctors, nurses and caregivers.”

In 2018, Partners absorbed $1.4 billion in Medicare, Medicaid, and Health Safety Net shortfalls due to government reimbursements that failed to pay the full cost of providing care to Medicare, low-income, and uninsured patients, equivalent to the shortfall absorbed by Partners in 2017.

Partners reported an overall gain of $827 million in 2018, including a non-operating gain of $517 million of which $157 million reflects the net impact of Mass Eye & Ear (MEE) joining Partners on April 1, 2018. Accounting rules require the fair value of acquired net assets to be recognized as non-operating gains. The remaining non-operating gains ($360 million) reflect improved investment performance, an increase in the market value of interest rate swaps due to higher interest rates as well as philanthropic activity. In 2017, Partners reported an overall gain of $659 million, including a non-operating gain of $606 million, of which $321 million reflects the net impact of the Wentworth-Douglass Health System joining Partners on January 1, 2017 and $285 million reflects investment performance, an increase in the market value of interest rate swaps and philanthropic activity.

Health Care Provider & Other Activity (Provider Activity)

Provider activity generated operating income of $273 million (2.2% operating margin) in 2018 and $7 million (0.1% operating margin) in 2017. MEE contributed $3 million in operating income in 2018. The 2017 results include $88 million in costs associated with a voluntary retirement offering by Brigham Health to certain employees.

Revenue for provider activity increased $857 million (8%) to $12.1 billion in 2018. Net patient service revenue increased $712 million (8%) to $9.5 billion, reflecting higher patient acuity, growth in utilization of certain services and the inclusion of MEE ($238 million or 2%). Research revenue grew $78 million (4%), including $26 million (1%) for Mass Eye & Ear, to $1.9 billion. Other operating revenue, excluding patient care and research revenue, increased $67 million (10%) to $740 million, reflecting pharmacy revenue ($27 million), Medicaid ACO non-patient revenue ($13 million) and activity for MEE ($25 million).

Operating expenses attributable to provider activity increased $592 million (5%, including 2% or $235 million for the addition of MEE) to $11.9 billion in 2018. Employee compensation and benefits increased $255 million (4%) to $6.6 billion. Supplies and other expenses increased $243 million (9%) to $3.0 billion reflecting continued pressure on pharmaceutical costs ($61 million, 11%) and medical supplies ($29 million, 9%). Depreciation and interest expense increased $46 million (6%) to $853 million.

Insurance Activity

Insurance activity resulted in an operating gain of $37 million (2.6% operating margin) in 2018 compared to an operating gain of $46 million (1.8% operating margin) in 2017. The 2017 results reflect the benefit of premium deficiency reserve amortization, which increased AllWays Health Partners’ operating gain by $52 million.

Premium revenue decreased $1.1 billion (-43%) to $1.4 billion in 2018. AllWays’ MassHealth membership declined by 211,912 (-87%) from September 30, 2017 to September 30, 2018, reflecting the expected transition of members from Medicaid managed care programs into the MassHealth ACO program on March 1, 2018. Under the MassHealth ACO program, AllWays is partnering with an ACO called My Care Family in Greater Lawrence as well as providing certain administrative services to approximately 105,000 patients in the Partners Medicaid ACO. As of September 30, 2018, approximately 72% of AllWays’ 117,651 members were in commercial plans.

“Over the course of the past year, AllWays Health Partners has made tremendous strides, announcing a new brand to the marketplace, introducing innovative technologies and health care solutions for its members, taking on a leadership role in the fight against the opioid epidemic and preparing to deliver health plans for more than 100,000 Partners employees and family members on January 1,” said Markell. “They are well positioned to compete and grow in the commercial marketplace in 2019.”

Medical claims expense decreased $1.0 billion (-46%) to $1.2 billion in 2018, reflecting the decline in membership. AllWays’ medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 87.6% in 2018 and 94.0% in 2017, excluding the impact of premium deficiency reserves.

General and administrative costs decreased $15 million (-9%) to $141 million in 2018. The administrative expense ratio (the percentage of insurance premiums that are used to pay general and administrative expenses) increased to 9.4% from 6.3% in 2018, relating to reductions in membership.

Fourth Quarter Consolidated Results

Partners reported income from operations of $35 million (1.1% operating margin) for the three months ended September 30, 2018. Provider activity generated operating income of $42 million and insurance activity generated an operating loss of $7 million. In the comparable prior year period, Partners reported a loss from operations of $4 million (-0.1% operating margin), including a $28 million loss from provider activity and $24 million income from insurance activity. The 2017 fourth quarter results for provider activity reflect $69 million in costs related to Brigham Health’s voluntary retirement offering. AllWays’ 2017 fourth quarter results reflect the benefit of premium deficiency reserve amortization, which increased its operating income by $9 million.

Total operating revenue decreased $97 million (-3.0%) to $3.3 billion for the three months ended September 30, 2018, as growth in provider activity ($222 million, 8%) was offset by a decline in insurance activity (-$375 million, -65%). Total operating expenses decreased $136 million (-4%) to $3.3 billion, as the decline in medical claims expense (-$288 million; -67%) exceeded growth in all other expenses.

Partners reported an overall gain of $148 million for the three months ended September 30, 2018, including a non-operating gain of $113 million. In the comparable 2017 three-month period Partners reported an overall gain of $40 million, including a non-operating gain of $44 million.

Commitment to Community

Serving and investing in the community is a major focus for Partners. In order to improve the health and well-being of our communities, Partners makes targeted, effective investments in three priority areas: access to health care, educational and economic opportunity, and prevention. Last year, Partners served more than 158,000 low-income patients, absorbed $1.4 billion in Medicare, Medicaid, and Health Safety Net shortfalls due to government reimbursements that failed to pay the full cost of providing care and reported to the Massachusetts Attorney General investments of more than $200 million through a wide-range of community commitments. 

Partners HealthCare ranks as the third largest corporate charitable contributor in the Commonwealth as ranked by the Boston Business Journal. Over the course of the past year, Partners has made major financial commitments to RIZE Massachusetts, a non-profit aimed at addressing the opioid epidemic and, with MGH and BWH to Boston's Way Home Fund to help Mayor Walsh's effort in ending chronic homelessness in the city of Boston.