BOSTON, MA – Partners HealthCare today reported operating income of $115 million (3.4% operating margin) in the first quarter of fiscal year 2018, which ended on December 31. Health care provider activity generated operating income of $77 million (see Provider Activity) and insurance activity (Neighborhood Health Plan or NHP) generated operating income of $38 million (see Insurance Activity). In the comparable 2017 quarter, Partners reported a loss from operations of $17 million (-0.5% operating margin), including breakeven performance from provider activity and a loss from insurance activity of $17 million.

Total operating revenue increased $201 million (6%) to $3.4 billion in the first quarter of fiscal 2018 as growth in provider activity was partially offset by a decline in insurance activity (-$67 million, -10%). Total operating expenses increased $69 million (2%) to $3.3 billion, reflecting increases in wages and benefits ($82 million, 5%) and supplies and other expenses ($53 million, 8%), and a reduction in medical insurance claims ($104 million, 21%).

“We experienced strong first quarter results, driven by volume growth, new efficiencies realized through our Partners 2.0 initiative, and greatly improved performance at Neighborhood Health Plan. Our challenge through the fiscal year will be to continue executing on our growth and efficiency plans so that we are able to make investments in patient care, research and teaching on behalf of our patients.”

Peter K. Markell Chief Financial Officer and Treasurer for Partners HealthCare

In the first quarter of fiscal 2018, Partners absorbed $382 million in Medicare, Medicaid, and Health Safety Net shortfalls due to government reimbursements that failed to pay the full cost of providing care to Medicare, MassHealth, and uninsured patients, an increase of $29 million (8%) over the shortfall absorbed in the comparable 2017 quarter.

Partners reported an overall gain of $242 million in the 2018 first quarter, including a non- operating gain of $127 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 activity. In the 2017 first quarter, Partners reported an overall gain of $160 million, including a non-operating gain of $177 million.

Health Care Provider & Other Activity (Provider Activity)
Provider activity generated operating income of $77 million (2.6% operating margin) in the first quarter of 2018, including $5 million generated by Wentworth-Douglass Health System (Dover, NH), which joined the Partners system on January 1, 2017. In the first quarter of 2017, provider activity resulted in breakeven results (0.0% operating margin).

Revenue for provider activity increased $256 million (10%) to $2.9 billion in the 2018 first quarter. Net patient service revenue increased $216 million (10%) to $2.3 billion, reflecting the inclusion of Wentworth-Douglass ($94 million or 5%) and overall growth in same-facility inpatient and outpatient activity. Research revenue increased $30 million (7%) to $462 billion, driven by growth in government-sponsored and corporate-sponsored research activity. Other operating revenue, excluding patient care and research revenue, increased $10 million (7%) to $165 million.

Operating expenses attributable to provider activity increased $180 million (7%) – including $92 million (3%) from Wentworth-Douglass – to $2.9 billion in the 2018 first quarter. Employee compensation and benefits increased $83 million (6%) to $1.6 billion. Supplies and other expenses increased $58 million (9%) to $703 million, reflecting higher costs for pharmaceuticals and clinical supplies ($22 million, 9%) and an increase in the state assessment to help fund the state’s Medicaid program ($7 million, 17%). Depreciation increased $14 million (9%) to $164 million and interest expense increased $1 million (3%) to $46 million.

Insurance Activity
Insurance activity resulted in an operating gain of $38 million (6.6% operating margin) in the 2018 first quarter compared to an operating loss of $17 million (-2.7% operating margin) in the 2017 first quarter. The 2017 results reflect the impact of premium deficiency reserves, which decreased NHP’s loss by $6 million.
Premium revenue decreased $67 million (10%) to $578 million in the 2018 first quarter. NHP’s membership declined by 21% from December 31, 2016 to December 31, 2017, reflecting an agreement that NHP and MassHealth made in October 2016 under which NHP would stop accepting new MassHealth members to give it time to stabilize financial performance after experiencing significant operating losses for several years. As of December 31, 2017, approximately 65% of NHP’s 347,754 members were in MassHealth. As part of the new MassHealth Accountable Care Organization (ACO) program which is expected to launch on March 1, 2018, NHP will participate in the Merrimack Valley ACO which it formed in collaboration with Lawrence General Hospital and the Greater Lawrence Family Health Center. As a result of this transition, NHP’s MassHealth membership is expected to decrease by approximately 200,000 in 2018.

“NHP is generating growth in the commercial marketplace, fueled by the introduction of innovative, employer friendly products and an unyielding attention to customer service. In the coming year, NHP will play a key partnership role with the Commonwealth, Partners’ hospitals and physicians and other providers as the new Medicaid Accountable Care Organization transforms the way care is delivered in Massachusetts.”

Peter K. Markell Chief Financial Officer and Treasurer for Partners HealthCare

Medical claims expense decreased $116 million (-19%) to $505 million in the 2018 first quarter, reflecting the decline in membership and more efficient claims management. NHP’s medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 87.4% in the 2018 quarter and 97.3% in the 2017 quarter, excluding the impact of premium deficiency reserves.

General and administrative costs decreased $7 million (16%) to $35 million in the 2018 first quarter and the administrative expense ratio (the percentage of premiums that are used to pay general and administrative expenses) decreased to 5.9% from 6.4% in the 2017 first quarter.

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 164,000 low-income patients and reported to the Massachusetts Attorney General investments of $223 million through a wide-range of community commitments.

Effective next month, Partners HealthCare has chosen to participate in the MassHealth Accountable Care Organization (ACO) to help solve the care delivery and cost challenges associated with the state’s Medicaid program. Partners will join a select group of organizations in the biggest restructuring of the MassHealth Medicaid program in twenty years. Similar to federal ACO programs, the MassHealth ACO aims to move from a fee-for-service model, where providers are paid for each service, to an accountable care model where care is better coordinated and physicians and other caregivers are rewarded for providing high quality care while keeping costs under a target. As a MassHealth ACO, Partners will provide coverage to more than 100,000 MassHealth patients across the Partners system.