BOSTON, MA – Partners HealthCare today reported operating income of $138 million (4.1% operating margin) in the first quarter of fiscal year 2019, which ended on December 31, 2018. Health care provider activity generated operating income of $142 million (see Provider Activity) and insurance activity (AllWays Health Partners, formerly Neighborhood Health Plan) generated an operating loss of $4 million (see Insurance Activity). In the comparable 2018 quarter, Partners reported income from operations of $115 million (3.4% operating margin), including operating income of $77 million from provider activity and $38 million from insurance activity.

This is one of the strongest quarters we have experienced in quite a while, enabled by the collaborative efforts of the Mass General, Brigham Health and the rest of our hospitals and physician organizations through our Partners 2.0 initiative and other efforts to grow revenue, manage expenses and deliver more efficient clinical care.

It is a strong start to the fiscal year, and we expect that these collaborative efforts will continue to deliver strong operating results over the next three quarters.

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

In the first quarter of fiscal 2019, Partners absorbed $334 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, low-income, and uninsured patients, a decrease of $47 million (12%) compared to the shortfall absorbed by Partners in the comparable 2018 quarter.

Partners reported an overall loss of $463 million in the 2019 first quarter, including a non-operating loss of $601 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. The 2019 quarter also reflects the impact of new accounting rules which require all investments to be measured at market value; under prior rules, a portion of Partners investments were measured at cost. While not included in the operating results this change in accounting increased unrestricted net assets by $1.1 billion. In the 2018 first quarter, Partners reported an overall gain of $322 million, including a non-operating gain of $207 million.

Health Care Provider & Other Activity (Provider Activity)

Provider activity generated operating income of $142 million (4.4% operating margin) in the 2019 first quarter and $77 million (2.6% operating margin) in the 2018 first quarter. The 2019 quarter includes activity for Mass Eye & Ear (MEE), which joined Partners on April 1, 2018.

Revenue for provider activity increased $308 million (11%) to $3.2 billion in 2019. Net patient service revenue increased $228 million (10%) to $2.5 billion, reflecting higher patient acuity, growth in utilization of certain services and the inclusion of MEE ($83 million, 4%). Research revenue grew $37 million (8%), including $13 million (3%) for MEE, to $499 million. Other operating revenue, excluding patient care and research revenue, increased $42 million (26%) to $207 million, reflecting activity for our new specialty pharmacy business ($25 million) and MEE ($10 million).

Operating expenses attributable to provider activity increased $242 million (9%, including 4% or $109 million for the addition of MEE) to $3.1 billion in the 2019 first quarter. Employee compensation and benefits increased $119 million (8%) to $1.7 billion. Supplies and other expenses increased $91 million (13%) to $795 million, reflecting continued pressure on costs for pharmaceuticals ($35 million, 24%) and medical supplies ($10 million, 13%). Depreciation and interest expense increased $5 million (3%) to $215 million. Insurance

Insurance Activity

Insurance activity resulted in an operating loss of $4 million (-1.8% operating margin) in the 2019 first quarter compared with an operating gain of $38 million (6.6% operating margin) in the comparable 2018 quarter.

Premium revenue decreased $379 million (-66%) to $199 million and medical claims expense decreased $333 million (-66%) to $172 million in the 2019 first quarter. AllWays’ medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 86.6% in 2019 and 87.4% in 2018. The significant decline in premium revenue and medical claims expense is a result of a significant decline in Mass Health membership (192,686, -85%) related to the restructuring of the Mass Health program by the Commonwealth of Massachusetts.

General and administrative costs decreased $2 million (-5%) to $33 million in the 2019 quarter. The administrative expense ratio (the percentage of insurance premiums that are used to pay general and administrative expenses) increased to 14.3% from 5.9% in 2018, relating to the shift in membership composition.

“On January 1, AllWays Health Partners successfully took on the administrative support role for more than 100,000 Partners employees and family members,” said Markell. “The transition was a big undertaking and it has gone as smoothly as one could hope for. Our employees are already benefiting from some of the innovative and tailor-made benefit designs that AllWays Health Partners delivers.”