Partners HealthCare today reported operating income of $131 million (3.9% operating margin) in the second quarter of fiscal year 2019, which ended on March 31. Health care provider activity generated operating income of $136 million (see Provider Activity) and insurance activity (AllWays Health Partners) generated an operating loss of $5 million (see Insurance Activity). In the comparable 2018 quarter, Partners reported income from operations of $69 million (2.1% operating margin), including $59 million from provider activity and $10 million from insurance activity.

 

As an integrated health care system, and as part of ourPartners 2.0effort to increase the value we deliver, we are continuously improving upon our efforts to treat less complex cases in community settings, allowing us to better ensure that Mass General and Brigham and Women’s have the capacity to treat the sickest patients. Simply put, it is better for the patient, it is a more efficient way to deliver care, and it has helped strengthen our operating results these past few quarters. Additionally this quarter, favorable market conditions enabled us to recover the non-operating losses we experienced during the first quarter. The transition resulting from the retirement of Dr. David Torchiana as the President and CEO of Partners to Dr. Anne Klibanski as Interim President and CEO has gone extremely well and we expect continued strong execution of the Partners strategy.

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

Partners reported an overall gain of $623 million in the 2019 second quarter, including a non-operating gain of $492 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. 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. In the 2018 second quarter, Partners reported an overall gain of $158 million, including a non-operating gain of $89 million.

Health Care Provider & Other Activity (Provider Activity)

Provider activity generated operating income of $136 million (4.2% operating margin) in the second quarter of 2019 and $59 million (2.0% operating margin) in the second quarter of 2018. The 2019 quarter includes activity for Mass Eye & Ear (MEE), which joined Partners on April 1, 2018.

Revenue for provider activity increased $312 million (11%, including 4% or $106 million for the addition of MEE) to $3.2 billion in the 2019 second quarter. Net patient service revenue increased $221 million (10%) to $2.5 billion, primarily reflecting higher patient acuity, growth in utilization of certain services and rate increases. Research revenue increased $41 million (9%) to $504 million. Other operating revenue, excluding patient care and research revenue, increased $50 million (29%) to $222 million, reflecting activity for our new specialty pharmacy business ($27 million).

Operating expenses attributable to provider activity increased $235 million (8%, including 4% or $110 million for the addition of MEE) to $3.1 billion in the 2019 second quarter. Employee compensation and benefits increased $121 million (8%) to $1.7 billion. Supplies and other expenses increased $79 million (11%) to $778 million reflecting pharmaceuticals ($40 million, 29%, including costs related to our new specialty pharmacy) and medical supplies ($14 million, 11%). Depreciation and interest expense increased $5 million (3%) to $214 million.

Insurance Activity

Insurance activity resulted in an operating loss of $5 million (-2.6% operating margin) in the 2019 second quarter compared to an operating gain of $10 million (2.5% operating margin) in the 2018 second quarter.

Premium revenue decreased $218 million (-53%) to $197 million and medical claims expense decreased $190 million (-52%) to $177 million in the 2019 second quarter. AllWays’ medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 90.0% in 2019 and 88.4% in 2018. The anticipated decline in premium revenue and medical claims expense is primarily related to the restructuring of the MassHealth program by the Commonwealth of Massachusetts (effective March 1, 2018). As of March 31, 2019, approximately 48% of AllWays’ 240,459 members were in fully insured plans and 52% were in self-insured plans (including approximately 100,000 Partners employees and family members).

"With Massachusetts’ MassHealth transition complete, AllWays Health Partners is focused on sustaining its successful commercial growth in the coming year as they continue to roll out innovative products and offer employers technology-based solutions to administer employee health plans,"said Markell.

General and administrative costs decreased $5 million (-14%) to $32 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 12.1% from 8.9% in 2019 relating to the shift in membership composition.

Year-to-Date Consolidated Results

Partners reported income from operations of $270 million (4.0% operating margin) for the six months ended March 31, 2019. Provider activity generated operating income of $279 million (4.3% operating margin) and insurance activity generated an operating loss of $9 million (-2.2% operating margin). In the comparable prior year period, Partners reported income from operations of $184 million (2.8% operating margin), including $135 million (2.3% operating margin) from provider activity and $49 million (4.9% operating margin) from insurance activity.

Total operating revenue increased $124 million (2%) to $6.8 billion for the six months ended March 31, 2019. Total operating expenses increased $39 million (1%) to $6.5 billion, as increases in wages and benefits ($232 million, 7%), supplies and other expenses ($165 million, 11%) and depreciation and interest ($11 million, 3%) were largely offset by a decline in medical claims ($425 million, -61%).

For the six months ended March 31, 2019, Partners absorbed $696 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, comparable to the $703 million shortfall absorbed in the same 2018 quarter.

Partners reported an overall gain of $160 million for the six months ended March 31, 2019, including a non-operating loss of $110 million. The 2019 period reflects the impact of new accounting rules which require all investments to be measured at market value. In the comparable 2018 six-month period Partners reported an overall gain of $479 million, including non-operating gains of $295 million.

 

Partners in the Community

With a research enterprise of $1.7 billion, Partners is the country’s largest biomedical research organization in the country. Earlier this month, Partners hosted the World Medical Innovation Forum and convened nearly 2,000 global health leaders to showcase the latest advances in the evolving discipline of artificial intelligence. The event brought together industry-leading CEOs and clinical and research leaders for in-depth panel discussions on the role machine learning, technology and data will play in advancing medical discoveries and the transformative impact these advances will have on patients and clinicians.

The deliverables from the Forum will not only drive advances in innovation and better patient care world-wide, they will also continue to stimulate economic growth for the region. In addition to enabling critical advancements in medicine and patient care, to date, research at Partners institutions has led to the creation of more than 280 spin-off companies, 150 of which are located in Massachusetts. To learn more about research at Partners, click here and to see videos from the World Medical Innovation Forum, click here.