BOSTON, MA – Partners HealthCare today reported operating income of $69 million (2.1% operating margin) in the second quarter of fiscal year 2018, which ended on March 31. Health care provider activity generated operating income of $59 million (see Provider Activity) and insurance activity (Neighborhood Health Plan or NHP) generated operating income of $10 million (see Insurance Activity). In the comparable 2017 quarter, Partners reported income from operations of $24 million (0.7% operating margin), including $19 million from provider activity and $5 million from insurance activity.

Total operating revenue decreased $48 million (-1%) to $3.3 billion in the second quarter of fiscal 2018 as growth in provider activity was offset by a decline in insurance activity (-$203 million, -33%). Total operating expenses decreased $93 million (-3%) to $3.2 billion, as increases in wages and benefits ($54 million, 3%) and supplies and other expenses ($20 million, 3%) were offset by a reduction in medical insurance claims (-$170 million, -37%).

This quarter, Partners hospitals and physicians generated reasonably strong revenue growth, primarily driven by increased outpatient volume and the treatment of increasingly complex medical cases at our Academic Medical Centers. Our ongoing Partners 2.0 initiative is helping us better manage expenses with the goal of consistently realizing a 2-3% operating margin. Looking forward, we are excited about the recent addition of Mass Eye and Ear to Partners and the opportunity to enhance access for patients seeking eye and ear services.

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

Partners reported an overall gain of $174 million in the 2018 second quarter, including a non-operating gain of $105 million. Nonoperating 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 second quarter, Partners reported an overall gain of $404 million, including a nonoperating gain of $380 million of which $321 million reflects the net impact of adding Wentworth-Douglass Health System to Partners on January 1, 2017.

Health Care Provider & Other Activity (Provider Activity)
Provider activity generated operating income of $59 million (2.0% operating margin) in the second quarter of 2018 and $19 million (0.7% operating margin) in the second quarter of 2017.

Revenue for provider activity increased $120 million (4%) to $2.9 billion in the 2018 second quarter. Net patient service revenue increased $122 million (6%) to $2.3 billion, reflecting overall growth in inpatient and outpatient activity. Total research revenue was flat at $463 million and other operating revenue, excluding patient care and research revenue, decreased $1 million (-1%) to $172 million.

Operating expenses attributable to provider activity increased $81 million (3%) to $2.9 billion in the 2018 second quarter. Employee compensation and benefits increased $57 million (4%) to $1.6 billion. Supplies and other expenses increased $21 million (3%) to $699 million. Depreciation and interest expense increased $7 million (4%) to $209 million. Direct research expenses declined $4 million (-1%).

Insurance Activity
Insurance activity resulted in an operating gain of $10 million (2.5% operating margin) in the 2018 second quarter compared to an operating gain of $5 million (0.8% operating margin) in the 2017 second quarter. The 2017 results reflect the impact of amortizing premium deficiency reserves, which increased NHP’s operating gain by $19 million.

Premium revenue decreased $203 million (-33%) to $415 million in the 2018 second quarter. NHP’s MassHealth membership declined by 243,591 (-90%) from March 31, 2017 to March 31, 2018, reflecting the impact of freezing MassHealth enrollment with NHP (approximately 25% of the decline) and the transition of members from Medicaid managed care programs into the new MassHealth Accountable Care Organization (ACO) program on March 1, 2018 (approximately 75% of the decline). Under the new program, NHP is partnering with an ACO called My Care Family in Greater Lawrence as well as providing administrative services to 100,000 patients in the Partners ACO. As of March 31, 2018, approximately 80% of NHP’s 138,998 members were in commercial plans.

“This year, Partners teamed up with the Commonwealth of Massachusetts to transform the state’s Medicaid program, launching an Accountable Care Organization (ACO) that will improve care for 100,000 MassHealth patients,” said Markell. “While this statewide initiative has significantly reduced NHP’s Medicaid membership, they remain committed to serving MassHealth members by participating in two ACOs, and have successfully developed and launched new, innovative products in the commercial market, where it has established a solid foundation for growth in the coming years.”

Medical claims expense decreased $205 million (-36%) to $367 million in the 2018 second 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 88.4% in the 2018 quarter and 95.6% in the 2017 quarter, excluding the impact of premium deficiency reserves.

General and administrative costs decreased $4 million (-10%) to $38 million in the 2018 second quarter. The administrative expense ratio (the percentage of insurance premiums that are used to pay general and administrative expenses) increased to 8.5% from 6.6% in the 2017 second quarter, excluding severance accruals of $1.4 million and $1.2 million in the 2018 and 2017 quarters, respectively, relating to reductions in membership.

Year-to-Date Consolidated
Results Partners reported income from operations of $184 million (2.8% operating margin) for the six months ended March 31, 2018. Provider activity generated operating income of $136 million (2.3% operating margin) and insurance activity generated operating income of $48 million (4.9% operating margin). In the comparable prior year period, which includes activity for Wentworth-Douglass Hospital as of January 1, 2017, Partners reported income from operations of $7 million (0.1% operating margin), composed of $19 million (0.4% operating margin) from provider activity and an operating loss of $12 million (-1.0% operating margin) from insurance activity. The 2017 period reflects the impact of amortizing premium deficiency reserves, which decreased NHP’s operating loss by $26 million.

Total operating revenue increased $153 million (2%) to $6.7 billion for the six months ended March 31, 2018, reflecting growth in provider activity ($377 million, 7%) and a decline in insurance activity ($271 million, -21%). Total operating expenses were flat at $6.5 billion, as increases in wages and benefits ($136 million, 4%), supplies and other expenses ($73 million, 5%) and depreciation and interest ($22 million, 6%) were offset by a decline in medical claims ($274 million, -28%).

For the six months ended March 31, 2018, Partners absorbed $703 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 $2.5 million (0.4%) over the shortfall absorbed in the comparable 2017 quarter.

Partners reported an overall gain of $417 million for the six months ended March 31, 2018, including nonoperating gains of $233 million. In the comparable 2017 six-month period Partners reported an overall gain of $564 million, including nonoperating gains of $557 million, of which $321 million reflects the net impact of Wentworth-Douglass joining Partners.

Commitment to Community
This spring, Partners HealthCare, Brigham and Women’s Hospital and Massachusetts General Hospital committed $1 million to Boston's Way Home Fund to help Mayor Walsh's effort in ending chronic homelessness in the city of Boston. The Boston's Way Home Fund, a partnership with Pine Street Inn, has a set goal of raising $10 million over four years, with funds being used to create 200 new units of supportive, sustainable, long-term housing for chronically homeless men and women.

The leaders of Mass. General, Brigham Health, and Partners HealthCare are supporting Mayor Walsh's vision to end chronic homelessness because accessible housing and services are the single most effective way to improve the well-being of homeless individuals. The Mayor's plan is among the most important strategies we can deploy to improve the overall health of the Boston community

Peter L. Slavin, M.D. President of Massachusetts General Hospital