Partners HealthCare today reported operating income of $180 million (5.0% operating margin) in the third quarter of fiscal year 2019, which ended on June 30, 2019. Health care provider activity generated operating income of $185 million during the quarter (see Provider Activity) and insurance activity (AllWays Health Partners) generated an operating loss of $5 million (see Insurance Activity). In the 2018 third quarter, Partners reported income from operations of $91 million (2.7% operating margin), including operating income of $96 million from provider activity and an operating loss of $5 million from insurance activity.

We experienced strong financial performance this quarter,” said Peter K. Markell, Chief Financial Officer and Treasurer at Partners HealthCare. “This quarter was particularly strong as a result of a significant one-time royalty payment, continued success through our strategic Partners 2.0 initiative and improved performance in our clinical and research sectors. Our earnings fund investments in patient care programs and capital projects, which enable us to deliver the world-class patient experience that our patients demand and deserve, as well as initiatives that support our research activities and programs that benefit the communities we serve.

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

Partners reported an overall gain of $354 million in the 2019 third quarter, including a non-operating gain of $174 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. In the 2018 third quarter, Partners reported an overall gain of $171 million, including a non-operating gain of $80 million. The 2018 third quarter non-operating gain reflects the net impact ($157 million) 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.

Health Care Provider & Other Activity (Provider Activity)

Provider activity generated operating income of $185 million (5.4% operating margin) in the third quarter of 2019 compared with $96 million (3.0% operating margin) in the third quarter of 2018. Revenue for provider activity increased $270 million (9%) to $3.4 billion in the 2019 third quarter. Net patient service revenue increased $173 million (7%) to $2.6 billion, primarily reflecting higher patient acuity, growth in utilization of certain services and rate increases. Research revenue increased $35 million (7%) to $528 million. Other operating revenue, excluding patient care and research revenue, increased $61 million (31%) to $261 million, reflecting the monetization of future royalty income ($47 million).

Operating expenses attributable to provider activity increased $180 million (6%) to $3.2 billion in the 2019 third quarter. Employee compensation and benefits increased $96 million (6%) to $1.8 billion. Supplies and other expenses increased $61 million (8%) to $836 million reflecting pharmaceuticals ($32 million, 20%) and medical supplies ($15 million, 11%). Depreciation and interest expense were flat at $215 million.

Insurance Activity

Insurance activity resulted in an operating loss of $5 million in the 2019 third quarter (-2.1% operating margin) and a $5 million loss in the 2018 third quarter (-1.9% operating margin).

Premium revenue decreased $21 million (-9%) to $211 million and medical claims expense decreased $13 million (-6%) to $192 million in the 2019 third quarter. AllWays’ medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 90.7% in 2019 and 88.1% in 2018. The decline in premium revenue and medical claims expense is primarily related to the anticipated conversion of select commercial business from fully-insured to self-insured (administrative services only) status. As of June 30, 2019, approximately 48% of AllWays’ 243,124 members were in fully-insured plans and 52% were in self-insured plans (including approximately 100,000 Partners employees and family members).

General and administrative costs decreased $2 million (-4%) to $31 million in the 2019 quarter. The administrative expense ratio (the percentage of insurance premiums that are used to pay general and administrative expenses) decreased to 11.1% in 2019 from 13.3% in 2018.

Year-to-Date Consolidated Results

Partners reported income from operations of $450 million (4.3% operating margin) for the nine months ended June 30, 2019. Provider activity generated operating income of $464 million (4.7% operating margin) and insurance activity generated an operating loss of $14 million (-2.2% operating margin). In the comparable prior year period, which includes results for MEE for the third quarter only, Partners reported income from operations of $275 million (2.7% operating margin), including $231 million (2.6% operating margin) from provider activity and $44 million (3.6% operating margin) from insurance activity.

Total operating revenue increased $382 million (4%) to $10.4 billion for the nine months ended June 30, 2019, as a 10% growth in provider revenue ($890 million including revenue received by Partners providers from AllWays Health) was partially offset by a 49% decline in insurance revenue of $602 million. Revenue for the 2019 period also includes the one-time monetization of future royalty income ($47 million). Total operating expenses increased $207 million (2%) to $9.9 billion, as increases in wages and benefits ($324 million, 7%), supplies and other expenses ($224 million, 10%) and depreciation and interest ($10 million, 2%) were largely offset by a decline in medical claims ($431 million, -51%).

For the nine months ended June 30, 2019, Partners absorbed $1.1 billion in Medicare, Medicaid, and Health Safety Net shortfalls due to government reimbursements that fell short of covering the full cost of providing care to Medicare, low-income, and uninsured patients. This is comparable to the shortfall experienced during the same 2018 period.

Partners reported an overall gain of $514 million for the nine months ended June 30, 2019, including a nonoperating gain of $64 million. In the comparable 2018 nine-month period Partners reported an overall gain of $650 million, including nonoperating gains of $375 million of which $157 million reflects the net impact of MEE joining Partners.

Partners Reaches Scientific Milestone

The Partners Biobank has surpassed 100,000 participants, making it one of the largest biobanks in the country and helping to accelerate clinical research that will allow Partners’ physicians to better understand, treat and prevent diseases in patients now and in the future.      

Researchers and clinicians at Brigham and Women’s Hospital, Massachusetts General Hospital and other Partners institutions use the Biobank to study how genes, lifestyle and other factors affect people’s health and contribute to disease. Through the genotyping of samples, Biobank researchers have also been able to detect potential health issues for participants before any clinical symptoms were present.

Kristine Trudeau from West Springfield, MA was recovering from a double lung transplant when she enrolled in the Biobank. As a nurse, she felt strongly about the importance of participating in something that could help advance medicine and potentially save lives. She didn’t know at the time that it would be her life that would be saved.   

Several months after enrolling in the Biobank, Trudeau was informed that something was discovered in her sample and she was asked to provide an additional sample to confirm the findings. She tested positive for the BRCA-2 gene, meaning that she was at higher risk for developing breast or ovarian cancer. The Biobank encouraged Kristine to meet with a genetic oncologist who recommended that she immediately begin more aggressive monitoring for breast cancer. She is now in remission and credits her participation in the Biobank with helping her to take control of her health as well as her family’s.