Acquisition grows Partners HealthCare profits amid plans to cut $600M: 4 things to know

Boston-based Partners HealthCare recorded profits of $406 million in the second quarter of fiscal 2017, up from a net loss of $73 million in the same period last year, due largely to the Jan. 1 acquisition of Dover, N.H.-based Wentworth Douglass Health System.

However, with the goal of strengthening operating margins — which hovered at 0.7 percent in the second quarter — Partners HealthCare is rolling out a major cost-cutting initiative called Partners 2.0, it announced in its second quarter financial results. Partners reported $24 million in operating income for the period ending March 31, up 14 percent from $21 million in the same period last year.

"Our hospitals and physician organizations, including recently acquired Wentworth-Douglass hospital, generated strong revenue growth this quarter," Peter Markell, Partners' CFO and treasurer, said in a statement. "But in order to generate stronger operating margins we must streamline structures and processes across our system and re-examine our cost structure … The result will be an updated version of Partners that can compete in a challenging new regulatory, legislative and consumer-driven environment."

Coverage on the initiative from The Boston Globe indicates Partners 2.0, which will slash $600 million from its operating budget over three years, is the largest cost-cutting initiative the system has implemented to-date. The initiative seeks to streamline areas such as revenue collection, supply chain, care delivery and research, according to the report, and will begin October 1. Jobs may also be on the line, but no numbers were reported to The Boston Globe.    

Here are four more things to know about the system's financial performance in the second quarter.

1. Total operating revenue increased $233 million, or 8 percent, to $3.3 billion in the second quarter of 2017 compared to the same period in 2016.

2. Year-to-date net income is $566 million for the six months ending March 31. This is up from the net loss of $110 million Partners recorded for the same period last year.

3. Much of the gain Partners has experienced this quarter is attributable to its acquisition of Wentworth Douglass. The system's second quarter profit of $406 million includes $382 million of non-operating gains. Within that, $323 million, or about 80 percent of the overall gain, is attributable to Wentworth Douglass. Partners signed a letter of intent in April to acquire another out-of-state healthcare system, Providence, R.I.-based Care New England Health System.

4. The health system's insurance arm, Neighborhood Health Plan, is beginning to stabilize. This quarter, insurance activity accounted for $5 million of Partners' operating gain, down about 58 percent from a $12 million operating gain in the same period of 2016. This year's decline is due to an operating loss of $14 million stemming from lower premium revenues and declining membership. The system put a hold on accepting new Medicaid enrollees last fall to help stabilize the NHP after it experienced "significant operating losses for several years," according to the financial statement. Currently about 70 percent of NHP membership is enrolled in a government-sponsored plan.

 

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