Partners records $17.4M operating loss as insurance division continues to struggle

Boston-based Partners HealthCare saw revenue increase in the first quarter of fiscal year 2017, which ended Dec. 31, but ended the period operating in the red.

Partners recorded a nearly 6 percent year-over-year increase in operating revenue, which climbed to $3.2 billion in the first quarter, according to recently released bondholder documents.

Revenue attributable to the system's hospitals and other providers increased to $2.6 billion in the first quarter of FY 2017, up 5 percent from the same period of the year prior. Premium revenue from Neighborhood Health Plan, the system's insurance division, jumped 9 percent year over year to $644 million in the first quarter of FY 2017, reflecting a 7 percent increase in membership.

However, Partners' total operating expenses outpaced revenue growth. The system's operating expenses climbed to $3.2 billion in the first quarter of FY 2017, up 6.7 percent from the same quarter of FY 2016.

Partners said the increase in expenses was due, in part, to a new hospital assessment in Massachusetts. On Oct. 1, Massachusetts imposed a $250 million annual tax on hospitals to help fund MassHealth, the state's Medicaid program. Partners took an $8 million hit on its operating income due to the assessment.

The system said higher pharmaceutical, pension and medical claims expenses also took a toll on its finances in the first quarter of FY 2017.

Partners ended the first quarter with an operating loss of $17.4 million, compared to an operating gain of $12.8 million in the same period of the year prior. Nearly all of the system's losses came from Neighborhood Health Plan.

Partners has reported significant losses attributable to Neighborhood Health Plan over the past three years due to higher pharmaceutical and medical claims costs associated with its MassHealth business and low reimbursement rates from the state. Partners has taken steps to help its insurance business regain financial footing.

"NHP and the state mutually agreed to a freeze on MassHealth enrollment in October 2016 to give management time to stabilize financial performance after experiencing significant operating losses due to an 80 percent increase in its Medicaid population over the past three years," said Partners Treasurer and CFO Peter K. Markell. "Because of the lag between utilization of services and the processing of claims, it will take some time for the membership freeze to impact NHP's results."

In 2016, Partners posted an operating loss of $108 million, of which $104 million was attributable to Neighborhood Health Plan.

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