Healthcare Business News

Partners HealthCare blames Medicaid underpayments, Sovaldi for loss in insurance division

By Beth Kutscher
Posted: August 7, 2014 - 3:30 pm ET

Partners HealthCare blamed ongoing underpayments from Massachusetts' Medicaid program for contributing to an $89 million operating loss in its insurance division during the quarter ended June 30.

The Boston-based system, which has both insurance and hospital operations, said the challenges facing Medicaid managed-care organizations offset income growth in its hospital division during its fiscal third quarter.

After adding in non-operating gains, Partners booked a surplus of $46.9 million on $2.8 billion in the quarter compared with a surplus of $69.5 million on revenue of $2.6 billion in the prior-year period.

Partners affiliated with Neighborhood Health Plan to launch its insurance arm in 2012.

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Its third-quarter challenges stemmed from 60,600 MassHealth members who incurred higher medical costs than state actuaries had projected, Partners said in its earnings release. That resulted in Neighborhood paying 111% of the money it received from premiums for medical claims, an increase from 93% in calendar year 2013.

The losses required Partners to set aside $26 million in a deficiency reserve for the second half of the year.

In addition, the state Medicaid program still hasn’t decided whether it would reimburse Medicaid managed-care plans for the cost of Sovaldi, an expensive hepatitis C drug approved in December. Neighborhood incurred $10 million in costs associated with the drug.

Partners also said it lost $4 million in the quarter from the state’s delay in establishing an adequate health insurance exchange.

The challenges offset its 27% growth in health plan revenue, stemming from 27% growth in new health plan members compared with the same quarter last year. Its expenses increased 57% year-over-year.

In its hospital division—which includes flagships Massachusetts General Hospital and Brigham and Women's Hospital—Partners stayed in the black with operating income of $55 million on $2.4 billion in revenue. However, its operating margin declined to 2.3% from 3.9% during the same period last year.

While the 12-hospital system saw a 3% increase in discharges as well as higher acuity patients, it also witnessed a shift toward public payers, which held net patient revenue growth to just 1%. Research revenue declined 1% and expenses rose 2%.

Follow Beth Kutscher on Twitter: @MHbkutscher

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