Partners HealthCare reported a 62.7% increase in its operating surplus in its fiscal year's first quarter, but the Boston-based system said its insurance division is still suffering from inadequate payment rates.
Losses in the Neighborhood Health Plan division vexed Partners throughout fiscal 2014and dragged down its operating surplus. Newly insured adults that gained coverage through MassHealth, the state's insurance program for low-income adults, have had higher medical claims than state actuaries had projected when they set reimbursement rates, the system said.
As a result, the Neighborhood Health Plan division's medical-claim expenses increased 37% year over year in the quarter ended Dec. 31. The system, however, had set aside a $92 million reserve last year that helped soften the blow and avoid an operating loss.
Most of the growth in the insurance division came from a 24% increase in membership, which helped boost premium revenue 28%.
The challenges in the insurance division contributed to a credit-rating downgrade last month from Moody's Investors Service.
Yet the 12-hospital system—which includes flagships Massachusetts General Hospital and Brigham and Women's Hospital—saw an improvement in its acute-care division during the quarter. Patient service revenue increased 3.8% as inpatient discharges increased 2.5%. Emergency room visits increased 4.1% and patients at both its medical and academic hospitals came in with higher acuity conditions.
However, Partners said that it absorbed a $298 million shortfall in Medicare, Medicaid and state Health Safety Net payments in the quarter ended Dec. 31. That number was 4% higher than in the prior-year period as government payers grew to account for about 50% of its patient service revenue, the system reported.
Still, its operating margin increased to 2.6% from 1.7% in the prior-year period. The system reported an operating surplus of $74.1 million on revenue of $2.8 billion for the quarter compared with the comparable period's $45.5 million operating surplus on $2.6 billion in revenue.
Partners earlier this month named a new CEO to replace Dr. Gary Gottlieb. The system promoted an internal candidate, Dr. David Torchiana, who currently leads the Massachusetts General Physician Organization and will be tasked with turning around the system's financial performance.
In addition, Partners has been rethinking its expansion strategy after a judge shot down a deal that would have allowed it to buy three suburban hospitals—a move that was highly opposed by insurers and its competitors.
Follow Beth Kutscher on Twitter: @MHbkutscher