Blue Cross and Blue Shield of Massachusetts lost $119 million from operations in 2014 with the costs of hepatitis C drugs and other specialty medications contributing to the higher-than-expected loss.
The not-for-profit insurer also was hurt by higher local tax payments and fees associated with the Affordable Care Act, according to its financial documents (PDF).
Many in the health insurance industry view Blue Cross and Blue Shield of Massachusetts as being in the vanguard for value-based care. It is one of four payers that started that Health Care Transformation Task Force in January, a private partnership of healthcare companies that has vowed to shift more payments to models that reward lower costs and higher quality care instead of volume.
The Massachusetts Blues is best known for its alternative quality contract, a model that pays providers a global, capitated budget. Sixty-four quality measures factor into providers' payments. About half of the insurer's commercial business uses those contracts.
Despite the progress in value-based payment arrangements, 2014 presented several challenges for the insurer, which covers 2.8 million people. Massachusetts Blues Chief Financial Officer Allen Maltz said in a release that the insurer expected an operating loss “so that we could keep premium increases as low as possible.”
But, like other health insurers, the Massachusetts Blues did not expect its outlays for pharmaceuticals to become as costly as they did last year. The insurer recorded $1.5 billion in 2014 on pharmacy spending; one-third of that total went toward specialty drugs. Yet, specialty drugs only account for 1% of its commercially insured prescriptions. Spending on pricey hepatitis C drugs like Sovaldi was 10 times higher in 2014 than in 2013, Blue Cross said.
“Specialty medications rose by more than 30% last year … and costs are expected to continue to increase,” the insurer said in an e-mail statement. The Massachusetts Blues did not say if it had secured a discount with a hepatitis C drugmaker, a move several other insurers have made to mitigate costs.
The insurer also paid more than $286 million in federal, state and municipal taxes and assessments in 2014, up 59% from $180 million in 2013. Of that total, $120.6 million was associated with various ACA fees, such as the annual insurance tax that is helping to pay for the law's premium subsidies. The Massachusetts Blues predicts taxes and assessments will be even higher in 2015.
It recorded a $119 million operating loss on $6.5 billion in revenue, a -1.8% operating margin. When factoring in investments and other income, the insurer posted an $8 million surplus in 2014.
Follow Bob Herman on Twitter: @MHbherman