Partners reports $22m operating loss

Blames Medicaid rates for insurance subsidiary problems

Partners HealthCare on Friday reported an annual operating loss for the first time in 15 years as a subsidiary lost $110 million insuring state Medicaid patients and set aside another $92 million for expected losses in the coming year.

The biggest employer in Massachusetts placed most of the blame for its $22 million operating loss on state regulators for failing to set accurate rates for insurance coverage of Medicaid patients and delays in implementing the Affordable Care Act.

Partners said its Neighborhood Health Plan subsidiary took in 71,709 new adult Medicaid members during the year who “generated substantially higher medical claims than the state actuaries had projected, and on which rates were set.” Overall, Partners said, the insurance subsidiary reported $1.6 billion in revenues and $1.8 billion in expenses. The subsidiary also paid out 105 percent of the income it received in premiums to cover health claims. For the 71,709 new members on Medicaid, the numbers were far worse, with Partners paying out 120 percent of its premium income to cover claims.

The health care giant also said its insurance subsidiary incurred $20 million in unrecovered costs for Sovaldi, a wonder drug approved by the Food and Drug Administration in December 2013 to treat hepatitis C patients. The drug is priced at $1,000 a pill and typically costs $84,000 for a standard course of treatment, which usually results in a cure. Partners said the state did not adjust rates to reflect the cost of the new drug. Partners also said Neighborhood Health Plan lost $11 million in revenue “resulting from the state’s delay in effectively implementing an insurance exchange pursuant to the Affordable Care Act.”

BMC Health Net Plan, an insurance subsidiary of Boston Medical Center, reported a $43 million operating loss for the year ending Sept. 30 for many of the same reasons. A company spokesman said its Sovaldi losses were $19 million and the remaining $24 million in losses came from the Patrick administration’s “Affordable Care Act implementation, or lack thereof.”

The handful of companies who insure state Medicaid patients received a 3.7 percent average increase in rates starting in October, but they said that boost was half of what they needed to break even. Rich Copp, a spokesman for Partners, said the company is talking with state officials about the problem but declined to characterize those negotiations.

“We’re in a process. We’re working with the state to address the rate issues,” he said.

David Kibbe, a spokesman for the executive office of Health and Human Services, confirmed talks are going on with the so-called managed care organizations that provide insurance coverage to Medicaid patients. “We have had ongoing conversations with MCOs about their financial performance, and are working with Neighborhood Health on their specific issues,” he said.

Copp said Partners has not ordered layoffs or other cost-cutting measures at Neighborhood Health Plan to deal with the losses. Officials previously said they are exploring options to address the losses at the insurance subsidiary, including the remote possibility of selling the company.

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Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

State officials could not be reached for comment.

Partners as a whole reported a $22 million operating loss for fiscal 2014, down from a $158 million operating profit the previous year. Partners had not previously reported an operating loss since 1999. Its health care operations, driven primarily by its hospital and physician network, generating operating income of $180 million on $9.5 billion in revenue.

Despite the operating losses, Partners remains strong financially. With $142 million in investment income included, Partners reported a profit of $120 million for fiscal 2014, down from $600 million the year before.