Partners HealthCare posts $22m loss, first in 15 years

Partners HealthCare, the state's biggest health care provider, lost $22 million in the last fiscal year, its first loss in 15 years.

The losses stemmed from the troubled finances at the company's insurance arm, Neighborhood Health Plan, which primarily serves people with low incomes.

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While Partners collected $11 billion in revenues in the fiscal year that ended Sept. 30, it finished the year with operating losses, a significant reversal from the profit of $158 million it earned the previous year.

At Neighborhood, the losses amounted to $110 million. The insurer also booked a loss for $92 million set aside in reserves, as required by state accounting rules. Partners blamed the insurance losses on an influx of new patients, expensive new drugs, and problems with the state's Health Connector, the exchange for individuals buying insurance.

Neighborhood has 330,000 members and primarily serves people on Medicaid, the government health insurance program for the poor. The health plan's struggles are a setback for Partners, which runs 10 hospitals and had framed Neighborhood - which it acquired in 2012 - as a key part of its strategy to create a sweeping, integrated health care network.

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The hospital chain is squeezing the paychecks of workers on the bottom rung.

The Globe reported this week that Partners is considering selling off the insurance business, or finding a new partner to help finance it.

'Partners expected that owning Neighborhood Health Plan would give them a low-cost way to gain experience as a health plan,' said David E. Williams, president of Health Business Group, a Boston consulting firm. 'Instead what they have found is that running a health plan for Medicaid patients is a difficult challenge and not an easy way to make money.'

Partners, the state's highest-cost health system, is also seeking to add to its network community hospitals in Medford, Melrose, and Weymouth.

The challenges Partners is experiencing with Neighborhood are not unique. Other health plans that serve Medicaid patients in Massachusetts have also lost millions this year. Those insurers say the state's rates have failed to keep up with the cost of insuring their members.

In addition, said Peter K. Markell, chief financial officer at Partners, Neighborhood was swamped with nearly 72,000 new members this year, who needed more medical care than expected.

'They were just more acute for whatever reason,' Markell said. 'The question now is does that population revert back to a normal mean or not.That's an open question.'

Health plans have also been overwhelmed with the unexpected costs of covering Sovaldi, a breakthrough drug that treats hepatitis C for $84,000 per treatment.

Neighborhood has the advantage of being owned by a company that has overall healthy revenues and big reserves. That's not the case for other health plans that cover low-income people.

BMC HealthNet Plan, which also serves Medicaid patients, said last week that it would end its contract with Children's Hospital because it could not afford the hospital's high rates. BMC HealthNet lost $43 million in the last fiscal year. Network Health, another Medicaid plan, has also struggled with losses.

The health plans have asked state officials to help alleviate losses by boosting reimbursement rates, but so far, plan executives say, their costs still outweigh the support they receive from the state.

'There's rate inadequacy,' said Lora Pellegrini, chief executive of the Massachusetts Association of Health Plans. 'Where we're headed is really unsustainable for the plans long term.'

Discussions with state officials continue. 'We have had ongoing conversations with [Medicaid plans] about their financial performance, and are working with Neighborhood Health on their specific issues,' said David Kibbe, spokesman for the state Executive Office of Health and Human Services.

Despite the fact that Partners is evaluating its options for Neighborhood, Markell said Partners remains committed to insuring low-income people.

Last month, Neighborhood said it will replace its longtime chief executive, Deborah C. Enos, in February. David Segal, the health plan's chief operating officer, is slated to take the top job there.

The $22 million operating loss at Partners, while the first since 1999, is a blip next to the health system's $11 billion in revenues. Finances at Partners' hospitals and other facilities improved last year, bringing in $180 million, on $9.5 billion revenues. Partners employs about 60,000 people.

'The business is solid, but we've got to keep our focus on the expense side,' Markell said. 'We're really focusing on efficiency.'

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.