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Partners results hurt by charge

By Robert Weisman
Globe Staff / February 12, 2011

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Partners HealthCare System Inc., the state’s largest hospital and physician network, yesterday posted operating income of $22.4 million for its first quarter, down 32.7 percent from the same period a year earlier.

The decline of $10.9 million from Partners’ operating income of $33.3 million in the year-ago period reflected a one-time charge for a planned contribution of $40 million to help reduce health insurance premiums for small businesses in Massachusetts. Partners committed to that payment last year when state rate caps on insurers had inflamed the health care industry. It will make the payments this year.

But the drop in operating income for the three months ended Dec. 31 was more than offset by the increase in its nonoperating income, such as investment gains and licensing fees from patents and intellectual property developed in its hospital labs. First-quarter nonoperating income rose to $145.5 million from $83.8 million the prior year.

Overall, the parent of Massachusetts General and Brigham and Women’s hospitals in Boston reported a first-quarter gain of $167.9 million, compared with $117 million in the corresponding period a year ago.

“It’s a very fluid marketplace right now,’’ said Peter K. Markell, Partners’ vice president of finance. “Doing well in one quarter doesn’t guarantee we’ll do well in the next quarter. But we’re making some progress on the expense side. If we can keep that going, we’re hoping that we can see the rate of increase in expenses trend down.’’

In fact, Partners’ operating expenses, including the costs of labor, pensions, health benefits, and wage increases, climbed 5 percent to $2 billion in the first quarter. But that was less than the 7 percent increase in expenses during the first quarter of the previous year.

The company’s net patient service revenue increased 3 percent to $1.5 billion, even though patient volume remained flat, indicating that its hospitals performed more complex procedures yielding higher payments. Academic and research revenue, meanwhile, increased 11 percent to $368 million, due largely to the windfall from federal stimulus funding of research at Partners’ Harvard-affiliated hospitals.

Markell said the company’s hospitals are working on initiatives to change the way medical care is provided and lower patient costs. Such efforts are gaining traction as the industry awaits Governor Deval Patrick’s payment overhaul legislation.

The legislation is expected to push health care providers and insurers toward a so-called global payment system, where providers would be given an annual budget to cover patients’ care for a year. That would replace the fee-for-service system, where providers have incentives to order unnecessary tests and procedures.

Robert Weisman can be reached at weisman@globe.com.