Operating income declines at Partners HealthCare amid deeper cuts from public payers

Third-quarter operating income fell 16 percent at Partners HealthCare System, the state’s largest hospital and doctors organization, amid intensifying cutbacks from public payers such as Medicaid and Medicare, the government insurance programs for low-income residents and senior citizens.

But even as its operating margin narrowed to 3.7 percent in the April-to-June period, from 5 percent in the same quarter last year, Partners chief financial officer Peter K. Markell said the health care system remains confident it can maintain a margin—the share of revenue after expenses—of between 2 and 4 percent going forward.

“Obviously, there’s more pressure on revenue this year, particularly from the public payers,” Markell said. With government health reimbursements often not covering the full cost of health procedures, he said, “our focus has really evolved to managing total medical expenses” through better coordinating care to reduce emergency room visits and admissions.

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Partners on Friday posted operating income of $97.4 million for the three months ending June 30, compared with $116 million a year ago. Neighborhood Health Plan, the Medicaid-managed care insurer Partners acquired last year, contributed $8 million to income in the most recent quarter.

While operating income dropped, third-quarter net income for Partners, which owns Massachusetts General and Brigham and Women’s hospitals in Boston, climbed 17 percent to $69.4 million from $59.1 million last year. That’s because its non-operating loss on investments narrowed to $27.9 million in the most recent quarter from $56.8 million a year earlier.

Partners has been losing money in recent years on its purchases of swaps—derivatives used to bet on the direction of interest rates. Investments in those complicated financial instruments were made as a hedge against potential declines in stocks, bonds, and other holdings in its portfolio.