Even this premier academic center is experiencing a reduced volume of inpatient discharges, signaling to pathologists that efforts to keep people out of hospitals are succeeding

What does it mean when a prominent healthcare system like Partners HealthCare of Boston, Massachusetts, reports a decline in revenue and operating profit? After all, as one of the nation’s premier academic health centers, it is reasonable to expect that it would enjoy strong demand for its inpatient and outpatient services.

That is why pathologists and clinical laboratory managers will find it interesting that Partners experienced a decline in patient volumes during its second quarter ending March 31, 2014. Similar to other hospitals throughout the nation, fewer inpatients are showing up at hospitals operated by Partners HealthCare.

4.5% Decline in Inpatient Discharges during Second Quarter 2014

Partners experienced a 4.5% decline in same-facility inpatient discharges in QTR2 2014, compared to QTR2 2013. Similarly, Partners reported a 1.6% drop in outpatient visits during that same period.

Partners has made several recent strategic acquisitions on the provider and insurance sides of its business. The health system reported a drop in income due to losses in both of these divisions.

Not only did patient volumes decrease, but Partners also saw decreases in operating profit. On the provider side, operating profit declined to $13 million in the second quarter, ending March 31. This compares to $33 million in operating income in QTR2 2013, according to a story published by Modern Healthcare.

Operating Income at Partners HealthCare Fell to $3 Million

A gain of $13 million in operating profit on the hospital side was offset by a $10 million loss on the health insurance affiliate side of business. This left the Partners system with an operating income of just $3 million, noted a story published by the Boston Globe.

The health system’s data suggests a tough financial environment, even for prestigious medical centers that have diversified in response to myriad market forces. Medical laboratory professionals will be interested to learn how several factors played a role in the changed financial performance of Partners.

Substantial Expenses Associated with Use of New HCV Drug Therapy

Digging deep into recent quarterly data on the health insurance business operated by Partners Healthcare’s, financial analysts found that $6 million in payouts for the hepatitis C drug, Solvaldi, made up the largest portion of Partners’ loss.

The Boston Globe reported that this drug costs $1,000 a pill—or about $84,000 for a typical course of treatment. It is given to people served by the Partners-owned Neighborhood Health Plan (NHP).

Partners acquired NHP in September 2012. It is a not-for-profit health insurance plan that provides coverage to more than 300,000 commercial and MassHealth members, according to its Website. The $10-million loss on the insurance side this year compares to an $8 million gain Partners made last year on insurance activity, Modern Healthcare noted.

Bottom line? Partners’ operating margin (revenues minus expenses) was 0.1% as compared to 1.6% last year.

Peter K. Markell

Peter K. Markell (pictured above) is Chief Financial Officer at Partners HealthCare in Boston. He told newspaper reporters that Partner’s poor second-quarter financial performance was due to the “tough environment in healthcare right now.” Partners was founded by Brigham and Women’s Hospital and Harvard-affiliated Massachusetts General Hospital. The 12-hospital system also includes in its care continuum: a managed-care organization, physician network, community health networks, home-health services and long-term care services. (Photo copyright by Boston Business Journal.)

“It’s obviously a disappointment. It’s a tough environment in healthcare right now. The level of revenue rate increases that people can get versus the pressure of wage increase is going to be a challenge for a couple of years,” stated Peter K. Markell, Chief Financial Officer for Partners, in the Boston Globe story.

Decline in Outpatient Encounters Include Clinical Laboratory Services

The health system also reportedly posted declines in outpatient encounters. These included clinical laboratory services and minor procedures. Similarly, its affiliated hospitals saw fewer observation and emergency patients, according to published sources.

Government payers accounted for 45% of gross patient services in the second quarter for Partners. Moreover, the health system had to pay $17 million from shortfalls in Massachusetts’ Health Safety Net Trust Fund, Modern Healthcare said.

Partners Operates in Massachusetts’ Unique Health Insurance Marketplace

According to the Boston Globe, Partners faced lower than expected Medicaid reimbursement and increased administrative costs associated with enrolling newly insured individuals through the Massachusetts Health Connector.

Dark Daily readers know that, nationally, the number of inpatient admissions has declined for several years in a row. Experts attribute this to the shift of care from inpatient to outpatient settings (See Dark Daily, “Falling Inpatient Revenues at Many Hospitals Is Sign of Healthcare’s Transition to New Models of Integrated Clinical Care and Changes in Medical Laboratory Test Utilization,” January 27, 2014.)

Thus, the reduced inpatient admissions at premier academic centers—like the hospitals operated by Partners HealthCare—demonstrate that the inpatient-to-outpatient shift is a well-established trend in Massachusetts. Pathologists and clinical laboratory administrators should incorporate Partners’ performance data into their own strategic planning, since growth in outpatient procedures will exceed that of inpatient procedures in coming years.

—by Donna Marie Pocius

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