Partners reports operating shortfall

Executives blame the loss partly on reduced state payments for treating the poor. Partners' hospitals have steadily lost money by providing medical care to patients enrolled in state Medicaid and in the free-care program for the uninsured, executives said. The losses grew in the fiscal fourth quarter, which ended Sept. 30, as the number of unemployed patients soared, a situation that continues. In the 2002 fourth quarter, Partners had an operating profit of $20.4 million.

Children's Hospital and CareGroup Healthcare System, which includes Beth Israel Deaconess Medical Center, yesterday reported improved results. State budget cuts either did not hurt them as much, or in CareGroup's case, the hospital chain had sold poorly performing hospitals.

For all of fiscal 2003, Partners recorded a $31.9 million operating profit, on revenue of $4.6 billion, less than half the $70.1 million earned in 2002. Most of Partners losses were concentrated at North Shore Medical Center, which includes Salem Hospital and Union Hospital in Lynn. They serve communities with large numbers of poor residents. While most Partners hospitals made money last year, North Shore Medical Center's losses escalated to $26.9 million in the fourth quarter and $40 million for the year.

"The state has to help out on this," said Peter Markell, vice president for finance at Partners. "You can't say people are entitled to coverage and then not pay for it."

Markell said Partners lost $215 million treating Medicaid and uninsured patients last year because state Medicaid payments cover just 60 percent of the cost of care. Partners largely made up these losses by getting higher payments from private health insurers and cutting expenses, he said.

Partners is negotiating with Tufts Health Plan, Harvard Pilgrim Health Care, and Blue Cross and Blue Shield of Massachusetts to cover an even greater portion of the state shortfall, a solution that would push up health insurance premiums for firms and their workers.

Markell said he expects North Shore to turn around its finances. The medical center laid off administrators and is seeing revenue increase from a new cardiac surgery program.

Ronald Preston, secretary of the Executive Office of Health and Human Services, which oversees Medicaid and the free-care pool, said Partners is still an immensely profitable organization and questioned its assertion that Medicaid covers only 60 percent of the cost of treating its members.

"I know Medicaid rates aren't magnificent, but how they come up with this 60 percent in the vast enterprise they have is very hard for me to figure out," he said. "People need to appreciate that the state has gone through the hardest revenue situation it's had since the Depression. We're doing the best we can, but where do they think we're gong to come up with all this money? They're still in the black."

Hospitals in CareGroup, which have struggled through years of multimillion dollar losses, generally improved their financial performance:

Beth Israel Deaconess cut its operating losses for the quarter, which ended Sept. 30, to $1.4 million from $5 million for the last quarter of 2002. Its losses for the entire fiscal year fell to $14.6 million from $31.3 million in 2002.

New England Baptist Hospital, a CareGroup orthopedic speciality hospital, lost $1.5 million last quarter, compared to $6.1 million a year earlier. The hospital lost $3 million in fiscal year 2003, down from $19.8 million the previous year.

Mount Auburn Hospital in Cambridge continued to be the most financially successful CareGroup hospital. It posted an operating profit of $4.1 million for the fourth quarter of fiscal 2003, compared to $3.7 million for the same period in 2002. For the year, the hospital earned $8.8 million, compared to $7.2 million the prior year.

Children's Hospital also improved its results and saw more patients, despite a highly publicized medical error in May in which a 5-year-old died because his epileptic seizure wasn't treated aggressively. In the fourth quarter, ended Sept. 30, Children's operating profit surged to $4.1 million from $1.2 million a year earlier. Children's earned an operating profit of $29 million in all fiscal 2003, compared to $17 in 2002.

Chief operating officer Sandra Fenwick said the hospital negotiated higher fees with private insurers. And while Children's loses money on Medicaid patients, she said, the state stopped payments to adult hospitals for seriously ill patients hospitalized for more than 20 days. The state kept those payments for pediatric patients.

Liz Kowalczyk can be reached at kowalczyk@globe.com.