Partners loses $185m in quarter
Hospital system forced to slow expansion plans
Partners HealthCare Inc., the hospital giant that provides about one-quarter of the medical care in Eastern Massachusetts, said it lost $185 million in its first quarter as a result of big losses in its investments and other financial instruments.
The losses will slow Partners' ambitious five-year program to build and expand facilities and invest in computers and other healthcare information technology.
"While we do not rely on investment income to support our operations, the loss of nonoperating revenue has had a significant effect on our ability to finance our capital spending," said Peter K. Markell, vice president of finance.
Three months ago, Partners said it was shrinking an ambitious five-year building program from $4.5 billion to about $3.2 billion. Going forward, Partners will reevaluate capital spending each quarter, Markell said.
"We're trying to take a long-term view, but we're also trying to preserve capital," said Markell. The most visible construction project is the Building for the Third Century at Massachusetts General Hospital, a 10-story expansion expected to cost $686 million.
In the three months ended Dec. 31, Partners lost $244 million on investments and other financing activities, partially offset by a $59 million profit from its medical activities.
The investment losses were driven by Wall Street's massive swoon. Partners' roughly $4.5 billion investment portfolio lost about 10 percent of its value in the three-month period, Markell said. About 30 percent of Partners' investments are in stocks or stock funds.
Another big chunk of losses came from interest rate swaps. Such complex financial instruments are used by many hospitals to hedge against changes in interest rates. An interest rate swap enables a borrower to essentially pay a premium to exchange variable-rate debt for fixed-rate debt.
But the value of those swaps varies with larger trends in the lending markets. Right now, those swaps are worth less than when Partners executed them. The result is a paper loss that must be recognized. Partners lost $119 million on its swaps in the first quarter, compared to a $103 million loss on investments during the quarter.
In the same period last year, Partners earned investment income of nearly $64 million.
Results from running its hospitals were generally positive. Discharges grew slightly, by 0.6 percent, and revenue from treating patients increased 11 percent, to $1.4 billion, reflecting more complex cases. Academic and research revenue also increased 11 percent to $299 million.
Partners was formed in 1994 by Massachusetts General Hospital and Brigham and Women's Hospital. It now includes Newton-Wellesley Hospital, North Shore Medical Center, hospitals on Nantucket and Martha's Vineyard, the largest physicians group in Massachusetts, and a variety of rehabilitation services and facilities.
Going forward, Markell said, "If it continues to get worse in terms of investment performance, we would have to squeeze capital spending further, and then maybe look at the operating side. But just knowing the kind of year we were heading into, we were more focused on expense management to begin with."
Jeffrey Krasner can be reached at krasner@globe.com. 
