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Partners’ second-quarter income soars

Health care network, insurers pursue deal to provide rate relief

By Robert Weisman
Globe Staff / May 14, 2011

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Partners HealthCare System Inc. yesterday posted a more than fivefold increase in its second-quarter operating income, citing factors ranging from a boost in research revenue to higher payments for complex care at its Harvard-affiliated teaching hospitals in Boston.

For the three months ending March 31, Partners recorded operating income of $71 million on revenue of $2.1 billion. That was a sharp increase from its $13 million in income on revenue of $1.9 billion for the same period in 2010.

Partners’ nonoperating income climbed to $95 million last quarter, compared with $9 million a year earlier, largely due to the strong rebound of the health care company’s investments in financial markets.

Meanwhile, Peter K. Markell, vice president for finance at Partners — the state’s largest hospital and physician network — said it is still talking with insurers about reopening contracts extending to 2012 or 2013. The goal is to provide rate relief to small businesses.

“We are in pretty intense negotiations with the payers right now,’’ Markell said. He expressed hope the talks, which have been conducted outside the public view, can be wrapped up in the next few months.

At stake is $40 million Partners pledged last year to ease the burden on businesses that have been struggling with double-digit annual premium hikes for much of the past decade. Partners took a $40 million charge on its first-quarter income report to reflect the anticipated payment.

Markell said Partners plans to pay the $40 million regardless of whether the talks with insurers produce results. If its insurance contracts are renegotiated, he said, the money will be applied toward lower health insurance rates for small-business customers. If not, he said, Partners will make a lump sum payment to insurers so they can refund it to businesses.

Health insurance companies, which have borne the brunt of criticism for high premium rates they say are largely linked to rising medical prices, are anxious to conclude negotiations with Partners.

“The promise of the $40 million was to help small businesses in 2010,’’ said Eric Linzer, senior vice president at the Massachusetts Association of Health Plans, a trade group. “Partners should provide it now, and other [health care] providers should follow suit.’’

Markell said patient revenue has grown at Partners’ academic medical centers, Massachusetts General Hospital and Brigham and Women’s Hospital, which have taken on more complex cases, such as neurosurgery and intense cardiac procedures. At the same time, more routine health care has been shifted to its community hospitals, including Faulkner Hospital, Newton-Wellesley Hospital, and North Shore Medical Center.

Partners also has benefited from federal stimulus funding for medical research, which has flowed to its Boston teaching hospitals over the past year. While it will continue to receive annual research funding from the National Institutes of Health and other federal agencies, Markell said the additional stimulus outlays should taper off next year.

The nonprofit health system’s wider operating margins — 3.4 percent in the second quarter compared with 0.7 percent last year — are the result of efforts to improve efficiency at its hospitals, he said.

“Revenue growth has slowed compared to average years in the past decade, but we’ve been able to squeeze the expenses even more,’’ Markell said. “As we move into the new era, there’s going to be more pressure from public and private payers and there’s going to be more pressure to make health care delivery more efficient.’’

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