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Partners posts a $51.7m gain

Health care giant sees slower growth in fourth quarter

By Robert Weisman
Globe Staff / August 27, 2011

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Partners HealthCare System Inc. reported substantially higher earnings yesterday for the three months ended June 30, crediting better investment performance, research revenue increases, and modest growth in patient discharges at its chain of Boston-area hospitals.

Third-quarter net income was $51.7 million, compared to a $4.8 million loss in the same period last year, when Boston-based Partners suffered from a decline in the value of its interest-rate swaps, financial hedges it bought to lock in future rates for debt financing.

This year, Partners, the region’s largest hospital and doctors network, posted an operating margin - the difference between its revenues and expenses - of 3.8 percent in the April-to-June quarter, up from 2.7 percent in the corresponding quarter last year.

But Partners’ vice president of finance, Peter K. Markell, said he expects growth to slow in the fourth quarter, and Partners to register a full-year margin close to last year’s 2.4 percent.

Looking forward, Markell said in an interview, “there’s a lot of headwind’’ for Partners and other health care providers. He cited anticipated cuts in Medicaid and Medicare, the government health insurance programs for low-income residents and senior citizens, as well as reduced federal support for the medical residents who train at Partners’ two big Boston teaching hospitals: Massachusetts General Hospital and Brigham and Women’s Hospital.

Markell said Partners also expects a decline in funding from the National Institutes of Health, which supports its hospital research programs. In recent years, research was aided by federal stimulus funding. But next year, Markell warned, “stimulus funding will go away and the base NIH budget could be squeezed,’’ reducing money for hospital researchers.

Noting that Partners has signed a letter of intent to acquire nonprofit insurer Neighborhood Health Plan, and is talking to Cooley Dickinson Hospital in Northampton about a possible takeover, Markell said the health care system may expand its franchise.

“Any organization that wants to remain healthy has to look to a reasonable level of sustainable growth,’’ he said. “How we grow remains to be seen.’’

Markell also said Partners is “making good progress’’ in negotiations with the state’s three largest health plans - Blue Cross Blue Shield of Massachusetts, Harvard Pilgrim Health Care, and Tufts Health Plan - that could result in reduced health insurance premiums of at least $40 million annually, starting next year, for small businesses and individuals in Massachusetts.

Partners agreed last year to reopen contracts with insurers that were set to expire in 2012. “I am relatively optimistic we will have new agreements,’’ Markell said.

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