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Partners HealthCare income tumbles amid insurance losses

Losses erode gain from hospital operations

Operating income tumbled at Partners HealthCare Systems for the three months ended March 31 as insurance losses — stemming from a costly new hepatitis C drug and problems with the state’s insurance website — eroded gains from its hospital business.

The largest portion of the loss for Partners’ health insurance unit, Neighborhood Health Plan, was about $6 million in payouts for the popular hepatitis C drug Solvaldi, which drug maker Gilead Sciences has priced at $1,000 a pill — about $84,000 for a typical course of treatment. The virus affects many low-income Medicaid patients who are served by Neighborhood Health.

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Meanwhile, the administrative costs of trying to enroll patients in health insurance plans through the glitch-riddled Connector website, along with lower-than-expected reimbursement from the state for patients covered by Medicaid, resulted in a monthly decline of $1 million for Neighborhood Health.

Overall, the health insurance affiliate posted a $10 million operating loss in the second quarter compared with a $13 million gain for Partners hospitals, leaving the state’s largest health care organization with operating income of $3 million. Its operating margin — the percentage of its revenues minus expenses — was a narrow 0.1 percent. For the second quarter last year, Partners recorded operating income of $41 million, with a margin of 1.6 percent.

“It’s obviously a disappointment,” said Partners chief financial officer Peter K. Markell, who said some of the setbacks would be temporary, but others long-term trends.

“It’s a tough environment in health care right now. The level of revenue rate increases that people can get versus the pressure of wage increases is going to be a challenge for a couple of years.”

Even the revenue generated by its hospitals, including Harvard-affiliated Massachusetts General and Brigham and Women’s in Boston, was strained by a decline in outpatient volume and $17 million in higher-than-anticipated payments to the state’s Health Safety Net Fund, which covers the medical expenses of uninsured residents.

Markell said the additional charges may have stemmed from backlogged claims that were billed to hospitals early this year.

Partners’ total operating revenue increased 4 percent to $2.7 billion in the January-to-March period, with patient service revenue rising 3 percent to $1.7 billion, including $49 million from Cooley Dickinson Health Care in Northampton, which Partners acquired last year.

Even though outpatient revenue was soft, revenue from more complex care at Partners’ teaching hospitals has been increasing as hoped, Markell said.

While Partners’ earnings have been dragged down by insurance operations, Markell said, he still expected the acquisition of Neighborhood Health to eventually pay off. “Long-term, we believe this is the right decision,” he said.

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.
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