Partners to hold onto Neighborhood Health Plan

Partners HealthCare, which a few months ago considered selling Neighborhood Health Plan because of record-high losses, said it will hold onto the insurer because its financial condition has improved.

Neighborhood Health, which manages care for low-income families who qualify for Medicaid, the government program for the poor, lost more than $100 million in the fiscal year that ended Sept. 30 as it struggled with an influx of sick patients, high use of an expensive hepatitis C drug, and low reimbursement rates from the state. The situation has since improved with higher reimbursement rates, fewer patients needing the hepatitis C drug, and fewer patients requiring expensive medical care.

“We’re optimistic,” said Peter K. Markell, chief financial officer of Partners, the state’s largest health system, which includes Brigham and Women’s and Massachusetts General hospitals. “We’re committed to keeping NHP, but it’s got to have some reasonable basis of financial performance.”

Partners acquired Neighborhood Health Plan in 2012 and called the insurer a key part of its strategy to become a health system that cares for large populations of patients. Neighborhood Health has about 370,000 members.

Executives at Partners and Neighborhood Health said they are accelerating efforts to develop new payment models that would contain costs while improving care. That’s a major focus for David Segal, who became the new chief executive of Neighborhood in February.

“The reason we did the affiliation [with Partners] in the first place was to better manage populations,” he said. “There’s nothing that’s changed about that. What threw us for a loop was we had these unexpected circumstances last year.”

Those circumstances included an influx of nearly 78,000 new members, many of whom who happened to be sicker than expected, running up the insurer’s costs.

All of the Medicaid plans struggled financially last year, while blaming state reimbursement rates they considered too low.

The state has raised rates about 3.7 percent, insurers said, enough to put a dent in health plans’ losses, but still below the levels the insurers would like.

The state’s Executive Office of Health and Human Services oversees the state Medicaid program, called MassHealth. Agency officials said it’s too early to know what the rates will be next year. Spokeswoman Rhonda Mann said MassHealth sets “fair and appropriate” rates, and will talk to representatives from the health plans to “help ensure the sustainability of our managed care services.”

But challenges persist for these health plans. BMC HealthNet Plan, an insurer owned by Boston Medical Center, cut Boston Children’s Hospital and Springfield-based Baystate Health out of its network this year to reduce costs. BMC HealthNet lost more than 40,000 members as a result.

“We’ve had to take some very hard steps,” said Kevin Klein, chief marketing and sales officer at BMC HealthNet. “They’ve resulted in some membership losses for us, but it has helped our financial situation.”

At Neighborhood Health last year, the insurer also booked a $92 million accounting loss, in addition to its operating loss, which caused Partners to lose money on operations for the first time in 15 years.

“We are tracking very carefully what our new membership is like in 2015 so we have a sense of whether we’re going to have a repeat of 2014, and so far it has not repeated,” Segal said. Segal said he expects Neighborhood Health to reach profitability again in 2016.

Segal, 59, was promoted to chief executive after serving as Neighborhood’s chief operating officer. He succeeded Deborah C. Enos, who left after a decade in the job.

He is familiar with the challenges of the health insurance business; he was on the team that helped turn around Harvard Pilgrim HealthCare when it was struggling 15 years ago.

Part of Segal’s plan is to make Neighborhood Health more competitive by improving customer service. That could help with another goal: growing its non-Medicaid business. About 30 percent of Neighborhood’s members are in commercial plans. But his top priority is the numbers.

“We must be financially viable,” Segal said, “or else we can’t deliver on our mission.”