By: Peter Markell
Occasionally, as part of the ongoing health care cost dialogue, the issue of hospital assets is raised and the question is asked – why do hospitals need “reserves”? Most hospitals and health systems across the state have some level of investment assets and there are good reasons for it.
Partners is fortunate to be a well-managed, financially-healthy organization. As the largest health care system in the state and the largest private employer, Partners had investments worth $7.5 billion as of September 30, 2015 (the end of our latest fiscal year), a level comparable to other health systems of similar size around the country.
Included as part of that $7.5 billion are $1.3 billion in gifts that Partners received from generous donors around the world; these funds were given to our hospitals for specific purposes and research programs and are restricted in how they can be used.
But, to get the full picture of our health, both sides of the balance sheet need to be considered. For example, think about home ownership. While on one hand, an individual may have a home that has significant value, most homeowners also have a debt against that asset in the form of a mortgage. The same is true of Partners. We have substantial liabilities – including debts we owe, lease commitments and pension obligations – that offset our investment assets.
As you will see in the chart below, Partners had $7.5 billion worth of investment assets in fiscal year 2015 and more than $8.5 billion of financial obligations. It is important to note that most of our financial obligations are paid out over many years (like debt and pension obligations, for example) and that certain liabilities (pension) can vary greatly from year to year.
Here are a few examples of how we use our investment assets to support our mission:
Spaulding Rehabilitation Hospital. Partners invested $220 million to build a new rehabilitation hospital at a time when hundreds of similar facilities across the country have closed over the past decade. The new Spaulding opened just days after the Boston Marathon bombing – in time to care for 32 victims of that tragedy.
Research funding. Partners covers much of the unfunded cost of research and has maintained our researchers’ ongoing work in the face of recent flat or declining federal NIH research funding. We were very pleased to learn that Congress and the President have agreed to increase NIH funding by $2 billion for fiscal year 2016. It’s a good investment and badly needed.
Community health centers. We support 21 community health centers and have made more than $83 million in capital investments in them since 1994; they care for 325,000 low-income patients in Massachusetts. We also launched the Partnership for Community Health, which has provided millions in additional support to every health center across the state as they prepare to play an increasingly important role in the era of national and state health care reforms.
Under-reimbursed services. Partners continues to make investments in important but under-reimbursed services, like mental health and substance abuse, despite losses of nearly $60 million each year; we have maintained capacity while others have closed beds for financial reasons.
Emergency situations. Health systems need to be prepared for unforeseen events. Because it had sufficient investment assets, NYU Langone Medical Center in New York City was able to survive after Hurricane Sandy. It was able to mitigate the impact of being closed for a long period of time and rebuild damaged buildings. Today, the medical center is back to caring for sick patients.
Financial stability. With more than 64,000 employees, Partners is the largest private employer in Massachusetts and a reliable source of employment.
Implications of Alternative Payment Models
The Affordable Care Act has pushed providers to test alternatives to the traditional fee-for-service payment model, through accountable care organizations, episode of care payments, and shared risk arrangements with insurers, Participation in any of these arrangements has financial implications for all involved and may, over time, require changes in the rules governing reserves.
We currently bear financial responsibility for more than 935,000 patients in these types of contracts.
Today, relatively clear standards exist for insurer reserves and surpluses. However, hospitals are not subject to those rules and are not required to set aside reserves, although they must maintain investment assets to support board-approved initiatives and to meet their financial obligations. As hospitals are asked to bear more financial risk through risk-sharing contracts with insurers, we will need to maintain our financial strength – at Partners, we currently bear financial responsibility for more than 935,000 patients in these types of contracts.
Insurance companies, like Neighborhood Health Plan (NHP), which recently joined the Partners family, are required by regulators to maintain a certain level of reserves/surplus to ensure that patient claims can be paid. In the Commonwealth of Massachusetts, the Division of Insurance oversees these rules. As of September 30, 2015, NHP had reserves of $286 million to protect patients and ensure that their claims get paid. NHP has the additional benefit of Partners’ strong balance sheet to ensure that NHP’s financial liabilities are covered.
As these alternative payment models increasingly transfer risk away from insurers toward hospitals and doctors in Massachusetts, the Commonwealth’s policy makers will need to determine whether some portion of the risk-based capital now held by insurers should similarly be shifted toward hospitals and doctors to support the delivery of patient care.
Partners has been, and will continue to be, an active participant in the health care cost discussion. We want to work with insurers, employers, the government, business leaders and others to craft real solutions and to ensure that Massachusetts health care is high quality, cost effective and sustainable. This will require a transparent, fact-based conversation.
We hope this posting helps to enhance that conversation.