Partners HealthCare is back in the black but plans to cut $600M in costs

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Executives at the Boston-based nonprofit organization say the cuts are due to the fact that expenses are growing faster than revenue.

Partners HealthCare, the largest hospital network in Massachusetts, is finally showing a profit after a year of losses but has unveiled plans to cut $600 million in costs over the next three years.

Executives at the Boston-based nonprofit organization told The Boston Globe (sub. req.) that the cuts are due to the fact that expenses are growing faster than revenue. Partners owns 11 hospitals—including Brigham and Women’s Hospital and Massachusetts General Hospital—and is the state’s largest private employer with a workforce of approximately 73,000.

The cost-cutting measures will begin on Oct. 1 and will target revenue collections, the supply chain, care delivery and research. Job cuts are also possible, although Partners Chief Financial Officer Peter K. Markell told the publication he didn’t know the number of positions that may be eliminated.

Brigham and Women’s hospital has already offered buyouts to 1,600 employees because of flat reimbursement and rising operating costs. Those voluntary layoff packages were announced the same day the U.S. Department of Justice announced that Partners Healthcare and Brigham and Women’s Hospital will pay $10 million to resolve a suit over fraudulent grant funding. The case involved a stem cell research lab run by Piero Anversa, M.D., that allegedly obtained grants from the National Institutes of Health via the submission of falsified data. 

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“This is an effort fundamentally to change not our values and our culture, but how we manage ourselves, how we focus on efficiency, the patient experience, the service we deliver, and try to be reflective of the pressures of being efficient,” Markell told the Globe.

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The news about the budget cuts comes at the same time the organization announced a $24 million operating gain for the first three months of the year, the Boston Business Journal reports (reg. req.). It is the first time Partners reported an operating gain since the same period last year when it reported a profit of $21 million, according to the article.

Markell attributed the gains to the fact that the entire system has been focused on growth while becoming more efficient to deal with thin margins and market pressures. “At the end of the day, when you have a heavily fixed cost structure capital base, you can become more efficient by growing and putting that through that same fixed cost base and by becoming more efficient about your use of space and variable costs that drive unit costs,” Markell said. “This effort is focused on allowing us to improve our unit cost structure and to grow.”

RELATED: Merger-mania trend continues as Partners plans to acquire Care New England Health System

Meanwhile, Partners' plans to acquire three Care New England hospitals hinge on whether the parent organization of those Rhode Island institutions can turn a profit, according to a second article from the Boston Business Journal. Care New England has also announced a “wide array” of layoffs at its flagship hospital.

“If we don’t believe we can get them to break even and profitability relatively quickly, we’d have to evaluate the situation,” Markell said.