Mass General Brigham Reports Third Quarter 2020 Financial Results
Operating Loss of $373 million as a Result of COVID Pandemic
Over the course of the past several months, Mass General Brigham has directed nearly every resource available to combat the COVID-19 pandemic and meet the unprecedented needs of patients, communities, its employees and health care workers across the region. Since the pandemic began, Mass General Brigham clinicians have encountered or tested more than 18,000 COVID patients, of which more than 6,900 received care in our hospitals. Mass General Brigham also restructured operations to make more than 800 intensive care unit beds available to meet the unknown need of the pandemic. In addition, Mass General Brigham launched efforts in the hardest hit communities including Lynn, Lawrence, Jamaica Plain, Chelsea and Hyde Park delivering more than 100,000 care kits and nearly 700,000 masks to families in need. Mass General Brigham brought cutting-edge technology to the area to help extend the life of personal protective equipment for health care workers across the region, and took on a leadership role in constructing Boston Hope and delivering post-acute clinical care for more than 700 patients from the area. These actions and countless others associated with COVID-19 have had a significant impact on financial results, detailed below.
“This has been a very challenging time for all of us, every day, every week and every month,” said Anne Klibanski, MD, President and CEO of Mass General Brigham. “I want to extend my deepest thanks to each and every one of our 78,000 colleagues who cared for our patients, provided aid to communities in need, and are working tirelessly to find the diagnostics, treatments and cures that can end this pandemic.”
Mass General Brigham today reported an operating loss of $373 million (negative 12.0% operating margin) in the third quarter of fiscal year 2020, which ended on June 30. For the nine months ended June 30, 2020, the operating loss was $506 million (negative 5.0% operating margin). In 2019, Mass General Brigham reported income from operations of $156 million (4.4% operating margin) for the June quarter and $377 million (3.6% operating margin) for the comparable nine-month period.
Patient activity across most services was significantly impacted during the 2020 third quarter due to federal and state policies, including declarations in March of a state of emergency by the governors of Massachusetts and New Hampshire, that were implemented to contain the spread of COVID-19. From March 18, 2020 to May 18, 2020, Mass General Brigham’s Massachusetts facilities were prohibited from performing non-essential elective invasive procedures.
On May 18, 2020, Massachusetts implemented a four-phase gradual business reopening plan. In the first phase of the plan, hospitals were permitted to provide high priority preventative care, pediatric care and treatment for high risk patients and conditions. On June 8, 2020, Massachusetts entered phase two of the reopening plan, which permits hospitals and ambulatory sites to provide in-person care for certain routine services. As of June 30, 2020, Massachusetts remained in the second phase of its reopening plan.
Despite a gradual improvement in patient activity over the latter part of May and through June, the impact of COVID-19 and related governmental actions resulted in a $745 million (-29%) decline in net patient service revenue in the June 2020 quarter relative to the comparable 2019 quarter, including a decline of $345 million (-41%) in April 2020.
Based on the pace of recovery through July and assuming the prevalence of COVID-19 cases remains relatively constant, management anticipates operating at approximately 90-95% pre-COVID patient volume levels by the end of September. However, patient revenue loss in FY20 related to COVID is expected to be between $1 and $1.5 billion. Future financial performance will depend on many factors, including the ability to perform elective procedures, the effect of the economic downturn on demand for services and payer mix, the extent of federal and state advances and grants and the health care industry’s ability to continue to convince patients that it is safe to return for non-COVID care.
Management has taken various actions to date to enhance its financial flexibility, including reducing FY20 planned capital expenditures by approximately 50% (roughly $550 million), implementing an administrative hiring freeze, reducing executive compensation, suspending merit increases and the employer-funded portion of retirement plans, and redeeming approximately $1.5 billion (15%) of long-term investments and procuring $525 million short term debt to enhance liquidity. In addition, Mass General Brigham received approximately $1.0 billion in accelerated Medicare payments (which will be recouped over roughly 6 months beginning in August 2020) during the June 2020 quarter.
Mass General Brigham also recorded grants provided in the Coronavirus Aid, Relief, and Economic Security (CARES) Act of approximately $334 million during the June quarter and $140 million subsequent to June 30, 2020.
“Like health care providers everywhere across the nation, the events of the past months have presented us with challenges of every kind – clinical challenges, workforce challenges, and unprecedented financial challenges,” said Peter K. Markell, Chief Financial Officer and Treasurer at Mass General Brigham. “The people that make up our health system continue to meet those challenges that face our patients and our communities. We are working hard to welcome our patients back to a safe environment and we are seeing our doctor’s offices, operating rooms and labs return to a new normal, which has started to put us on a path toward fiscal recovery. However, COVID-19 has not gone away, so while we continue to work with our partners in the community to do everything we can to combat the pandemic, future costs -- economically and socially -- remain uncertain.”
Mass General Brigham reported an overall gain of $338 million in the 2020 third quarter. This includes non-operating gains of $711 million due to favorable investment performance and reflects partial recovery of the $1.1 billion investment losses absorbed during the March 2020 quarter. Non-operating activity can vary significantly quarter to quarter due to volatility in the financial markets and philanthropic activity. In the 2019 third quarter, Mass General Brigham reported an overall gain of $354 million, including a nonoperating gain of $198 million.
Health Care Provider & Other Activity (Provider Activity)
Provider activity generated an operating loss of $371 million (-12.5% operating margin) in the 2020 third quarter, a decline of $532 million from operating income of $161 million (4.7% operating margin) in the 2019 third quarter.
Revenue for provider activity decreased $453 million (-13%) to $3.0 billion in 2020. Net patient service revenue decreased $747 million (-29%) to $1.9 billion, reflecting extraordinary legal limitations on the provision of care to nonCOVID patients that were imposed upon Massachusetts providers during the June quarter. This contributed to a decline in system-wide discharges (-21%) and most outpatient services, despite the gradual resumption of activity in the latter half of the June quarter. Research revenue declined $31 million (-6%) to $497 million in the 2020 third quarter. Other operating revenue of $587 million includes $334 million in CARES Act grants. Excluding the CARES Act grants, other revenue decreased $8 million (-3%) to $253 million.
Operating expenses attributable to provider activity increased $79 million (2%) to $3.3 billion in the 2020 third quarter. Employee compensation and benefits increased $34 million (2%) to $1.8 billion, reflecting increases in wages ($54 million, 4%) and pension expense ($20 million, 17%, due to the impact of lower discount rates) and decreases in health benefits ($29 million, -18%, due to lower utilization of services). Supplies and other expenses increased $26 million (3%) to $862 million, reflecting increased spending of approximately $100 million to procure sufficient supplies of personal protective equipment to safely perform clinical services, partially offset by a reduction in spending on routine clinical supplies due to the curtailment of non-COVID clinical services. Depreciation and interest expense increased $36 million (17%) to $251 million due to accelerated amortization of certain intangible assets.
Insurance activity resulted in an operating loss of $2 million (-1.2% operating margin) in the 2020 third quarter compared with an operating loss of $5 million (-2.1% operating margin) in the comparable 2019 quarter.
Premium revenue decreased $10 million (-5%) to $202 million reflecting the impact of COVID-19 on cost-share reduction reimbursement and risk adjusted premium, despite a modest increase in fully insured membership (3%). Medical claims expense decreased $17 million (-9%) to $175 million reflecting lower utilization of services due to COVID-19, partially offset by increased pharmaceutical and behavioral health costs. The impact of utilization reductions was significantly dampened by capitation arrangements with providers. Other costs included removing member cost sharing for COVID- 19 treatment, telemedicine visits and testing. The medical loss ratio (the percentage of insurance premiums that are used to pay medical claims) was 86.8% in the 2020 quarter and 90.7% in the 2019 quarter. As of June 30, 2020, approximately 48% of AllWays Health Partners’ 248,150 members were in fully-insured plans and 52% were in selfinsured plans (including approximately 100,000 Mass General Brigham employees and family members).
General and administrative costs increased $5 million (16%) to $36 million in the 2020 quarter. The administrative expense ratio (the percentage of insurance premiums that are used to pay general and administrative expenses) increased to 14.3% from 11.5% in 2019, reflecting the re-imposition in 2020 of the health insurance provider fee, which was adopted pursuant to the Accountable Care Act but was suspended in 2019 and increased administrative costs associated with self-insured plans. AllWays Health Partners’ premiums continue to reflect a normative administrative expense ratio that is in line with the market and seeks to grow membership to reduce the administrative expense ratio.
Year-to-Date Consolidated Results
Mass General Brigham reported a loss from operations of $506 million (-5.0% operating margin) for the nine months ended June 30, 2020. Provider activity generated an operating loss of $481 million (-5.0% operating margin) and insurance activity generated an operating loss of $25 million (-3.9% operating margin). In the comparable prior year period, Mass General Brigham reported income from operations of $377 million (3.6% operating margin), including income of $391 million (3.9% operating margin) from provider activity and a loss of $14 million (-2.2% operating margin) from insurance activity. These results reflect the implementation of new pension accounting rules, including the restatement of 2019 results to conform to the new presentation format.
Total operating revenue decreased $248 million (-2%) to $10.1 billion for the nine months ended June 30, 2020. This reflects a decrease in net patient service revenue of $656 million (-9%) to $6.9 billion and an increase in other operating revenue of $397 million (57%) to $1.1 billion, of which $334 million was received under the CARES Act.
Total operating expenses increased $636 million (6%) to $10.7 billion, reflecting increases in wages ($255 million, 6%) and benefits ($103 million, 9%), supplies and other expenses ($206 million, 8%), medical claims ($11 million, 3%) and depreciation and interest ($57 million, 9%).
For the nine months ended June 30, 2020, Mass General Brigham absorbed $1.4 billion in Medicare, Medicaid, and Health Safety Net shortfalls due to government reimbursements that failed to pay the full cost of providing care to Medicare, low-income, and uninsured patients, an increase of $288 million (26%) compared to the shortfall absorbed in the same 2019 quarter.
Mass General Brigham reported an overall loss of $698 million for the nine months ended June 30, 2020, including a nonoperating loss of $192 million. In the comparable 2019 nine-month period Mass General Brigham reported an overall gain of $514 million, including a nonoperating gain of $137 million. The 2019 period reflects the impact of new accounting rules which require all investments to be measured at market value.
COVID-19 Efforts in the Community
In Boston and the Greater Boston area, reports show that Latino, African American and vulnerable communities have been disproportionately impacted by the COVID-19 pandemic. “Hot spot” locations include Chelsea, Lynn, Revere, Brockton, Hyde Park, Mattapan and East Boston. To help address this issue Mass General Brigham has launched a Community Health COVID-19 strategy. The main goals of this strategy include:
- Expanding testing to better identify COVID-19 positive individuals in these communities
- Mitigating the spread of COVID-19 with community distribution of multilingual information and “care kits” with masks and other key items
- Creating routine channels of communication with community members, using care managers and community health workers, to focus on COVID-19 positive individuals and those at-risk to assess ability to isolate, symptoms and the need for additional service
Mass General Brigham Leads the Way in COVID-19 Research Efforts
Since the start of the pandemic, Mass General Brigham researchers have worked around the clock to develop and assess new tests and treatments to combat COVID-19 and bring much needed hope to patients everywhere. Mass General Brigham clinicians and scientists have helped launch over 500 new studies and more than 40 clinical trials aimed at finding new tests, treatments (such as Remdesivir) and a cure for COVID-19.
Mass General Brigham created a COVID Innovation Center to invent new and novel devices, repurpose existing resources and harness the power of our data to meet the new and unprecedented challenges presented by the pandemic. To date, Mass General Brigham efforts in this area have led to the invention of more than a dozen new products including new types of personal protective equipment and testing methods, and the creation of libraries of biosample, genetic and clinical data to enable research for internal investigators and collaborators.
This press release contains certain “forward-looking statements” concerning financial and operating plans and results which involve known and unknown risks and uncertainties. In particular, statements preceded or followed by, or that include the words, “projects,” “believes,” “expects,” “estimates,” “anticipates,” “plans,” “intends,” “scheduled,” or similar expressions are forward-looking statements. Various factors could cause Mass General Brigham’ actual results to differ materially including, but not limited to the impact of the COVID-19 pandemic, federal and state regulation of healthcare providers, changes in reimbursement policies of state and federal government and managed care organizations, competition in the healthcare industry in our market, general economic and capital market conditions, and changes in our labor and supply costs and in our ability to retain personnel. For more information on these and other risk factors, please refer to our most recent bond official statement or annual disclosure statement filed on the Electronic Municipal Market Access (EMMA) website maintained by the Municipal Securities Rulemaking Board. We undertake no responsibility to update any such forward-looking statements except as expressly required by law.
About Mass General Brigham
Mass General Brigham is an integrated academic healthcare system, uniting great minds in medicine to make life-changing impact for patients in our communities and people around the world. Mass General Brigham connects a full continuum of care across a system of academic medical centers, community and specialty hospitals, a health insurance plan, physician networks, community health centers, home care, and long-term care services. Mass General Brigham is a non-profit organization that is committed to patient care, research, teaching, and service to the community. In addition, Mass General Brigham is one of the nation’s leading biomedical research organizations and a principal teaching affiliate of Harvard Medical School. For more information, please visit massgeneralbrigham.org.