Kaiser posts razor thin margins in 3rd quarter

Kaiser Permanente posted a meager operating margin in the third quarter as it weathered unrest among workers and a surge in COVID-19 patients.

The Integrated Healthcare System in Oakland, California generated $ 38 million in operating income during the quarter ended September 30, on $ 23.2 billion in revenue. nonprofit disclosed on friday… This represents a 0.2% margin and up from a 2.1% margin in the previous year, when the company recorded an operating profit of $ 456 million on revenues of just under $ 22 billion.

According to Tom Meyer, corporate health care treasurer, the decline in margins was due to higher costs for COVID-19 patients.

As an integrated system, Kaiser Permanente patients are also health insurance holders.

“Literally all of our institutions are staffed and so on, and then, to the extent that there is a workload due to the arrival of members, we will bear the cost of caring for them,” Mayer said.

The company’s health plan membership renewals occur early in the year, so premium revenue was set in advance, but costs continued to rise throughout the year, Meyer said. In the third quarter, expenses were up 7.5% year-on-year to $ 23.1 billion, while revenues were up 5.5%.

“It is not unusual for margins to decline throughout the year,” Meyer said. “This year, the situation has deteriorated slightly from the third quarter a year ago due to the continuing additional costs associated with the surge in COVID-19 delta variant and related costs.”

Kaiser Permanente’s profitability is likely to be even lower in the next quarter before rebounding in 2022, Meyer said.

Half of Kaiser Permanente’s costs are related to wages. Like other healthcare systems, the company has been forced to pay more for traveling nurses and contractors during surges in patient numbers, which has driven up labor costs, Meyer said.

The health care system is also experiencing serious unrest among union members. Nearly 32,000 Kaiser workers in California, Oregon and Washington announced Thursday they are planning a November 15 strike. Unions are opposed to Kaiser Permanente’s proposal, among other things, to offer lower wages to new employees than current employees.

Kaiser Permanente also ran into trouble in the third quarter as more of its 12.5 million health plan members moved from more lucrative commercial policies to Medicaid plans, another factor that has lowered margins. Some of these shifts are a result of people losing their jobs during the pandemic.

The healthcare system spent $ 878 million on capital projects in the third quarter, down from $ 964 million a year earlier. With the ongoing COVID-19 pandemic, Kaiser Permanente is rethinking its capex program to ensure that money is allocated for the right projects, Meyer said.