By raising premiums and reducing costly out-of-system patient care, Kaiser Permanente produced a dramatic first-quarter financial turnaround that ended a five-quarter skid at the giant managed-care company.
An important part of the turnaround was Kaiser's ability to shrink the number of California enrollees getting inpatient care in non-Kaiser hospitals from 2,069 a year ago to just 77 this past winter.
The quarter ended March 31 marked the first quarter in which Kaiser posted a positive operating margin since the third quarter of 1997, said officials at the Oakland, Calif.-based managed-care plan.
Kaiser became part of a larger trend in which several major managed-care competitors have reported improved financial results so far this year (See story, below).
"It's important for the healthcare world to have a sound financial footing" and for Kaiser's premiums to be more in line with market rates, said Bruce Spurlock, executive vice president of the California Healthcare Association, which represents more than 630 hospitals, health systems and physician groups. But Kaiser's good results will have little impact on the financial health of non-Kaiser hospitals and physicians, he said, as the HMO giant does relatively little contracting with outside providers.
After losing more than $430 million on operations last year, Kaiser posted a $56 million operating profit in the first quarter of 1999. Investment income pushed total profit for the quarter to $61 million. Kaiser had operating revenues of $4.2 billion for the quarter.
A year ago Kaiser posted an operating loss of $106 million on $3.8 billion in first-quarter operating revenues.
The black ink in this year's first quarter represents an operating margin of 1.3%, a big improvement over the flood of losses in recent quarters but less than the 2% profit margin officials say is needed to keep the plan healthy this year. It's far less than the 5% to 6% margins historically needed to build the not-for-profit organization's capital reserves.
Between 1996 and 1998, those reserves dwindled from $1.4 billion to $609 million.
Hefty 1999 rate increases of 8% to 10% and keeping enrollees within the Kaiser network of hospitals were not the only factors behind fourth-quarter improvements. Also contributing were cost-reduction efforts throughout the organization, which slashed administrative and other overhead expenses, said Dale Crandall, Kaiser's chief financial officer.
"Our first quarter results are encouraging, but a quarter is not a trend," Crandall said earlier. "We must see continuous improvement in our overall cost management to stay on track for the year."
Last year, the 8.6-million-enrollee company posted a $434 million operational loss on revenues of $15.5 billion. Investment income shaved its net loss to $288 million.
Even so, Kaiser's operating losses in 1997 and 1998 totaled $881 million, and its net losses over the same period topped $550 million.