Turning a financial corner, Kaiser Permanente almost broke even in 1999 after posting huge losses in the previous two years.
The nation's oldest and largest HMO lost $6 million last year, a vast improvement over a $288 million net loss in 1998. Annual revenue rose 8% to $16.8 million.
"We still have a long way to go, but the prognosis for a complete recovery over the duration of our multiyear turnaround plan is good," said Dale Crandall, Kaiser's chief financial officer, in a written statement.
Kaiser lost $125 million on operations last year, but investment income helped boost its bottom line to near even.
Kaiser's financial woes began in 1997, when the Oakland, Calif.-based HMO reported a startling $266 million net loss-its first loss in more than 50 years of operation. The not-for-profit company was thrown off course that year by a nurses' strike, climbing drug costs and a too-rapid rise in enrollment, which forced it to send members to expensive providers outside its own system.
But thanks to premium hikes of 10% to 20% and the divestiture of some money-losing operations in the Northeast and North Carolina, Kaiser has been battling its way back. If it excluded the costs associated with selling the unprofitable units as well as other one-time charges, the health plan actually enjoyed a net profit of $466 million last year.
Kaiser's core California division reported a 1999 operating surplus of $280 million, a significant improvement over the unit's $354 million operating deficit in 1998.
The company's Northwest region and Colorado, Georgia, Hawaii, Kansas City and Ohio also finished the year in the black, with most exceeding their financial targets, Kaiser said. But its mid-Atlantic unit, which insures 540,000 people in the District of Columbia, Maryland and Virginia continued to lose money.
Nationwide, Kaiser's membership dipped 2.5% to 8.3 million. Attrition in most regions was partially offset by the addition of 185,389 members in California, which brought total enrollment in the state to nearly 6 million.
"We're very pleased with the California division's performance," Philip Jensen, the unit's CFO, said in a written statement. "However, 1999 was only the first leg of a three-year turnaround effort. During the next two years, we'll need to sustain and build on the progress we've made thus far."
Crandall echoed Jensen's caution at the national level. "Despite improved performance, 2000 will be another challenging year for the organization," he said. "Pharmacy cost increases remain a significant issue for the healthcare industry and for Kaiser."
The company said it expects its revenue to rise another 8% this year, while costs increase by roughly 6%.