Kaiser Permanente posts $1.1 billion operating income in quarter

Continued membership growth in Kaiser Permanente's health plan pushed its operating gain to $1.1 billion in the first quarter of 2018.

The not-for-profit Oakland,Calif.-based system posted operating revenue of $20.3 billion in the quarter and kept its operating margin above 5%.

Kaiser had adopted a new accounting standard in January that retroactively revised down its first-quarter 2017 operating income to $935 million from more than $1 billion, said Tom Meier, senior vice president and corporate treasurer of Kaiser Permanente, which includes Kaiser Foundation Health Plan, Kaiser Foundation Hospitals and their subsidiaries.

Kaiser's operating margin was 5.2% in the quarter, unchanged from the first quarter of 2017. Last year's first-quarter operating margin was revised down from 5.5% due to the accounting change, which shifted certain items from operating income to non-operating income.

Net income during the first quarter was $1.4 billion, down more than 10% from $1.6 billion at the same time in 2017.

Kaiser continues to see membership growth. As of March 31, Kaiser's health plan had 12.2 million members, up 472,000 from the end of 2017. As membership grows, Meier said Kaiser continues to focus on prevention and early detection, which he said help keep costs down and price hikes lower than its competitors.

Non-operating income was a different story. Investment gains dipped 46% to $336 million in the quarter, which Meier said is simply a reflection of the capital markets. "The markets have been extremely volatile and challenged with all the external news during the first quarter of 2018," he said.

Kaiser's investment portfolio is about 55% in equities, 35% in bonds and 10% in private equity and real estate, Meier said.

Kaiser spent $881 million in the first quarter on facilities and technology, up 15% year-over-year, including on the Tanasbourne Medical and Dental Office in Hillsboro, Ore.; a medical office in Santa Clarita, Calif.; and on digital capabilities such as telemedicine, remote payment and services using iPhones and iPads. Kaiser now has 684 medical offices and continues to operate 39 hospitals.

"Our capital plan for the next 10 years is going to be pretty sizable," Meier said. "I would expect to see that number continue to grow throughout 2018 and beyond."