Not-for-profit Kaiser Permanente drew a whopping $3 billion in net income in the first quarter of 2019, a new record for the massive integrated health system.
The Oakland, Calif.-based integrated health system, which includes Kaiser Foundation Health Plan and Kaiser Foundation Hospitals, recorded about $3.2 billion in net income in the first quarter, which ended March 31, up 127% from the first quarter of 2018, in which net income was $1.4 billion.
The massive uptick was due largely to the adoption of a new accounting provision as of Jan. 1 that requires changes in estimated fair value of equity securities be reported in non-operating income. The change funneled an additional almost $900 million into that category.
Tom Meier, senior vice president and corporate treasurer at Kaiser, said the stock market upswing that followed the downturn that hit late in 2018 also boosted the system's net income. Kaiser's equity portfolio lost a little over 4% of its value in the fourth quarter of 2018, but gained almost 7% in the first quarter of 2019—a nearly 11% swing, he said.
"I would expect anybody else that reports quarterly would have seen similar changes," Meier said.
The Jan. 1 accounting change also dramatically affected Kaiser's non-operating income, which jumped from $334 million in the first quarter of 2018 to $1.6 billion in the first quarter of 2019.
Kaiser recorded $21.3 billion in revenue during the quarter, up 5.3% from the prior-year period, in which revenue was $20.3 billion. Expenses rose 3% in that time to $19.8 billion. The health system's operating income increased 46% year-over-year, from nearly $1.1 billion in the first quarter of 2018—a 5.2% operating margin—to $1.5 billion in the recently ended quarter, a 7.2% margin.
The weak flu season also lifted Kaiser's operating income by keeping its hospital and pharmacy costs in check, Meier said.
"We're a pre-paid system, so we try to keep our folks healthy and give them flu shots and keep them out of our system," Meier said. "It keeps our costs down. It's a good thing for everybody."
That's in stark contrast to statements made on earnings calls last week by for-profit hospital executives, who lamented the weak flu season's negative effect on volumes.
Membership in Kaiser's health plan grew by 150,000, rounding out the first quarter of 2019 at 12.3 million members, compared with 12.2 million a year earlier.
Kaiser spent $834 million on capital projects in the first quarter, down 5.3% from $881 million in the first quarter of 2018. Kaiser opened two new medical offices during the quarter, bringing its total nationwide to 696, along with 39 hospitals. More than 80 medical offices are in design or construction and expected to open within three years. The system is also in the midst of a $500 million project to expand its mental health facilities.
