Kaiser Permanente's operating margin narrowed to 2.1% in the third quarter of 2020 as health plan members resumed getting medical care they had put off earlier in the COVID-19 pandemic.
The Oakland, Calif.-based integrated health system announced Friday it drew $456 million in operating income on nearly $22 billion in revenue in the quarter ended Sept. 30. The integrated health system reported a higher 2.9% operating margin in the prior-year period, having generated $615 million on operations out of $21 billion in revenue.
"As this economic disruption continues and unemployment rates remain, high we're all subject to these same industry impacts," said Tom Meier, Kaiser's corporate treasurer.
Expenses were up almost 6% in the quarter year-over-year, driven in part by higher medical claims on Kaiser's health plan side. Meier said those expenses were simply shifted from the second quarter into the third as the health system catches up with postponed procedures.
Unlike other health systems, though, Meier said Kaiser's supply and labor expenses haven't grown materially as a result of COVID. Many health systems have reported higher expenses from inflated pricing on personal protective equipment and other supplies and having to rely on more expensive contract labor.
Meier added that a 2.1% operating margin is in line with Kaiser's typical results.
Kaiser is also weathering the effects of fewer health plan members. Membership stood at 12.4 million as of Sept. 30, representing an 11,000-member decline during the third quarter. Meier said that's because pandemic-related job losses have pushed people previously covered under employer-sponsored plans onto Medicaid or other government subsidized plans. While the national unemployment rate fell to 6.9% in October, Kaiser said the rate has been more than double that in some areas it serves.
Kaiser was caring for 66,000 more Medicaid patients as of Sept. 30 over the prior year. Kaiser serves nearly 1 million Medicaid members total.
Strong investment returns kept the health system's net income high in the third quarter. Net income jumped 68% to $1.9 billion, compared with just under $1.2 billion in the prior year period. Kaiser's net income in the second quarter of 2020, which ended June 30, was an eye-popping $4.5 billion.
Kaiser spent $964 million on capital projects in the third quarter, up from $891 million in the prior-year period. Meier said that money went to ongoing investment in medical office buildings, of which Kaiser now has 719. The health system is also building out its digital offerings.
Meier said Kaiser's pre-paid membership model means it doesn't rely on procedure volumes like traditional health systems do. For that reason, Kaiser returned more than $500 million in federal coronavirus relief grants it received earlier this year. Meier said that's because Kaiser's revenue stream wasn't affected by the pandemic.
"If you're strictly a hospital system, you rely on having the throughput of activity and keeping your utilization numbers up," he said. "That wasn't really our case, so we didn't feel it would be appropriate to hold onto those funds."
