Kaiser Permanente nearly tripled its surplus last year, rounding out 2019 at $7.4 billion in net income.
The Oakland, Calif.-based integrated health system is riding a wave of both strong operating performance and strong investment performance, the latter of which comprised about two-thirds of the surplus. Kaiser generated $2.5 billion in net income in 2018.
Not-for-profit Kaiser, which consists of Kaiser Foundation Health Plan and Kaiser Foundation Hospitals, generated $2.7 billion in operating income in 2019 on $84.5 billion in revenue, compared with $1.9 billion in operating income on $79.7 billion in revenue for the prior year. That works out to an operating margin of 3.2% last year, compared with 2.4% in 2018.
Thomas Meier, Kaiser's corporate treasurer, said the organization's operating margin has averaged 3.1% over the past decade.
"It's been relatively consistent," he said.
Revenue rose 6% year-over-year, while expenses grew 5% in that time.
Meier explained that the health system saw a 14.4% return on its investment in stocks and bonds last year, including 16.4% on average from its long-term portfolio and 7.5% from its current portfolio.
Kathy Lancaster, Kaiser's chief financial officer, said in a statement that the health system's financial results allow it to make capital investments, deploy new technologies and boost affordability for its members.
"They position Kaiser Permanente to be innovative in a rapidly changing environment," she said.
Kaiser suffered a major loss in November when longtime CEO, Bernard Tyson, passed away unexpectedly. Kaiser leaders vowed to carry on his legacy, and the system named Gregory Adams its new CEO in December. In January, Modern Healthcare named Tyson to its Health Care Hall of Fame.
Membership in Kaiser's health plans grew by 81,000 people over the year to 12.2 million as of Dec. 31. Meier said growth has been down in recent years because of the Trump administration's elimination of the tax penalty associated with the Affordable Care Act's individual mandate, although the decline hasn't been as sharp as executives expected.
Capital spending held steady at $3.5 billion last year, compared with $3.4 billion in 2018. Kaiser opened 17 new medical offices last year, bringing its total to 712 offices as of Dec. 31. The health system also has 95 more medical offices in design or construction that are expected to open over the next five years. Kaiser also has 39 hospitals and 50 retail and employee clinics.
Kaiser also continued last year to make progress toward its $700 million multiyear expansion of mental health facilities. The system plans to add or renovate more than 220 mental health provider offices.
Kaiser announced plans in June to build a new Oakland headquarters building, called the Kaiser Permanente Thrive Center. Meier said the health system will break ground on that project later this year.
