Kaiser Permanente posted a $1.1 billion net loss in the first quarter of 2020 due to the stock market slide, but the health system's operations held steady despite the COVID-19 pandemic.
The net loss represented a significant swing from the integrated health system's nearly $3.2 billion in net income in the prior-year period. Even so, Oakland, Calif.-based Kaiser's operating income was 5.5% in the quarter, which is its average margin across the past five first quarters.
California's stay-at-home order took effect March 19, so the closures didn't cut into Kaiser's first quarter performance, Tom Meier, Kaiser's corporate treasurer, said in an interview.
"I think although our first quarter operating performance was stable, the cumulative impact of the COVID-19 operational costs were not really incurred in the first quarter," he said, "and the full cost of surge planning as well as the overall economic and membership impacts of the COVID-19 pandemic are not yet known. So stay tuned."
Kaiser has so far recovered about half of its investment losses through Friday, although Meier said he has "no idea" where that will be on June 30. Kaiser changed its asset allocation policy effective Jan. 1 to put more emphasis on government bonds, Meier said. That's in anticipation of further volatility and downside risk in the equities market going forward, he said.
Kaiser's revenue grew 5.9% in the quarter to $22.6 billion. Expenses grew at a slightly higher clip—7.8%—to $21.4 billion. Kaiser operates under a unique model in which membership fees are paid at the beginning of each month, Meier explained. For that reason, Kaiser didn't see a revenue dip when procedures were put on hold.
"To the extent they're delayed and deferred, we're not incurring the cost but we're still collecting the revenue," he said.
Meier said Kaiser's expenses grew faster than revenue because of an intentional focus on keeping memberships affordable, he said. Kaiser grew by 194,000 members between the end of 2019 and March 31.
Kaiser generated almost $1.3 billion in operating income in the first quarter, down 18.4% from $1.5 billion in the 2019 period, when the system's operating margin was 7.2%. Meier said that's one reason the health system is focused on affordability for members.
"Last year was an exceptional year, a 7.2% margin," he said. "It wasn't one we were seeking to repeat."
Kaiser spent $912 million on capital projects in the first quarter, up 9% from the prior-year period. Meier explained that the COVID-19 crisis came to a head late in the first quarter, and many of the projects cover multiple years and can't necessarily be put on hold.