Oakland-based nonprofit health system and health plan provider Kaiser Permanente on Friday reported a net income of $2.1 billion dollars in the second quarter of 2023 — an improvement from last year’s second quarter loss of $1.3 billion. Operating income totaled $741 million, up more than 700% from the $89 million reported a year ago.
This marks the second quarter of positive financials for the provider after the company reported a $4.5 billion net loss last year, driven by strains from labor costs and investment losses.
Leadership attributed the rebound to an uptick in membership and “favorable financial market conditions” in a release, which allowed Kaiser to generate strong investment income.
Health plan membership grew to nearly 12.7 million in the second quarter, an increase of nearly 81,000 members since the end of 2022. Amid Medicaid redeterminations, Kaiser has begun outreach to its Medicaid members to educate them about the process and minimize possible impacts of disenrollment, according to the nonprofit
Although second quarter financials were positive, leadership noted that Kaiser typically performs best during the first half of the fiscal year. As the year goes on, Kaiser expects operating margins to decline as expenses increase due to the annual enrollment cycle and strains of seasonal care.
Additionally, Kaiser is still experiencing “ongoing cost headwinds and volatility” from inflation and labor shortages. Operating expenses were up 4.3% year over year, from $23.4 billion in 2022 to $24.4 billion this quarter.
In a statement, EVP and CFO Kathy Lancaster said that the positive financial results and “ongoing expense reduction efforts” would help the company face financial pressures in the back half of the year.
So far, cost reduction efforts have included consolidating office locations and being cautious about backfilling administrative positions, Tom Meier, corporate treasurer told Modern Healthcare. Kaiser has not conducted layoffs.
Long term, Lancaster pointed to a need to continue investments in facilities, technology and people to remain competitive in what she called a “dynamic” marketplace.
One such investment includes the planned acquisition of Geisinger Health, announced in April. If the deal closes as anticipated next year, Kaiser will invest at least $5 billion into the health system and use the acquisition to form a new nonprofit — one the company can then use to acquire and operate additional nonprofit systems. The proposed deal is expected to ink more than $100 billion in annual revenue.
Kaiser is not the only health system focused on long term strategy when assuring investors of its path out of COVID-19-related financial hardships. Last week, for-profit hospital operator Community Health Systems announced a plan to modernize, called Project Empower, and detailed strategic investments and divestitures after posting a $38 million net loss.
