Kaiser reports $1.1B net loss in Q1 due to stock market slide

Dive Brief:

  • Kaiser Permanente reported a staggering net loss of $1.1 billion in the first quarter of 2020, mostly from investment losses as the stock market plummeted following ongoing uncertainty from the coronavirus pandemic.
  • In comparison, the nonprofit integrated health system had net income of $3.2 billion same time last year.
  • The quarter ended March 31 did include some COVID-19-related costs, including establishing mobile hospitals and triage units and increasing inpatient capacity, but they were “not significant,” according to Kaiser’s Friday release

Dive Insight:

Reversing multiple quarters of profitability, Oakland, California-based Kaiser ended up in the red in the first quarter this year due to sweeping investment losses, the system said. Operating revenue of $22.6 billion was up 6% year over year, but expenses swelled too, coming in at $21.4 billion, up 8% year over year. Non-operating expenses, including the investment loss, were $2.4 billion, compared to non-operating income of $1.6 billion the same time last year.

Operating margin was 5.5%, down slightly from 7.2% same quarter last year, which was an unusually robust period for the 75-year-old integrated system. The first quarter usually yields the highest margins for Kaiser, as it’s coming off the fall open enrollment period. Margins tend to flatten as the year progresses, as revenue stays largely flat and expenses tick up.

Providers across the country are managing flagging revenues as COVID-19 expenses skyrocket and other lucrative procedures and treatments are delayed or canceled, depressing volumes. Kaiser is insulated somewhat from the headwinds, as individual and employer group plan members pay a monthly membership fee upfront, so Kaiser is still receiving revenue despite the ebb in elective procedures.

However, the brunt of the coronavirus pandemics’ impact on hospital finances is going to register in the second quarter, analysts and financial executives say, as many states’ stay-at-home orders didn’t kick in until mid-March. California’s shelter-in-place order took effect March 19. The Trump administration has rushed to speed some $175 billion in Congressional funding to hospitals to bolster their finances, though providers say it may not be enough to keep their doors open if the pandemic persists.

“The coming months pose significant risks to health care organizations of all sizes and varieties,” Kaiser CEO Greg Adams said. Adams replaced long-time Kaiser CEO Bernard Tyson late last year after Tyson’s unexpected death at the age of 60.

Kaiser Permanente’s membership grew 194,000 since December, bringing its total covered lives to 12.4 million as of March 31.

The system, which pledged last year to invest its $7.4 billion in profits in infrastructure and affordability for its members, recorded capital spending of $912 million in the quarter. That includes the opening of two new medical offices in Washington state, bringing its total fleet to 714 offices. Kaiser, which also has 39 hospitals and 51 clinics, scuttled the $900 million build of a new Oakland headquarters in March due to delays and mounting costs.