Returning patients, ongoing COVID wave behind Kaiser’s slim Q2 margin

More of Kaiser Permanente’s 12.5 million members returned for healthcare services once COVID-19 cases waned in the spring and early summer, contributing to an unusually slim operating margin in the second quarter of 2021.

Typically, higher patient volumes would boost a health system’s bottom line, but Oakland, Calif.-based Kaiser operates differently than most. As an integrated system, its patients are also its health plan members, so Kaiser foots the bill for their care. The system’s operating margin was just 1.5% in the quarter ended June 30, down significantly from 9.4% in the prior year period.

Not-for-profit Kaiser spent less than usual on medical services in the second quarter of 2020, a period that includes most of the pandemic’s first wave, because much of its operations were shut down, said Tom Meier, Kaiser Permanente’s corporate treasurer.

“This quarter I would say is a little bit above normal because we are continuing to care for those with COVID as well as provide vaccinations as well as tests as well as a fair amount of deferred care coming back into the system,” he said.

Kaiser generated $349 million in operating income in the second quarter of 2021, down from about $2.1 billion in the prior-year period. The high operating profit in the earlier quarter was because of state shelter in place orders that required providers to suspend elective procedures. The shutdowns strained most providers, but Kaiser has a prepaid model where its members pay the same rates whether they use services or not, Meier said.

“That allows for a stronger financial performance because we collected the revenue but didn’t necessarily incur the costs associated with that,” he said.

Despite the underwhelming operating performance, investment gains pushed Kaiser’s net income to just under $3 billion in the recently ended quarter. That’s still down from $4.5 billion in the 2020 period.

Kaiser’s expense growth in the 2021 quarter year-over-year was more than double that of revenue. Expenses ballooned 16.6% in the second quarter year-over-year, topping out at $23.3 billion.

Revenue came out to $23.7 billion in the second quarter of 2021, up 7.2% year-over-year.

Kaiser continues to see more of its members shift from commercial plans onto Medicaid and Medicare plans due to pandemic-related job losses, Meier said. Overall membership grew 1.1%—or 141,000 members—year-over-year, but commercial membership declined about 0.5% in that time, while Medicare and Medicaid grew in the low single digits and mid-single digits, respectively.

Kaiser spent $864 million on capital projects in the recently ended quarter, down from $907 in the prior-year period.



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