Kaiser misses re­peat­ing a $1 bil­lion op­er­at­ing gain . . . this quar­ter

Modern Healthcare - - NEWS - By Dave Barkholz

Kaiser has a po­tent weapon beyond its size and economies of scale—it knows its pa­tients and has reg­u­lar con­tact with its 11.7 mil­lion health plan en­rollees.

Kaiser Per­ma­nente failed to re­peat the record $1 bil­lion in op­er­at­ing in­come it posted in the first quar­ter.

But the Oak­land, Calif.-based hospi­tal and health plan gi­ant didn’t do ter­ri­bly, post­ing $772 mil­lion, 57% more than the prior-year quar­ter.

Kaiser Trea­surer Tom Meier said the com­pany ex­pected op­er­at­ing in­come to be lower in the sec­ond quar­ter. The com­pany sets pre­mi­ums at the start of the year but med­i­cal costs in­crease through­out the year, eat­ing slightly into mar­gins. That’s why Kaiser did not reach the same mile­stone, while in­vestor-owned hospi­tal chains such as HCA, Com­mu­nity Health Sys­tems and Uni­ver­sal Health Ser­vices all com­plained of fall­ing hospi­tal ad­mis­sions and fewer newly in­sured mem­bers.

Kaiser has a po­tent weapon beyond its size and economies of scale, said Chief Fi­nan­cial Of­fi­cer Kathy Lan­caster. The na­tion’s largest in­te­grated sys­tem can earn $1 bil­lion in op­er­at­ing in­come in a quar­ter—an eye-pop­ping num­ber for any health­care sys­tem let alone a not-for­profit—be­cause it knows its pa­tients and has reg­u­lar con­tact with its health plan en­rollees, Lan­caster said.

“You have to have con­ti­nu­ity of mem­ber­ship,” Lan­caster said.

Said a dif­fer­ent way, Kaiser has one of the high­est rates of mem­ber­ship re­ten­tion in the in­dus­try. Turnover among Kaiser’s 8.4 mil­lion health plan en­rollees in Cal­i­for­nia dur­ing the first quar­ter of 2017 was just 5.8%, far bet­ter than the next clos­est com­peti­tor, An­them Blue Cross of Cal­i­for­nia, at 8%, ac­cord­ing to the Cal­i­for­nia De­part­ment of Man­aged Health Care.

That re­ten­tion across all lines of busi­ness, in­clud­ing com­mer­cial and Medi­care man­aged care, al­lows Kaiser to pro­mote pre­ven­tive care and head off avoid­able health prob­lems that can cause med­i­cal costs to sky­rocket, Lan­caster said.

“A $1 bil­lion quar­ter is quite re­mark­able,” said Al­lan Baum­garten, a Min­neapo­lis-based health mar­ket an­a­lyst who writes re­ports on man­aged care and hospi­tal mar­ket con­di­tions in eight states.

But Baum­garten said he’s not sur­prised be­cause Kaiser, with its an­nual rev­enue of about $71 bil­lion, has a track record for qual­ity and ef­fi­ciency and a unique op­er­at­ing struc­ture. Kaiser owns 39 hos­pi­tals and con­tracts ex­clu­sively with Per­ma­nente doc­tors to pro­vide care for its mem­bers, 95% of whom are cov­ered on a cap­i­tated ba­sis.

Lan­caster said Kaiser’s first quar­ter is usu­ally the most lu­cra­tive from an op­er­at­ing stand­point be­cause the com­pany re­ceives cap­i­tated pay­ments for any new mem­bers up­front and it usu­ally takes them a few weeks or months to seek med­i­cal care.

Lan­caster said fre­quent con­tact with en­rollees, many of whom have been with Kaiser for years, al­lows Kaiser to keep costs in check. For ex­am­ple, Kaiser can track en­rollees with chronic con­di­tions to en­sure they are get­ting their pre­scribed check­ups and ad­her­ing to med­i­ca­tion sched­ules.

The health sys­tem also leaves times open on mam­mog­ra­phy and other di­ag­nos­tic equip­ment at doc­tor’s of­fices so that an en­rollee who comes in for a cold, for in­stance, but failed to get a mam­mo­gram can lit­er­ally be walked down a hall for the test, Lan­caster said.

“If we can catch a can­cer at stage 1 in­stead of stage 4, the chances of sur­vival in­crease and the costs de­crease, she said.

Kaiser’s 11.7 mil­lion mem­bers had 100 mil­lion med­i­cal en­coun­ters with Kaiser clin­i­cians last year, 52% of which took place by email, se­cure com­mu­ni­ca­tion por­tal or telemedicine, said CEO Bernard Tyson.

Kaiser views those check­ups as cru­cial to keep­ing en­rollees healthy, Lan­caster said.

The proof is in Kaiser’s med­i­cal cost trends vs. the com­pe­ti­tion. In each of the past three years, Kaiser’s ex­penses have in­creased un­der 2% a year, lower than gen­eral in­fla­tion and less than half that of over­all med­i­cal in­fla­tion.

Baum­garten said Kaiser’s qual­ity rep­u­ta­tion is such that it doesn’t have to mar­ket it­self as a dis­count brand. In fact, the re­verse is true, he said.

Pre­mi­ums for cus­tomers, about 80% of which are em­ploy­ers and com­mer­cial cus­tomers, are typ­i­cally com­pa­ra­ble to those of for-profit com­peti­tors in Cal­i­for­nia, such as An­them and Aetna.

Kaiser de­liv­ers good value for its prices, he said. And as a not-for-profit, the sys­tem in­vests sub­stan­tially in the com­mu­ni­ties it serves, Baum­garten said. That in­cludes spend­ing not only for med­i­cal fa­cil­i­ties but for un­com­pen­sated care and health-re­lated ed­u­ca­tion and pro­grams, he said.

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