Dive Brief:
- Kaiser Permanente said on Friday it will attempt to cut administrative costs after the system recorded a $608 million operating loss during the third quarter, compared with a $156 million gain in the previous year.
- The Oakland, California-based nonprofit health system attributed its loss to rising expenses and industry-wide conditions, including higher-than-expected utilization of services, patient acuity and pharmacy costs.
- Kaiser said it would reduce discretionary spending and streamline business operations in response to rising expenses.
Dive Insight:
Kaiser has already taken steps to cut costs this year. The integrated health system has conducted several rounds of layoffs, the most recent of which was reported to California regulators last month and will take effect in December.
The layoffs have mainly impacted information technology workers and employees in business functions, according to statements from a Kaiser spokesperson.
However, layoffs have proved insufficient to curtail rising expenses during the third quarter. Kaiser’s operating expenses shot up by nearly 20% year over year to total $29.6 billion and surpassed the system’s operating revenue.
In turn, Kaiser’s operating margin was -2.1% for the quarter, compared with 0.6% last year.
Some of Kaiser’s third quarter performance is explained by calendar effects, according to the health system. Historically, Kaiser reports lower operating margins during the back half of the year because revenues stay flat while expenses rise with increased care demands associated with seasonal illnesses.
However, when looking across the first nine months of the year, Kaiser’s operating margin is still slightly lower in 2024 than it was in 2023 — at 1.4% compared to 1.5%.
Despite the challenging quarter, Kaiser CEO and chair Greg Adams said he remains confident in the integrated health system’s direction in a statement accompanying Friday’s earnings.
“Kaiser Permanente is continuing to innovate and adapt to address industry headwinds including the changing marketplace, rising consumer expectations, and the inflationary effects on the total cost of care,” the executive said.
Notably, Kaiser spun out a nonprofit venture this year, Risant Health, that offers a national value-based care network. Risant also offers Kaiser access to a new population of patients and plan members.
Currently, Risant is much smaller than Kaiser. As of the third quarter, Risant had only 552,000 members to Kaiser’s 12.5 million and included just one health system: Danville, Pennsylvania-based Geisinger.
However, the nonprofit intends to purchase North Carolina-based Cone Health and several others in the coming years, according to Kaiser.
During the quarter, Kaiser recorded a $13 million gain from the Geisinger acquisition, which closed in the first quarter of this year.
