- Nonprofit health giant Kaiser Permanente's operating margin continued to shrink in the third quarter as expenses grew faster than revenue, spurred by labor unrest and surging COVID-19 patients, the Oakland, California-based integrated health system said.
- Kaiser reported $38 million in operating income in the quarter, on $23.2 billion in revenue. That's a 0.2% operating margin — exceedingly low compared to a margin of 2.1% same time last year.
- The 39-hospital system's expenses in the third quarter grew 7.5% year over year to $23.1 billion, while revenue only increased 5.5%. Kaiser said the expense growth was due to higher costs from COVID-19 patients and workforce requirements, as — like other hospital operators — Kaiser has had to pay more for travel nurses and other contract labor to meet rising patient levels during the pandemic.
A number of major hospital systems reported higher COVID-19 admissions in the third quarter as the delta variant swept through the country, stressing U.S. providers even as workforce issues and widespread burnout came to a head. In its third quarter results released on Friday, Kaiser echoed similar concerns.
Kaiser, which operates a network of hospitals, clinics and its own health plan, has seen its operating margin dwindle this year due to these headwinds. Despite revenue up 5% year over year, the higher jump in expenses led operating income to plummet 92% year over year.
Investments and other income helped Kaiser to a net income of $1.6 billion. But that's significantly down from its profit at the same time last year and in the first and second quarters this year, when the system brought in $2 billion, $2 billion and almost $3 billion in net income, respectively.
The system has said that expenses related to COVID-19 have created the biggest threat to its margins this year, as Kaiser has seen its operating margin shrink from 4.4% in the first quarter to 1.5% in the second, and now to 0.2%.
But the nonprofit is also facing rising expenses amid intense workforce pressure, as it faces what could be the largest work stoppage this year.
Almost 32,000 Kaiser workers are set to strike beginning Nov. 15. The strike, which is set to impact 366 facilities in southern California alone and has no set end date, came after union leadership and Kaiser management couldn't come to an agreement over a new contract.
Unions say Kaiser offered an insufficient pay increase that doesn't address staffing issues, while Kaiser has argued its hands are tied by the rising costs of care, particularly around wages. Wages and benefits already make up half of Kaiser's operational costs, but Kaiser said that if a strike occurs it will bring in contingency staff as needed to ensure continuity of care.
Another stressor for Kaiser's margin was an increase in Medicaid members. More of its 12.5 million health plan members transitioned from more lucrative commercial policies to the safety-net insurance, which tends to reimburse less for care, in the third quarter.
Medicaid and Affordable Care Act marketplace enrollment seems to have prevented rampant coverage losses in 2020 and this year as a large chunk of the population lost their jobs and subsequent job-sponsored insurance. The rate of uninsured Americans stayed essentially stable last year — between 8.6% and 9.7% — as Medicaid and ACA offerings offset losses of employer-sponsored coverage, according to federal data released earlier this month.
Medicaid is now the single largest source of coverage in the U.S., following that sharp spike in enrollment during the pandemic.