Despite big troubles, Kaiser income jumps 30%

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Despite some high-profile black eyes in a few areas of its operations, Kaiser Permanente has had one heck of a year. The organization just reported that its nonprofit Kaiser Foundation Health Plan, Kaiser Foundation Hospital and subsidiaries saw a 10 percent jump in revenue and a 30 percent rise in net income. This is good news for Kaiser, certainly, but it should also be noted that Kaiser's operating margin has fallen almost one-half over the last couple of years, from 5.3 percent in 2004 to 2.8 percent in 2006. That is a direction which is doubtless of great concern to CEO George Halvorson, though he has, of course, played the lower number as a sign that Kaiser's making smart, margin-deflating investments.

The rise in revenues and net income took place despite the fact that Kaiser is grappling with some extremely serious challenges, including a shaky $4 billion EMR installation, continuing bad press from the failure of its northern California kidney-transplant unit, patient-dumping charges against one of its LA hospitals and big bills from hospital construction and earthquake-proofing its existing facilities in California. Toss in problems with decreasing Medicare and private payer reimbursement, and fast-growing operating expenses, and one would hardly expect such a healthy increase in revenue--or particularly in net income.

The question here is whether expensive undertakings like the EMR project suck more life out of the operating margin, putting, as Halvorson himself previously suggested, Kaiser's long-term financial stability in danger. After all, there's not much further to fall there.

To get more information on Kaiser's financial situation:
- read this piece in the East Bay Business Times

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