Kaiser Permanente scrapes out 0.4% operating margin but loses big on investments in Q2

Kaiser Permanente posted a thinned operating margin and nearly $1.3 billion net loss during its second quarter “driven largely by investment market conditions,” according to topline financials for the quarter ended June 30 reported Friday evening.

The massive integrated nonprofit health system notched $23.47 billion in total operating revenues, representing a minor 0.9% dip from the second quarter of last year. Total operating expenses inched nearly 0.2% upward year over year, to $23.38 billion.

The result was an operating income of $89 million (0.4% operating margin) during the most recent quarter, down from the prior year’s $349 million (1.5% operating margin).

“Much like the entire health care industry, we continue to address deferred care while navigating COVID-19 surges and associated expenses. Kaiser Permanente’s integrated model of providing both care and coverage enables us to meet these challenges as demonstrated by our moderate increase in year-over-year operating expenses for the second quarter,” EVP and Chief Financial Officer Kathy Lancaster said in a statement accompanying the filing.

“As we work through the ongoing uncertainty of the pandemic, we continue to manage rising costs, supply chain challenges, labor shortages and escalating demand for COVID-19 testing while fulfilling our mission to improve the health of our 12.6 million members and the communities we serve,” she said.

Kaiser’s primary turnaround from 2021, however, came from a $1.39 billion loss within its other income and expense category that was attributed to the market. The organization had logged a $2.62 billion gain during Q2 2021—a major contributor to the record-breaking $8.1 billion net income it ultimately claimed throughout 2021.

As of June 30, Kaiser has gained over 61,000 members since the top of the year, according to the filing.

Capital spending during the quarter fell from the previous year’s $864 million to $789 million, although the organization said that the new spending is sufficient to support all of its planned investments and other needs.

“While the unprecedented effects of the pandemic will be felt for years to come, Kaiser Permanente’s focus on our mission remains steadfast as we continue to adapt to an ever-changing landscape,” CEO Greg Adams said in a statement accompanying the numbers.

Kaiser’s financials tell a similar story to that of nearby Sutter Health. The fellow nonprofit system last week shared a 0.6% operating margin for the quarter driven by tighter expenses but a $457 million net loss due to the markets.

A recent Kaufman Hall industrywide report also showed only marginal relief from expenses and middling non-COVID volume recovery through June. A Fitch Ratings update on nonprofit hospitals from mid-July warned that these challenges and broader inflation pressures will likely weigh down the sector through 2022.