Oakland, Calif.-based Kaiser Permanente's operating margin hit 0.9 percent in the first quarter, up from -0.3 percent in the same period last year, as revenues increased $1 billion year over year to $25.2 billion and expenses rose $700 million to $25 billion.
Kaiser Foundation Health Plans, which operates in the District of Columbia and eight states — California, Colorado, Georgia, Hawaii, Virginia, Maryland, Oregon and Washington — grew by 120,000 members to 12.7 million in the first quarter. In 2022, membership grew by 36,000.
Tom Meier, senior vice president and corporate treasurer at Kaiser, spoke to Becker's about the health system's first-quarter performance, the growth of its health plan and his top financial priorities through 2023.
Question: Kaiser's expenses increased by about $700 million year over year in the first quarter. Can you share some insight behind those numbers and your cost-reduction strategy for the rest of the year?
Tom Meier: Expense drivers in the first quarter included the impact of inflation on the cost of goods and services and the higher cost associated with providing care. Like other health systems, we continue to see high labor costs in the first quarter.
Q: On the other hand, revenue was also up in the first quarter by about $1 billion year over year. To what do you attribute the increase in revenue?
TM: It's important to understand both our business cycle and what was happening a year ago when answering this question. In Q1 2022 we were still in the midst of a global pandemic, experiencing our greatest surge COVID-19 cases and the related cost of care and testing, while absorbing the costs of providing care to our members that was deferred earlier in the pandemic. Additionally, the operating margin for the first quarter is historically our strongest due to the timing of our open enrollment cycle. We typically see lower operating margins in the three subsequent quarters as expenses tend to increase throughout the year while revenue will stay relatively flat.
Q: Kaiser's health plan grew by 120,000 in Q1, which seems substantial given membership grew by 36,000 for all of 2022. Do you expect to see similar growth in the coming quarters?
TM: Our membership as of March 31 was at 12.7 million. We don't expect to see similar growth in the coming quarters because we gain most of our new members in January due to the open enrollment the fall prior. Most of the membership gains were in government-sponsored plans, including Medicaid, which is aligned with our mission of improving the health of the communities that we serve. Membership gains were smallest among our commercial plans, reflecting competition for employer accounts, even as we continue to be aggressive on plan pricing and value.
Q: What are your top financial priorities through 2023?
TM: Our top financial priority is always to support our mission and providing care for our 12.7 million members. We recognize the end of the pandemic does not mean the end of Kaiser Permanente's financial challenges. Market competition, staffing challenges and the high cost of goods and services will continue, and we will continue to carefully manage those expenses while remaining firmly committed to investing in our long-term strategic objectives.
Q: What is Kaiser Permanente's thinking behind the creation of Risant Health and the acquisition of Geisinger?
TM: We see the pending acquisition of Geisinger and the creation of Risant Health as an innovative move to improve the health of communities, achieve better outcomes and improve healthcare affordability. It will be designed to expand and accelerate the adoption of value-based care in diverse, multi-payer and multi-provider community-based health system environments. We are focused on partnering with value-based health systems that are like-minded with Kaiser and that need scale and new capabilities to broaden their reach to serve their missions.