Oakland, Calif.-based Kaiser Permanente posted a net loss of $4.5 billion in 2022, but its impressive financial performance in previous years allowed it to continue to invest in its facilities and the community when many other health systems pulled back in these areas.
Tom Meier, senior vice president and corporate treasurer at Kaiser, spoke to Becker's Hospital Review about the organization's strategic investments, the growth of its health plan and how it is addressing staff shortages and labor costs.
Question: The steep swing from net income to net loss is not something that’s unique to Kaiser when reviewing health system financial reports in 2022. Can you shed some insight into why there was such a steep swing from net income to loss last year?
Tom Meier: Kaiser's health plan and hospitals have nearly 224,000 employees and 23,000-plus physicians. We are in eight states and the District of Columbia. Across our markets, the environment challenged us with an increase in healthcare expenses, driven by inflation, COVID care and testing costs, ongoing labor costs and shortages and a rise in care volume.
We saw an increase of 4.5 percent in our operating expenses. Revenue increased by a modest 2.4 percent for the year, and that reflects a focus on managing expenses in an inflationary environment while not impacting the care quality and service to our members. In the face of these challenges, our management teams and employees did an outstanding job implementing initiatives to reduce operating expenses and administrative costs and help improve overall efficiencies while not impacting quality care and service to our members.
Our operating revenue for 2022 was $95.4 billion, up from $93.1 billion in 2021. Operating expenses were $96.7 billion compared to $92.5 billion in 2021. As a result, there's an operating loss of $1.2 billion for the year compared to operating income of $611 million in 2021. Strong headwinds also impacted financial markets, resulting in a loss in total other income and expenses of $3.2 billion in 2022, compared to a gain of $7.5 billion in 2021. As a result, we recorded a net loss of $4.5 billion compared to a net income of $8.1 billion in 2021.
Q: Despite that net loss, Kaiser continued to invest significantly in its facilities and community health programs. How was Kaiser able to achieve this when many systems pulled back amid financial challenges?
TM: The short answer is we made $3.6 billion over the last two years. That allowed us to continue investing in our facilities. Our capital spend was about $3.5 billion in 2022 as it was in 2021. We also opened up four new medical offices — one in California and three in mid-Atlantic states. Our membership increased nearly 33,000 members to 12.6 million. And we were also able to continue our commitment to improving community health by investing $2.8 billion in community health programs, up from the $2.6 billion we invested in 2021. Importantly, our dedication to delivering care convenience includes our expansion of our telehealth programs.
We had more than 24.5 million phone and video visits that were scheduled in 2022. We also provided care to 1.8 million members with COVID and administered more than 5 million COVID vaccinations and administered about the same number of flu shots. These numbers make it clear that while our industry is facing daunting economic and pandemic-related challenges, we remain firmly committed to investing in our long-term strategic objectives. Rather than pull back due to financial pressures, we made the decision to continue our long-term investment in care and service improvement while carefully managing our resources, which includes improvements in patient care, community health, capital programs and investments in technology.
Q: What type of community health programs was the $3.2B invested in in 2022?
TM: There are five goals that support our mission and strategy to make it convenient and easy for our members to access care. The $2.8 billion went toward a variety of programs that support affordable housing, education, and clean air and water in our communities, plus delivering care to those who are underserved, those who cannot afford to come into the system and are unable to pay bills through medical system programs. The dollars are spread proportionally across our eight states and D.C.
Q: What new markets do you anticipate you will expand the health plan into in the future?
TM: We are open and looking at all markets. We monitor the M&A environment closely and regularly evaluate opportunities as they arise.
Q: In 2022, both revenue and expenses were up. Where do you see the biggest opportunities to increase revenue as you look to offset the rise in expenses?
TM: The way our model works is we set the rates in the spring of the prior year. Healthcare is not affordable in the U.S., so part of our mission is to be able to provide high-quality, affordable care. Our focus continues to be on delivering care more efficiently and reducing discretionary spending.
Q: Staffing shortages aren't expected to vanish from the healthcare sector anytime soon, and many systems continue to battle increased labor costs. What is Kaiser's strategy for addressing staff shortages and reducing labor expenses?
TM: Of the nearly 224,000 employees at Kaiser, about 160,000 are part of an organized collective bargaining agreement, so those contracts are staggered and they're significant contracts that come up every year. We will bargain at the table for competitive wages and benefits, but we're extremely grateful for our frontline healthcare workforce whose commitment to care has been nothing short of inspiring throughout the pandemic.
But we're managing our staff judiciously, leveraging our e-visits and self-service digital tools and addressing the root causes of surgical backlogs. We are always focused on delivering superior quality and equitable health outcomes. Part of that comes from our investment in creating a digital-first system, designed around consumer expectations. It's important to note that Kaiser Permanente is focused on attracting and retaining top talent, providing opportunities for career advancement and striving to be one of the best places to work in the nation.
Q: Many financial experts are projecting a recession this year. How is Kaiser thinking about 2023, and how might a potential economic downturn this year affect the organization?
TM: We set our rates a year ago for this year, so for us it's really about focusing on costs. So far the markets in 2023 started with a big bang with growth equity and fixed income indexes performing solidly in positive territory. Some of that may be because we have higher than predicted GDP and indications of slowing inflation give rise to optimism that a soft landing for the economy might be possible.