Kaiser income increases

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Inside Bay Area (California)

OAKLAND, CA — Kaiser Permanente hit a third-quarter trifecta Tuesday as its net income, revenue and membership base all climbed.

But with rising operating costs and the government making changes to the Medicare Advantage program, the nonprofit health maintenance organization’s outlook is less optimistic.

“Our performance in the third quarter was in line with our expectations, but we are working to strengthen our organization for what will be a challenging 2007,” Kaiser Chief Financial Officer Kathy Lancaster said.

A company official said Oakland-based Kaiser is finalizing rate changes for 2007. Members have seen average double-digit rate increases for the past several years.

Kaiser Foundation Health Plan Inc., Kaiser Foundation Hospitals and their subsidiaries reported third-quarter net income of $417 million, a 37 percent increase compared with $305 million in last year’s third quarter. Kaiser attributed the increase to reductions of liabilities for self-insured risk.

Revenues rose more than 11 percent on the quarter to $8.7 billion. Membership grew by more than 30,000 members during the period, bringing total membership to more than 8.6 million.

Because Medicare patients make up about 10 percent of its membership and are responsible for about a third of its revenue base, Kaiser is paying extra attention to the impact of government changes to the Medicare Advantage program, whose rates seniors complain will rise more than 50 percent next year.

“Our industry expects Medicare reimbursement to grow at a slower rate in the years ahead,” Lancaster said.

The monthly premiums people paid for Senior Advantage ranged from $70 to $101 this year, and next year they range from $89 to $99, a Kaiser spokesperson said. The biggest change has been that the co-pays are higher than they used to be.

“To prepare for this change, we are continuing to reinforce the quality of our care and service by working harder to leverage the advantages of our integrated health care systems,” Lancaster added.

In addition to overcoming the changes in Medicare, rising operating costs at double digits a year also could impact its earnings, said Tom Meier, Kaiser vice president and treasurer.

“Our costs continue to increase quarter to quarter, so we are trying to find better ways to be in a better position to handle these challenges,” he said.

Last Friday, a project supervisor, Justen Deal, sent out an e-mail and set up a Web site, http://www.fixkp.org, in which he stated, “Kaiser Permanente could face losses of as much as $7 billion over the next two years.” He added that at least $1.5 billion was “wasted on unreliable, inefficient software.”

Kaiser Chief Executive George Halvorson told the San Francisco Chronicle that the memo was inaccurate, and to manage costs, the company was having hiring freezes in some departments and evaluating staffing levels. Deal was placed on administrative leave as a result of his memo, the Chronicle said.

Although Kaiser sees challenges in its future, consumer advocate Jamie Court is a little more skeptical about Kaiser‘s predicament.

“This is a company that has stashed away millions if not billions of dollars over the last decade, so if anyone can afford hard times, it is them,” said Court, president of the Foundation for Taxpayer and Consumer Rights.

“I think their cries are just code for, ‘We want more from the government,’ and I think the fact that elections are the same day has a lot to do with it,” Court said.
Business Writer David Morrill can be reached at (925) 416-4805 and [email protected]

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