Kaiser Permanente Clears $1 Billion in Q1 Operating Income

The integrated health system's reported financial performance follows closely on a $4.4 billion bond boost secured earlier this month.

Kaiser Permanente has made consecutive financial bangs this month.

In unaudited financial statements posted May 15, the integrated health system cleared the $1 billion mark in first-quarter operating income. The operating gain, which was generated on total revenue of $18.1 billion, is a $335 million increase over Kaiser's $701 million operating gain in Q1 2016.

The Oakland, CA-based system's reported financial performance in the first three months of the year follows closely on a $4.4 billion bond boost it secured earlier this month. The bonds, which are spread over three offerings, include "green bond" financing that Kaiser Permanente garnered as a result of opening San Diego Medical Center last month.

KP is the largest integrated health system in the country. As if the end of last year, it had 201,000 employees and 38 hospitals, and its health plans covered 11.3 million members. KP operates in eight markets: Northern California, Southern California, Colorado, Georgia, Hawaii, Mid-Atlantic States, Northwest, and Washington.

For the first quarter of this year, Kaiser reported year-over-year gains in all three operating revenue categories:

• Health-plan member dues: $12.3 million, up 11.9%
• Medicare reimbursement: $4.2 million, up 9.8%
• Copays, deductibles, fees, and other operating revenue: $1.6 million, up 8.5%

Last month, Chicago-based Fitch Ratings Inc. assigned Kaiser's recent bond offerings an A+ rating. Fitch cited six drivers for the rating grade:

• Kaiser's unique business model, including operating as a closed health maintenance organization
• Large market share, particularly in California: "Based on revenue, Kaiser is by far the largest nonprofit health system in the U.S."
• The health system's "track record of profitability" along with favorable debt burden and debt coverage ratios
• Strong liquidity, include a cash-to-debt ratio pegged at 363%
• Significant pension obligations: At the end of the 2016 fiscal year, the health system's pensions were 46% funded, with a projected benefit obligation of $25.3 billion
• A+ insurance financial strength ratings for several Kaiser health plans: Kaiser Foundation Health Plan; Kaiser Foundation Health Plan of the Northwest; Kaiser Foundation Health Plan of Georgia; Kaiser Foundation Health Plan of the Mid-Atlantic States; Kaiser Foundation Health Plan of Colorado; and Kaiser Permanente Insurance Company.

The health system has posted year-over-year increases in annual operating revenue over the past decade. Last year, operating revenue tallied at $64.6 billion.