What Drove KP's Q3 $608M Loss

Rising medical expenses and industry headwinds contributed to the system's losses.

Kaiser Permanente posted a $608 million operating loss in its third quarter. The California-based system cited factors like higher-than-expected service utilization, resulting in more medical expenses, as well as patient acuity and pharmacy costs as reasons for the loss.

The health system posted an operating revenue of $29 billion in the three months ended Sept. 30, which is up from $24.9 billion it had over the same period in 2023. In that same timeframe, Kaiser's net income was $845 million and its capital spend sat at $922 million, resulting in a negative operating margin of 2.1%.

Kaiser defended its third quarter capital spend in a press release, saying it "reflect[s] an ongoing investment in facilities and technology to serve members and patients and meet seismic safety mandates."

Another ding to Kaiser's third quarter performance, the system said, was the "impact of Medicaid and other true-ups of annual contracts that normally occur earlier in the year."

These results differ from Kaiser's earnings in the first half of the year where the system reported a 3.1% operating margin and a $2.1 billion net income for its second quarter.

Health systems all over the country are dealing with some of the same pressures Kaiser is feeling, especially the consistent rise of medical expenses. CFOs will need to explore new strategies to battle consistently rising expenses. Leaders can collaborate to examine how other strategies, such as lowering non-clinical spend, optimizing service models, and pursuing partnerships, may help with cost control.

Despite the losses, Kaiser's income for 2024 versus 2023 is marginally higher after reporting $1.2 billion last year. In a press release, the system cited favorable market conditions as a contributing factor.

Kaiser noted in the release that its second-half margins are generally lower than the first because revenue remains flat while expenses increase, partially due to seasonal care. However, the system emphasized that its year-to-date spend of $2.6 billion is consistent with its 2023 spend.

The system plans to shift its strategy by controlling discretionary spending and trimming business operations.

"Kaiser Permanente is continuing to innovate and adapt to address industry headwinds including the changing marketplace, rising consumer expectations, and the inflationary effects on the total cost of care," Kaiser chair and CEO Greg A. Adams said in a statement. "I have confidence in our integrated model and believe it provides us with unique opportunities to respond to the current environment."

In March, Kaiser acquired Geisinger, which brought the system's net income to $10.3 billion, compared to last year's figure of $2.5 billion. The total net asset gain from Geisinger in the first quarter was $4.6 billion. Kaiser reported a $13 million net gain in the third quarter.