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News release: NationalAugust 3, 2007
For more information, contact: Claire Holmes at 510 271 5953 Kaiser Foundation Health Plan Poised to Meet Needs of Members and Community Oakland, Calif., August 3, 2007 — Kaiser Foundation Health Plan, Inc. and Kaiser Foundations Hospitals and their subsidiaries (KFHP/H) announced financial results for the second quarter that will support the continuation of multi-year investments targeted to meet the needs of the 8.7 million members and communities the organization serves. KFHP/H's operating income for the quarter ending June 30, 2007, was a positive anomaly driven by an unusually large reduction in reserves for professional liability and worker's compensation. This was combined with typically stronger earnings in the first half of the year. The stronger earnings in the first half of the year occur as a result of the significant number of rate renewals that go into effect in January. However, overall organizational costs usually increase throughout the year. Earnings, therefore, are not expected to continue at this level for the remainder of the year. Operating income for the second quarter 2007 was $877 million, which included a reduction in reserves for professional liability and worker's compensation of $356 million. Excluding this adjustment, operating income for the second quarter 2007 would have been $521 million. The reduction of reserves for professional liability and worker's compensation is due, in part, to favorable results with respect to claims and workplace injuries as well as recent legislative reform in California. The reduction in claims and injuries will enable the organization to continue to improve the affordability of health care for our members, customers and communities we serve. In addition, ongoing efforts to address administrative efficiencies have contributed to these favorable results. Operating income for second quarter 2006 was $198 million. The total operating revenue for second quarter of 2007 was $9.4 billion as compared to $8.5 billion for the second quarter 2006. In addition to operating income, non-operating income improved to $248 million during the second quarter of 2007 compared to $74 million in the second quarter of 2006. The primary improvement in non-operating income is directly attributable to the strong performance in financial markets. KPHP/H has enjoyed strong financial returns during 2007. However, the credit and equity markets remain volatile and past performance is not an indicator of future performance. Capital spending totaled $627 million for the second quarter of 2007, as compared to $630 million in second quarter of 2006. The 2007 spending includes the completion of construction on several new facilities due to open later this year and in early 2008. Anticipated openings include seismic rebuilds in the following California locations - Santa Clara, West Los Angeles, and Panorama City - as well as a new facility in Antioch, Calif. and an expansion in Portland, Ore. Membership remained flat in the first half of the year at 8.7 million. "The hard work of our people, coupled with investments in technology and workplace safety, have helped to manage our costs and will ultimately help us meet our goal of reducing the rate of increases to premiums," said George C. Halvorson, chairman and CEO. "Our second quarter operating results are an anomaly, and we do not expect this level of earnings to continue throughout the remainder of the year," said Kathy Lancaster, executive vice president and chief financial officer. "The results position us to continue to support ongoing investments in the organization's infrastructure and integrated care delivery system to broaden access, meet seismic requirements and strengthen the benefits Kaiser Permanente provides to its members, customers and communities it serves." Operating revenue for the six-month period ending June 30, 2007, was $18.8 billion as compared to $17.1 billion for six months ended June 30, 2006. Operating income for the first half of 2007 was $1.4 billion, which included a reduction in reserves for professional liability and worker's compensation of $356 million. Excluding this adjustment, operating income for the six-month period ending June 30, 2007 would have been $1.0 billion. Non-operating income was $425 million for the six-month period ending June 30, 2007. This compares to $513 million of operating income and $207 million of non-operating income for the same period in 2006. The 2007 results were favorably impacted by the adjustments to professional liability and worker's compensation reserves and strong performance of financial markets, as previously noted. Between 2005 and 2015, KFPH/H plans call for building seven new hospitals, expanding five existing hospitals and replacing 13. The building program reflects the organization's continued commitment to expand to contiguous areas and meet the needs of its members, many of whom have migrated to surrounding communities, while investing to meet the required California seismic upgrades. The organization's investment in technology to improve quality, service and patient safety through its electronic health record, KP HealthConnect™, remains steadfast. "KP HealthConnect is an innovative tool that enables Kaiser Permanente to deliver high-quality, safe and efficient care in new and unique ways," Halvorson said. "The effort supports the organization's commitment to preventive medicine by giving clinicians access to the latest treatments and protocols to make sure its members receive the right care at the right time." KP HealthConnect promotes patient safety and quality care by providing access to comprehensive patient information and the latest best practice research. It also coordinates patient care between the physician's office, the hospital, radiology, the laboratory and the pharmacy. The system will ultimately enable the organization to streamline and retire many outdated systems. When fully deployed, it will directly or indirectly support the majority of the organization's hospital and health plan operations nationwide. Believed to be the largest civilian electronic health record project in the United States, KP HealthConnect already supports more than 6 million Kaiser Permanente members who are routinely treated with an electronic chart in the outpatient setting. In addition, approximately 8.5 million members have the option of accessing portions of their health record and managing their health online. As a not-for-profit organization, KFHP/H's revenues fund numerous community benefit programs that include providing direct health care coverage for uninsured families, community-based health partnerships, and research and collaboration with community health organizations. In 2006, the organization spent $807 million on community benefit activities. "Over the past five years, community benefit spending has surpassed 50 percent of the organization's annual net income," said Raymond J. Baxter, senior vice president for Community Benefit. KFHP/H has recently received national recognition for its Healthy Eating/Active Living (HEAL) initiatives and safety net partnerships. Halvorson added, "The people of Kaiser Permanente are here to makes lives better. Our integrated care delivery system can only achieve success through the commitment of physicians, nurses and caregivers who work closely with the organization's technical, administrative and clerical teams, and via our Labor Management Partnership, to serve its members and communities. This quarter's results will assist us in our work to moderate future rate and cost trends." About Kaiser Permanente Kaiser Permanente is America's leading integrated health plan. Founded in 1945, it is a not-for-profit; group practice program headquartered in Oakland, Calif. Kaiser Permanente serves more than 8.7 million members in nine states and the District of Columbia. Today it encompasses the not-for-profit Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals and their subsidiaries, and the for-profit Permanente Medical Groups. Nationwide, Kaiser Permanente includes approximately 156,000 technical, administrative and clerical employees and caregivers, and 13,000 physicians representing all specialties. For more information about Kaiser Permanente, visit the Kaiser Permanente News Center at: http://xnet.kp.org/newscenter
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