February 19, 1999
Kaiser Permanente
Beverly Hayon
David O'Grady
510-271-6437

Kaiser Permanente Announces 1998 Financial Results

(Oakland, California) - February 19, 1999 – Kaiser Foundation Health Plan, Inc. and subsidiaries and Kaiser Foundation Hospitals today reported financial results and membership data for the year ended December 31, 1998.

Fact Sheet

Kaiser incurred a net loss of $288 million on $15.5 billion in operating revenues. This includes extraordinary item of $22 million, which is the cost associated with replacing certain outstanding bonds with bonds at lower interest rates. The 1998 operating result-the revenues and expenses related only to the delivery of health care services-was a loss of $434 million, 2.8 percent of operating revenue.

Membership for the year grew to 8.6 million, a 5 percent increase from 8.2 million in 1997.

In 1997, Kaiser recorded a net loss of $266 million on $14.2 billion in operating revenues, and an operating loss of $447 million, 3.2 percent of operating revenues. Kaiser expects cost reductions and revenue enhancements begun in 1998 and continued in 1999 will result in positive net income for 1999.

"The efforts we began in 1998 to restore Kaiser Permanente's financial health give us the opportunity to turn the organization around in 1999," said David M. Lawrence, M.D., Kaiser Foundation Health Plan and Hospitals' chairman and chief executive officer. "But financial improvement and full recovery at Kaiser Permanente will flow only from initiatives that first improve the quality of care and service we provide our members."

Kaiser incurred losses in 1998 because costs to provide care, driven up by internal and industry factors, were greater than anticipated. Specifically, costs in pharmacy, especially the price of new drugs and therapies; in hospitalization; and in the use of non-Kaiser Permanente health services were above projections. This proved especially true in Kaiser Permanente's operations in California, where operating losses for 1998 totaled $354 million, up from an operating loss of $212 million in 1997. Membership in California grew to 5.8 million in 1998 from 5.4 million in 1997.

While operations in California and the Northeast continue to face the most significant financial challenges, other operations showed positive financial results. The operations in the Washington, D.C.-Baltimore metropolitan area, Cleveland, and Kansas City reversed losses from 1997 and reported positive operating incomes in 1998. Operations in Atlanta, Hawaii and Portland, Ore. Maintained positive operating incomes from 1997 to 1998.

Kaiser implemented an array of national and local initiatives in 1998 to improve quality and reduce costs. Hospital operations in particular were improved in California through the hiring of 1,760 hospital-based nurses, the opening of hospitals in Roseville in Northern California and in Baldwin Park in Southern California through a partnership between labor and management, and the better management of hospital-bed availability to help return members to Kaiser hospitals from non-Kaiser facilities.

Nationally, the organization is delaying capital and information technology expenditures that do not affect the delivery of quality patient care. In 1999, Kaiser Permanente intends to improve its cost-management capabilities specifically in the areas of Medicare reimbursement, contracting for outside services, and supply-chain management.

In October 1998, Kaiser sold its under-performing Texas operation. Last month, the organization announced its intent to sell its operation in Charlotte, N.C. As improvements in financial performance are implemented and measured, the organization will continue to evaluate the status of its under-performing operations and available alternatives.

Kaiser also continued to make significant improvements in business and management oversight in 1998. Increased rigor in business planning, strengthened and streamlined processes for national and local performance review, and increased scrutiny of operating budgets will help improve the organization's financial results.

"Enhancing our business fundamentals and management practices will help to restore confidence in an organization that has provided quality health care for more than 50 years," said Dale Crandall, Kaiser Foundation Health Plan and Hospitals' chief financial officer. "Our goal is not just to reach and maintain a positive margin, but to sustain the organization's commitment to quality health care and community service for the next 50 years."

Kaiser Permanente is America's leading non-profit integrated health care organization. Founded in 1945, it is a group-practice prepayment program with headquarters in Oakland, Calif. Kaiser Permanente serves the health care needs of 8.6 million members in 18 states and the District of Columbia. Today, it encompasses Kaiser Foundation Health Plan Inc. and subsidiaries, Kaiser Foundation Hospitals, and the Permanente Medical Groups, as well as an affiliation with Group Health Cooperative, based in Seattle. Nationwide, Kaiser Permanente includes about 90,000 technical, administrative and clerical employees and about 10,000 physicians representing all specialties.

Except for historical information contained herein, the matters discussed in this media release are forward-looking statements that involve risks and uncertainties. Actual results may vary significantly based on a number of factors including, but not limited to: the impact of competitive products and pricing; changing membership requirements; and the change in economic conditions of the various markets the organization serves.

 

Fact Sheet
Financial results:	1998	1997
Operating income (loss):	($434 million)	($447 million)
Income (loss) before extraordinary item:	($266 million)	($266 million)
Net income (loss):	($288 million)	($266 million)
Operating revenues:	$15.5 billion	$14.2 billion
Net worth:	$5.7 billion	$6.0 billion
In California:
Operating income (loss):	($354 million)	($212 million)
Membership:	8.6 million	8.2 million

Major events of 1998:

• The sale of Kaiser Permanente Texas was completed Oct. 31, reducing 1998 national membership by about 110,000.
• In September, Kaiser Permanente and Group Health Cooperative reaffirmed their affiliation. However, the two organizations have independent management and governing boards, and therefore report their financial results and membership data separately.