Our Take: As federal funding shores up for-profit health systems’ finances, lower utilization increases profits for Kaiser Permanente and top insurers
Aug 17, 2020
Healthcare colossus Kaiser Permanente reported second-quarter net income of $4.5 billion, more than twice the $2 billion in net income the not-for-profit health system reported for the second quarter of 2019.
The organization noted that deferred elective surgeries and procedures contributed substantially to its financial results for the most recent quarter by temporarily reducing operating expenses.
The health system had operating income of $2.1 billion for the quarter, up 90% relative to the same quarter a year ago.
Taking into account “a challenging first quarter driven by investment losses,” the health system still was able to record $3.4 billion in net income for the first half of 2020. That compares with $5.2 billion for the same period in 2019.
Like Kaiser Permanente, all four of the largest for-profit hospital chains — Tenet Health, HCA Healthcare, Community Health Systems (CHS), and Universal Health Services (UHS) — saw higher profits in the second quarter, Healthcare Dive reported. In fact, Tenet more than tripled its net income compared with the second quarter of 2019 ($88 million vs. $26 million). HCA’s net income increased 40% during the second quarter to $1.1 billion (vs. $783 million in Q2 of 2019). CHS had a net loss of $167 million in last year’s second quarter but reported net income of $70 million in the most recent quarter. Of the four, UHS had the slightest increase in net income ($252 million vs. $238 million).
All of these health systems received large federal grants to offset their pandemic-related losses: Tenet, more than $850 million; HCA, approximately $1.7 billion; CHS, approximately $564 million; and UHS, $162 million.
Kaiser Permanente received more than $500 million in relief funds through the CARES Act but kept only $11.8 million (for Maui Health System).
The nation’s largest health insurers also reported significant profits for the second quarter — in large part because of sharp decreases in health care utilization. For most, the profits were about double what they reported for the same period of 2019: UnitedHealth Group, $6.7 billion vs. $3.4 billion; Anthem, $2.3 billion vs. $1.1 billion; Humana, $1.8 billion vs. $940 million. CVS Health, which owns Aetna, reported net income of nearly $3 billion for the second quarter of 2020 versus $1.9 billion for the previous year’s second quarter. Although Cigna’s year-over-year increase was smaller, the insurer still reported profit of $1.8 billion in the most recent quarter (vs. $1.4 billion in Q2 of 2019). Centene earned $1.21 billion in profit compared with $495 million in the same quarter last year — a 144% increase.
Insurance profits are capped under the Affordable Care Act, so part of those increases will need to be paid out to plan members in the form of rebates. But the law gives insurers a three-year window in which to determine how much needs to be returned, and the rebates can be paid in the form of a premium credit rather than a lump-sum payment.
The immense increases in profits have caused the House Energy and Commerce Committee to initiate an investigation into insurers’ business practices. In a statement, Chairman Frank Pallone Jr., D-N.J., said, “While the American people grapple with an unprecedented crisis, health and dental insurance companies appear to be making record profits as millions of people forgo care and avoid doctors’ offices.”
Rep. Pallone said he believes that insurers should be doing more to help enrollees and providers — through reduced premiums, for example, and by eliminating cost-sharing for COVID-19 treatment through the end of the public health emergency and offering low or zero interest loans to community providers.
Our Take:
The New York Times reported that “the nation’s leading health insurers are experiencing an embarrassment of profits.”
The New York Times reported that “the nation’s leading health insurers are experiencing an embarrassment of profits.”
It does seem unfair for companies to be raking in billions of dollars in profit per quarter at a time when so many are experiencing unprecedented financial hardship.
But we don’t know what lies ahead. At some point, utilization will have to rebound. Not all elective procedures are truly optional, after all, and people who are putting off seeking health care won’t be able to delay indefinitely. Plus, some who are postponing care are likely going to need more complex and more expensive care when they do eventually receive it than they would have if they hadn’t waited. We also don’t know how much impact unemployment will have on enrollment, and that season isn’t too far off.
We also want to point out that turning a profit, even at the extent these large insurers are reporting, doesn’t mean they aren’t making an effort to be good corporate citizens. Some are already sending out partial rebates. Some are offering financial assistance to providers in various ways. Some are taking steps to help plan members who are struggling to pay their premiums. Are these steps enough? Maybe not.
We’ll gain some insight in the weeks and months ahead as insurers submit their premium rates for 2021. Based on what we’ve seen so far, it doesn’t look like most will be seeking a dramatic increase — though that could certainly change. Given the surge in profits that larger insurers have reported, jacking up the rates for the new plan year wouldn’t be wise in our opinion. Unless they want to provide a strong argument in favor of a public option or Medicare for all.
What else you need to know
CMS is launching a new payment model for rural hospitals and ACOs that will provide upfront and annual capitated payments. The Community Health Access and Rural Transformation (CHART) model has two tracks. In one track, CMS will select up to 15 “lead organizations” — e.g., state Medicaid agencies, public health departments, or academic medical centers — that serve rural communities. Each organization will receive up to $2 million upon being accepted into the model and up to another $3 million “as communities progress through the model,” according to a CMS fact sheet. They also will have certain regulatory and operational flexibilities, such as being able to expand telehealth services, provide transportation support, and waive cost-sharing for certain Part B services. CMS will select the communities in September, and that track of the model will begin in mid-2021. In the other track, CMS will select up to 20 “rural-focused” ACOs to participate; each ACO will receive at least $200,000, plus $36 per beneficiary, upon joining the Medicare Shared Savings Program, as well as a prospective per member per month payment of $8 or more for up to two years. CMS plans to offer applications for that track next spring and select the ACOs in the fall, with the performance year starting in January 2022.
Sentara Healthcare and Cone Health have agreed to combine, creating a single “value-driven” organization. Based in Norfolk, Va., and Greensboro, N.C., respectively, the two regional, not-for-profit, community-based health systems announced last Wednesday that they have signed a letter of intent. The combined entity would have 17 hospitals and estimated annual revenue of $11.5 billion. The headquarters would be in Norfolk, with Sentara CEO and President Howard Kern at the helm. Cone Health CEO Terry Akin would be president of the Cone Health division, which would have regional headquarters in Greensboro. Both health systems operate health plans; eventually, those operations also would be combined, Becker’s Hospital Review reported. If the deal attains regulatory approval and meets the usual closing conditions, it is expected to close in mid-2021.
Northwell Health might buy a medical supply company to avoid having to rely on outside suppliers during emergencies such as the pandemic, Becker’s Hospital Review reported, citing information from a book published recently that Northwell CEO Michael Dowling co-authored. “We’re in talks with a couple of companies,” Dowling told The New York Post. Separately, Northwell Health launched a home-based care program for patients with COVID-19 who have minor to severe symptoms. The program helps these patients stay at home after they become infected, potentially reducing spread of the coronavirus and helping to make sure that even those who fear going to the hospital still receive care.
Gilead Sciences submitted the New Drug Application (NDA) for remdesivir last Monday and has given the drug a brand name: Veklury. On May 1, the FDA granted remdesivir temporary emergency use authorization as a treatment for hospitalized patients with severe COVID-19. This latest filing completes the rolling NDA submission Gilead began on April 8. Regulatory agencies in the European Union, Japan, and elsewhere have already approved remdesivir. To increase the drug’s availability, Gilead has signed manufacturing and supply agreements with more than 40 other drugmakers, including Pfizer, who recently announced that it would provide contract manufacturing services at its facility in McPherson, Kan.
The $765 million loan that Eastman Kodak was supposed to receive from the federal government to begin manufacturing active pharmaceutical ingredients for generic drugs has been put on hold. Allegations of insider trading, coupled with the size of the loan and Kodak’s lack of experience in manufacturing pharmaceuticals, prompted members of Congress to call for, and begin, investigations into the deal between Kodak and the U.S. International Development Finance Corp. (DFC). The Securities and Exchange Commission is looking into the charges of insider stock trades, and a group of House Democrats has requested documents for all of the DFC’s communications with Kodak and other companies regarding potential financing, Fierce Pharma reported. Kodak shares plummeted more than 40% after the DFC said it would not proceed with the loan until the “allegations of wrongdoing” were cleared.
Moderna signed a second agreement with the U.S. government for its experimental COVID-19 vaccine. In this deal, if the vaccine is approved by Jan. 31, 2021, Moderna could receive more than $1.5 billion for supplying the government with 100 million doses, Reuters reported. If the vaccine is approved after that date, Moderna could still receive $1.2 billion for the doses. The agreement also gives the government the option to purchase up to 400 million additional doses. Under an earlier agreement with the Biomedical Advanced Research and Development Authority (BARDA), Moderna received nearly $1 billion in research funding for the vaccine.
A federal appeals court ruled on Friday that the federal government must pay insurers the cost-sharing reduction payments they are owed under a provision in the Affordable Care Act (ACA). However, insurers that raised premiums in 2018 to compensate for the loss in payments are not entitled to receive the full amount the federal government owes them, the court said in a separate ruling. The case goes back to 2014, when Republicans in Congress sued the Department of Health and Human Services (HHS) over the payments. Under the Trump administration, HHS stopped making the payments in October 2017. The appellate panel used an April ruling by the Supreme Court regarding the ACA’s risk corridor program as the basis for its decision.
What we’re reading
Financial Integration’s impact on care delivery and payment reforms. Health Affairs, August 2020 (subscription required)
Pharmacies see continued growth as primary care hubs. Health Leaders Media, 8.6.20
Primary care doctors look at payment overhaul after pandemic disruption. Medscape, 8.12.20,
