Our Take: Investments propelled Kaiser Permanente to achieve profit of $4.1 billion in 2023
After a net loss of $4.5 billion in 2022, Oakland, Calif.-based Kaiser Permanente reported a net gain of $4.1 billion for 2023. Investments were the primary factor in the nonprofit payvider’s financial performance in both years.
Kaiser Permanente’s operating revenue increased 5.7% year over year, reaching $100.8 billion in 2023. The integrated organization’s operating expenses increased 4% in 2023 relative to 2022, totaling $100.5 billion. As a result, Kaiser Permanente recorded an operating income of $329 million for 2023, compared with an operating loss of $1.3 billion for the previous year.
Driving expenses for the organization’s health care sector, according to a press release, were the high costs of goods and services, prescription drug prices, high volumes of deferred care, ongoing COVID-19, flu, and RSV services, and labor costs. To address these “challenges,” Kaiser Permanente said it reduced administrative costs and pursued efficiencies while expanding access to care.
Aside from operating income, Kaiser Permanente had $3.8 billion in other income last year (vs. a loss of $3.2 billion in 2022), derived primarily from investment returns.
The organization saw a decline in its health plan membership of nearly 51,000 members in 2023 compared with the year before, finishing 2023 with more than 12.5 million members. Kaiser Permanente attributed the decrease to “the slowing pace of job growth and other economic factors.”
Our Take: Like most nonprofit hospitals and health systems, Kaiser Permanente had a particularly difficult year in 2022 with regard to its financial performance. While many providers are still struggling to regain their financial footing, Kaiser seems be on steadier ground, thanks mostly to favorable conditions in the financial markets last year.
“By fulfilling our mission, eliminating inefficiencies, and investing in technology, facilities, and our communities, we are on a financially sustainable path,” said Kathy Lancaster, Kaiser Permanente’s chief financial officer.
It will be interesting to see what effect the higher wages Kaiser agreed to pay when it settled last year’s employee strikes will have on this year’s expenses, and whether the organization can maintain (or maybe even improve) its positive operating margin.
We’ll also be watching to see if regulators approve Kaiser’s proposed acquisition of Geisinger as part of the overall plan to move Risant Health forward. <
Regardless, it’s a safe bet that Kaiser will continue to invest in programs to benefit the communities it serves. Even during 2022, when times were especially challenging, Kaiser invested $2.8 billion in such programs. Last year, the organization stepped up its investment in community health programs to $3.1 billion.
In August, Kaiser launched its Community Support Hub, which helps connect people to resources if they need assistance with daily needs such as food, housing, and utilities. According to Kaiser, it connected nearly 350,000 members to vital programs.
Additionally, Kaiser provided more than $668 million in financial assistance last year to cover medical expenses for more than 400,000 low-income and uninsured patients.
The $2.5 billion merger between Elevance Health and Blue Cross Blue Shield of Louisiana has been shelved yet again. More than a year ago, Indianapolis-based Elevance, which operates BCBS affiliates in 14 states, announced plans to acquire the Baton Rouge-based affiliate; the transaction would entail converting BCBSLA from a nonprofit to a for-profit company. The deal was postponed in September, however, in response to concerns expressed by regulators, lawmakers, policyholders, and others in Louisiana over various aspects of the acquisition, including how it would affect the state’s health care market. Late last year, BCBSLA proposed a new reorganization plan and it seemed as if the transaction might move forward, but the company posted a media statement online Wednesday advising that it has “decided again to pause the process in our proposed transaction with Elevance Health” to give stakeholders “more time and information to understand the benefits of the changes we have proposed.” The insurer said it was withdrawing its filing with the state insurance department (again), noting, “We continue to believe we need a strong partner to help position us for a vibrant future. However, now is not the right time to make this bold step.”
Meanwhile, Elevance has been laying off employees since September — thousands of workers in multiple states, according to Healthcare Dive, who cited sources familiar with the matter. The sources said 10,000 or more employees could be affected overall. Elevance has not provided an estimate of the total number of workers who may be let go as the company repositions itself to address “recent challenges” and “changing business needs” in the health care industry. Despite those challenges, Becker’s Payer Issues reported that Elevance had the largest profit margin in last year’s third quarter among leading BCBS affiliates, according to an analysis by Mark Farrah Associates. And, Elevance made a $6 billion profit on revenue of $171.3 billion in 2023, according to the full-year earnings report the company released last month.
Gilead Sciences plans to acquire CymaBay Therapeutics for $4.3 billion. The two California-based biopharmaceutical firms announced the signing of a definitive agreement last Monday under which Gilead will pay $32.50 per share in cash for CymaBay — a 27% premium to the stock’s closing price on Feb. 9, before the acquisition was announced. Through the deal, Gilead will acquire seladelpar, an investigational oral drug CymaBay has been developing as a treatment for primary biliary cholangitis, a rare, chronic, cholestatic liver disease that impairs liver function. (CymaBay licensed seladelpar from Janssen Pharmaceutica, an affiliate of Johnson & Johnson, in 2006.) The FDA granted CymaBay’s New Drug Application for seladelpar a priority review and is expected to make an approval decision by mid-August. CymaBay is also developing MBX-2982, which is in Phase II testing as a potential treatment for insulin-induced hypoglycemia in individuals with type 1 diabetes. The boards of both companies have approved the acquisition, which is expected to close this quarter if regulatory approval is received and other customary closing conditions are met.
Whether large group purchasing organizations (GPOs) and drug wholesalers play a role in generic drug shortages is the focal point of a joint investigation the Federal Trade Commission and the Department of Health and Human Services launched last week. The two federal agencies are seeking public comment pertaining to market concentration and contracting practices for these “powerful” supply chain “middlemen” as they attempt to uncover the root causes of, and potential solutions to, generic drug shortages — which, according to an article by The New York Times, have reached a 10-year peak. The scope of the investigation includes whether some suppliers receive “favorable treatment” through the “prevailing GPO compensation model.” Comments are being accepted at Regulations.com for 60 days.
Separately, the American Hospital Association (AHA) provided a statement earlier this month to the House of Representatives’ Committee on Ways and Means ahead of a committee meeting to discuss chronic drug shortages. In the statement, the organization blamed the shortages, in part, on the “just-in-time” framework that distributors, manufacturers, and health care providers have established to lower costs, saying the approach leaves little buffer when disruptions in the supply chain occur. Citing a report by the FDA’s Drug Shortages Task Force, AHA said there are three main root causes for drug shortages and recommended enacting legislation that incorporates six specific steps to “fatten” the supply chain. Preventing drug shortages could save hospitals an estimated $560 million annually, the organization noted, citing an analysis Vizient published in 2019.
What we’re reading
Former CMS administrator: ‘I would like to see Medicare Advantage slowed or stopped.’ Becker’s, 2.8.24 (interview with Don Berwick)
AI’s Threat to the Medical Profession. JAMA, 1.19.24
But My White Count… NEJM, 2.15.24 (registration required)
