Friday, May 21, 2004

Kaiser’s Hawaii
earnings drop 16.1%

Kaiser Permanente Hawaii posted a 16.1 percent decline in first-quarter net income as rising health-care costs and investments in facilities and services brought down earnings from a year ago.

But the state's second-largest health insurer still managed to post a 1.3 percent return on revenues generated for the quarter.

Kaiser had net income of $2.6 million on revenues of $194 million compared with earnings of $3.1 million on revenues of $172 million a year earlier. Expenses increased 13.3 percent to $191.4 million from $168.9 million.

"We have done a good job of controlling expenses by trying to reduce outside service costs, and while we have shown progress, we still have more work ahead of us," said Arnold Matsunobu, Kaiser's vice present of finance. "Additionally, drug costs continue to rise."

Kaiser had asked the state Insurance Division for a 14.5 percent rate increase for 2004. Instead, the health maintenance organization was granted an 11.7 percent increase that was retroactive to Jan. 1 of this year.

Jan Head, president of Kaiser Permanente Hawaii, said the lower rate increase will affect results throughout the year.

"Our results are less than we needed for our capital plan, and as we said at the time of the insurance commissioner's decision, we will need to look carefully at our operations and continue to identify areas we can adjust," she said.

Kaiser's capital plan includes the opening of the nearly-completed Waipio Clinic, as well as the new Maui Lani clinic on Maui. The HMO also is in the process of implementing KP HealthConnect, an automated medical record system that will reduce errors and make health information portable. Nationwide, Kaiser is spending $3 billion over a period of several years to roll out the system.

Hawaii Medical Service Association, which earlier this week reported first-quarter earnings of $17.5 million, recently lowered its rate increase request for July 1 to 7.8 percent from 9.6 percent for small-business groups of 100 or fewer employees.

The state's largest health insurer, though, doesn't incur the same type of expenses as Kaiser.

HMSA's core business is providing the financing to pay members' medical claims on a timely basis and, as a result, the insurer is greatly dependent on its investment income to meet those demands. Kaiser, on the other hand, is more of a bricks-and-mortar operation in that it needs to pay for its facilities and health-care personnel to conduct a 24/7 medical delivery system. It also needs to accumulate cash to pay for future expansion and system improvements.

"These are additional buildings; buying additional equipment; paying for the training of medical personnel when there's new equipment, new therapy and new procedures; building a clinic in places where members have needs; and making sure facilities are of sufficient size to meet growing membership of a particular area," said Chris Pablo, director of government and community affairs for Kaiser.

Pablo said the HMO hasn't filed yet for a 2005 rate increase but probably would do so sometime around August. He said it was too soon to tell the amount of increase it would request.

Kaiser, the state's largest HMO, has 380 physicians and 3,800 other employees that serve 235,000 members statewide. HMSA, which primarily offers a preferred provider plan, has 679,338 members.


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