Cost savings help boost Kaiser earnings

The state's second-largest health insurer increases its net income by 2.6 percent in the first quarter

Kaiser Permanente Hawaii, the state's largest health-maintenance organization, posted a 2.6 percent increase in first-quarter earnings as it began to realize the effects of several cost-saving initiatives begun last year.

Net income rose to $4 million from $3.9 million while revenue grew 6.3 percent to $220.3 million from $207.3 million.

However, the 1.8 percent net return on revenue fell short of the health provider's long-term requirements, said Allison Maney, Kaiser's acting chief financial officer. A year earlier, Kaiser had a 1.9 percent return on revenue.

"An increase in the margin is critical to ensure funding for vital current and long-term capital investments," Maney said.

Maney is taking the place of former CFO Arnold Matsunobu, who retired.

Jan Head, president of Kaiser's Hawaii region, said leaving vacant personnel positions unfilled, delaying annual cost-of-living increases for management and managing medical capacity contributed to the increase in earnings.

"However, outside hospital costs, the increasing demand for technology and shrinking reimbursements from governmental payers remain the primary challenges to generate an adequate bottom line," Head said.

Kaiser, whose 226,000 members rank it as the second-largest overall insurer in the state behind Hawaii Medical Service Association, had operating expenses of $218.7 million, up 6.2 percent from $205.9 million a year earlier.

Operating income gained 14.3 percent to $1.6 million from $1.4 million.

The nonprofit organization, which increased membership dues 3 percent on Jan. 1, is immersed in two capital projects that will improve efficiencies, allow for future growth and provide members with new care options.

KP HealthConnect, an electronic medical records system, has eased access to patient information. And Kaiser's $150 million tower expansion at its Moanalua Medical Center on Oahu, which broke ground a year ago, will add 72 beds after it is completed in 2009. It also will offer both a larger emergency department and mother-baby unit.