Kaiser posts profit of $2.9 million

Much of the income came from selling real estate holdings, it says

Only days after completing layoff notifications to 54 employees, Kaiser Permanente Hawaii reported yesterday that its net income nearly doubled in the third quarter -- but said much of the increase came from selling vacant land, not from operations.

Kaiser had net income of $2.9 million for the quarter, up 93.3 percent from $1.5 million a year earlier. Its operating income swung to an operating profit of $200,000 from an operating loss of $1.8 million in the third quarter of 2005.

But spokeswoman Lynn Kenton said Kaiser would have had an operating loss without the real estate transaction.

The state's largest health-maintenance organization declined to disclose the sales price of the land in Mililani Technology Park, but said it had a net gain of $1.9 million from the transaction.

"It was land that was purchased in the late '80s with the idea of building a structure to house all of Kaiser's administrative offices, which would include nonmember care," Kenton said.

The health care provider is laying off workers and making other changes because it said its expenses are outpacing what it receives in monthly dues from its 224,000 members and other revenue sources.

"Our recently announced strategic restructuring plans take into account our industry expectations that Medicare reimbursement will not increase as rapidly as the cost of providing the care," said Allison Maney, Kaiser's acting chief financial officer.

Kenton said the 54 employees laid off included 20 medical transcriptionists who most likely will be offered positions by the three vendors with whom Kaiser subcontracts work. Kenton said there were 50 nonunion employees and four union employees affected. She said seven of the workers were in management and 47 were staff employees.

"Physicians at this point have not been affected," she said.

Kaiser said earlier this month it anticipates more restructuring and cost-cutting next year.

Kenton said yesterday that Kaiser is evaluating the entire organization "throughout this period when the industry is undergoing significant and rapid change" and that the restructuring does not include specific numbers of jobs impacted.

"We have completed all of our notifications for those positions affected year-end 2006," Kenton said. "We now will begin evaluating for 2007 and, if positions are impacted in 2007, we will go through the same process with our staff."

Kaiser, which announced earlier this month it was restructuring its operations statewide, also notified its nonunion staff members yesterday that they would not receive any merit increases in 2007. Previously, Kaiser had announced there would be no merit increases in 2007 for senior leaders.

In the quarterly results released yesterday, Kaiser said that revenue rose 2.8 percent to $214.9 million from $209 million. Its net return on revenue was 1.3 percent compared with 0.7 percent a year earlier.

Operating expenses increased 1.9 percent to $214.7 million from $210.8 million. Net investment income fell 18.2 percent to $2.7 million from $3.3 million.

"Our third-quarter performance was consistent with our expectations as we work to strengthen our organization for a challenging 2007," Maney said.

Kaiser said operational improvements that began in 2005 also helped contribute to the positive net income in the third quarter.

"Efforts in 2005 and 2006 to strengthen Kaiser Permanente Hawaii are showing results, but more must be done," Kaiser Regional President Jan Head said. "The restructuring efforts are focused on enhancing the integrated health care system to evaluate how Kaiser can provide better and more cost effective care for members."

She said that managing outside hospital costs when services can be provided at Kaiser facilities is one of the largest expenses for Kaiser.