Kaiser Posts $288-Million Loss

Kaiser Foundation Health Plan and Hospitals lost $288 million in 1998, the second year in a row that the state’s largest HMO has lost hundreds of millions of dollars.

Dale Crandall, chief financial officer for the not-for-profit HMO and hospital provider, blamed several factors for the decline, including high costs for pharmaceuticals and premiums that were set too low to cover patient care.

In addition, Crandall said, Kaiser lost money in several markets where it did not have enough hospitals to care for sick members and was forced to send patients to hospitals outside of its network--at considerable extra cost.

The HMO hopes to improve its finances this year, primarily with income from previously announced rate increases and a slowdown in capital improvement projects.

He would not say whether the company plans to increase premiums again later this year and in 2000, but a leading employee benefits consultant said that most in the industry expect another hike, probably along the lines of last year’s 10% to 12% increase.

Glenn Meister, a principal in the consulting firm William M. Mercer and Co., said that some employers are already beginning to balk at the higher prices.

Last year, several of Mercer’s clients either froze Kaiser membership among employees or dropped the HMO altogether, Meister said.

If looked at solely in terms of operations, the losses are even more dramatic: Kaiser lost $434 million last year, most of it in California. Those losses were ameliorated by income from the HMO’s investments.

News of Kaiser’s continued losses met with concern from purchasers of health insurance, including the mammoth California Public Employees Retirement System, which fear continued rate hikes to cover the losses.

The retirement system, which granted Kaiser a 10.5% rate increase last year on the condition that the company prove its need for more money, said last week that the HMO provided insufficient information to justify its claim.

“The information they supplied us needed to be more accurate, and they needed to supply a detailed cost-cutting plan,” said Patricia Macht, spokeswoman for the retirement system.

The agency’s concern, she said, was more about the cost of premiums than the quality of care.

The HMO, which provides health care for 8.6 million people nationwide--5.8 million of them in California--had promised that a detailed recovery plan would be released along with the earnings report on Friday. However, none was provided.

Instead, Crandall said in a telephone news conference that Kaiser had simply failed to meet its projections for 1998. “I don’t think we made any mistakes,” he said.

Besides money saved through rate hikes and delays in capital improvement spending, the HMO also hopes to cut costs by hiring 1,700 nurses in California to reduce the need to send patients to other hospitals, and by selling its poorly performing operations in Texas.

But to satisfy the employers who might choose Kaiser as their health-care provider, the HMO will have to show that it is not simply saddling consumers with the costs of its own business mistakes, Meister said.

“I would hope they are focusing on what they need to do besides just raise premiums,” Meister said. “I think they have to really focus on some of their internal activities and inefficiencies and strategies that are affecting the cost of providing care.”