News release: National

October 31, 2002

For more information, call:
Beverly Hayon
Kaiser Permanente
Phone: (510) 271-6437
E-mail: Beverly.Hayon@kp.org

3rd quarter results allow Kaiser to continue investment in health care improvements

Not-for-profit looks to the future in major capital projects

Oakland, CA – Kaiser Foundation Health Plan Inc., Kaiser Foundation Hospitals (KFHP/H), and their subsidiaries reported net income of $137 million and operating income of $136 million on operating revenues of $5.7 billion for the third quarter of 2002. By comparison, in the third quarter of 2001 KFHP/H posted net income of $198 million and operating income of $218 million on operating revenues of $4.9 billion.

Year-to-date, through September 30, 2002, KFHP/H reported net income of $595 million and operating income of $592 million on operating revenues of $16.7 billion. This is compared to year-to-date net income of $494 million and operating income of $516 million on operating revenues of $14.7 billion during the same period in 2001.

Membership as of September 30, 2002, was 8.4 million.

Net income at KFHP/H, a non-profit health plan, is primarily used to make care system improvements. KFHP/H currently reinvests most of its net income to improve and expand its care delivery system. The bulk of that money will be used to upgrade and extend hospital and clinical facilities. For example, mandated seismic upgrades of hospitals in California will continue to be a major capital investment over the next several years. In addition, the expansion of existing facilities and the construction of new facilities to meet member demand continues. In October, an expanded East Los Angeles medical office building celebrated its grand opening. In the Sacramento area, ground was broken for a new facility in the community of Elk Grove, and a new medical office building recently opened in Folsom. The automated medical records system will require an investment of over $2 billion and new medical technologies are being adopted as soon as medical evidence shows them to be effective in the treatment of patients. Additionally, work continues to improve the efficiency of billing and other business services.

"As a non-profit health plan, we have the great advantage of being able to invest our earnings in building care system sites and facilities for our members, rather than paying these earnings in dividends for shareholders and investors," stated George Halvorson, chairman and CEO of KFHP/H. "Our investments in both equipment and caregiving technology works for all of our members putting Kaiser Permanente in position to best meet the needs of our patients. We are pleased that our year-to-date earnings can be invested in our members' care.

"We have concerns about cost trends that are developing as of the 3rd quarter," said Robert Briggs, chief financial officer of KFHP/H. We know it will be a challenge to maintain margins at year-to-date levels. We see increasing trends in costs for medical services, workers compensation, and other insurance costs. In addition, our management team is currently reviewing our strategic plan and delivery and support systems and will be considering what adjustments might be appropriate in the 4th quarter."

During the 3rd quarter, Kaiser Permanente continued to be recognized for the quality of its health care program.

The Colorado region was ranked as one of the top 15 health plans in the nation by the National Committee for Quality Assurance.

The Northern and Southern California regions received the prestigious EVE award from the U.S. Department of Labor for their exemplary efforts in support of equal employment opportunity, affirmative action and increased diversity in the workplace.

Kaiser Permanente dominated the 2002 California Cooperative Health Care Reporting Initiative Report Card with the highest overall marks for clinical care.

The Kaiser Permanente Vaccine Study Center was one of the centers chosen by the National Institutes of Health to play a key role in the new clinical trials of the smallpox vaccine.

"It is these excellent results in the practice and delivery of health care that distinguish Kaiser Permanente from all other healthcare organizations in the United States," Halvorson added. "I am very proud of the exemplary work of our Kaiser Permanente professionals."

KFHP/H is America's largest non-profit health plan. Founded more than 55 years ago, with headquarters in Oakland, California, KFHP serves the health care needs of 8.4 million members, primarily on a pre-payment basis. Kaiser Permanente is the trade name for the organizations that comprise the Kaiser Permanente Medical Care Program. These organizations consist of Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, their subsidiaries, and the Permanente Medical Groups, independent physician group practices that contract exclusively with KFHP and its health plan subsidiaries to provide or arrange medical services for KFHP members. Nationwide, Kaiser Permanente includes about 128,000 technical, administrative and clerical employees and about 11,000 physicians representing all specialties.

Except for historical information contained herein, the matters discussed in this media release are forward-looking statements that involve risks and uncertainties. Actual results may vary significantly based on a number of factors including, but not limited to: the impact of competitive products and pricing; government regulations; health care legislation; litigation; changing membership requirements, and the change in economic conditions of the various markets the organization serves.