News release: National

April 30, 2004

For more information, call:
Mike Lassiter
Kaiser Permanente
Phone: (510) 271-6676
E-mail: Mike.Lassiter@kp.org

Kaiser Health Plan and Hospitals record strong first quarter financial results

Oakland, CA – In the first quarter of 2004, Kaiser Foundation Health Plan Inc., Kaiser Foundation Hospitals and their subsidiaries (KFHP/H) continued its strong financial performance, supporting the ongoing investment in new facilities and technologies to better serve the health needs of members and the communities that Kaiser Permanente serves.

"Kaiser Permanente's sound financial performance and prudent spending enables us to continue to provide convenient, quality and affordable health care to our members," said KFHP/H chairman and CEO George Halvorson.

"Being a not-for-profit organization is not about making or losing money; it's about how that money is put back to work," Halvorson said. "As a not-for-profit our operating income is reinvested in serving the health needs of our patients, members and communities."

Halvorson said, "This kind of financial performance will fund long-term capital needs, seismic retrofitting, facility improvements and KP HealthConnect, our new electronic physician support tools. These investments are key to improving the care and health of our members and the communities we serve."

For the quarter ending March 31, 2004, an operating margin of 5.6 percent was achieved on operating revenues of $6.9 billion. Net income was $431 million and operating income totaled $385 million. Membership remained flat, at 8.2 million.

"The first quarter results are traditionally the strongest," said KFHP/H Chief Financial Officer Robert Briggs, "in part because most rate increases go in effect in January while cost increases occur throughout the year. Last year, for example, the first quarter margin was 4.9 percent, while the margin for the year ended at 3.9 percent."

For the first quarter of 2003, operating revenues totaled $6.2 billion. Net operating income was $308 million and net income was $301 million.

In March of this year, Kaiser Permanente was able to benefit from its strong financial position to lower the organization's cost of debt by about $25 million a year.

The reduction was made possible by the early retirement of almost $1.1 billion of relatively expensive debt and replacing it with the sale of $1.6 billion in new tax exempt revenue bonds at a lower interest rate. The savings was realized despite raising the overall level of debt by $500 million.

"While Kaiser Permanente's strategy calls for generating sufficient cash flow to cover long-term building and equipment requirements, financing capital expenditures by using tax-exempt financing enables us to take advantage of very favorable borrowing terms to improve the liquidity and stability of the organization," Briggs said.

Kaiser Permanente is America's leading integrated health plan. Founded in 1945, it is a not-for-profit, group practice prepayment program with headquarters in Oakland, California. Kaiser Permanente serves the health care needs of over 8.2 million members in 9 states and the District of Columbia. Today it encompasses the not-for-profit Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals and their subsidiaries, and the for-profit Permanente Medical Groups, as well as an affiliation with Group Health Cooperative based in Seattle.

Nationwide, Kaiser Permanente includes approximately 136,000 technical, administrative and clerical employees and over 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; changing membership requirements, and the change in economic conditions of the various markets the organization serves.