News release: National

March 1, 2004

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

Kaiser Health Plan and Hospitals making major investments in member support facilities, systems, and seismic upgrades

Oakland, CA – Kaiser Foundation Health Plan Inc., Kaiser Foundation Hospitals and their subsidiaries (KFHP/H) achieved an operating margin of 3.9 percent for 2003. The 3.9 percent margin makes possible the direct investments in facilities, equipment and systems necessary to support the health of Kaiser Permanente members and in the communities that Kaiser Permanente serves.

"The 3.9 percent margin allows us to continue to meet California's stringent seismic requirements and to meet the facilities needs of our members and patients," said George Halvorson, KFHP/H chairman and CEO.

"That is not, however, the full extent of our investments on behalf of our members," Halvorson said. "Investing in new facilities and technology is key to serving the total health care needs of our members and communities."

As a non-profit organization, Kaiser Permanente in 2003 also expanded its Community Benefit program to $641 million. The program focuses on improving community health, partnering with safety net organizations such as community clinics, health departments and public hospitals; and providing direct coverage and care to low-income families. In addition to these expenditures, Kaiser Permanente contributes to the community through technical assistance, research, education, workforce development and major employee involvement in community programs.

The 2003 investment in capital and technology was about $1.7 billion.

More than $1.2 billion went to retrofitting and construction of new hospitals and medical office buildings to better serve Kaiser Permanente members and patients. That represents nearly a $400 million increase over the prior year.

In California alone, four new hospitals are under construction and seven are planned to begin construction in the next year. A key factor in California is the state law that requires the rebuilding or retrofitting of many hospitals to make them seismically safer. Seismic upgrading will represent about a $4 billion expenditure for Kaiser Permanente in the next 10 years.

In addition, $157 million was invested across the organization in 2003 for development of a new electronic medical record system (KP HealthConnect) which will give members a state-of-the-art and extremely convenient access to information about their own health and healthcare, and help clinicians more effectively provide care to those patients. The four-year project is expected to exceed $2 billion. The medical record and computerized physician support agenda has attracted world-wide attention as organizations like the Institute of Medicine have called for these programs as the best way to re-engineer the delivery of care.

"We have what I believe is the most talented and skilled team in health care." Halvorson said. "Together with our new electronic physician support tools and improved facilities, we will set a new standard for clinical excellence and quality delivery that translates into increased value and affordability for our members. This is an important time for Kaiser Permanente."

On revenues of $25.3 billion for year ended December 31, 2003, KFHP/H reported an operating income of $998 million. Net income for the fiscal year was $996 million, resulting in the operating margin of 3.9 percent. In 2002, KFHP/H reported an operating income of $142 million (0.6 percent margin) and net income of $70 million, based on revenues of $22.5 billion.

The difference between 2003 and 2002 was due in part to a decision in 2002 to move from a proprietary automated medical record to a more advanced and cost effective vendor provided system. This decision resulted in a negative $442 million adjustment in the fourth quarter.

In the fourth quarter of 2003, KFHP/H reported an operating income of $141 million and a net income of $154 million on operating revenues of $6.4 billion. By comparison, in the fourth quarter of 2002 KFHP/H posted an operating loss of $450 million and a net loss of $525 million on revenues of $5.8 billion.

Membership as of December 31, 2003 was over 8.2 million versus nearly 8.4 million at the end of 2002.

"I'm pleased that our financial performance has improved so we can sustain these levels of investments on behalf of our members and the communities we serve," said Robert Briggs, KFHP/H chief financial officer. " We and the industry continue to face significant challenges. We will continue monitoring marketplace forces and make the necessary adjustments to maintain our financial viability."

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 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.