Rising medical expenses and industry headwinds contributed to the system's losses.
Kaiser Permanente posted a $608 million operating loss in its third quarter. The California-based system cited factors like higher-than-expected service utilization, resulting in more medical expenses, as well as patient acuity and pharmacy costs as reasons for the loss.
The health system posted an operating revenue of $29 billion in the three months ended Sept. 30, which is up from $24.9 billion it had over the same period in 2023. In that same timeframe, Kaiser's net income was $845 million and its capital spend sat at $922 million, resulting in a negative operating margin of 2.1%.
Kaiser defended its third quarter capital spend in a press release, saying it "reflect[s] an ongoing investment in facilities and technology to serve members and patients and meet seismic safety mandates."
Another ding to Kaiser's third quarter performance, the system said, was the "impact of Medicaid and other true-ups of annual contracts that normally occur earlier in the year."
These results differ from Kaiser's earnings in the first half of the year where the system reported a 3.1% operating margin and a $2.1 billion net income for its second quarter.
Health systems all over the country are dealing with some of the same pressures Kaiser is feeling, especially the consistent rise of medical expenses. CFOs will need to explore new strategies to battle consistently rising expenses. Leaders can collaborate to examine how other strategies, such as lowering non-clinical spend, optimizing service models, and pursuing partnerships, may help with cost control.
Despite the losses, Kaiser's income for 2024 versus 2023 is marginally higher after reporting $1.2 billion last year. In a press release, the system cited favorable market conditions as a contributing factor.
Kaiser noted in the release that its second-half margins are generally lower than the first because revenue remains flat while expenses increase, partially due to seasonal care. However, the system emphasized that its year-to-date spend of $2.6 billion is consistent with its 2023 spend.
The system plans to shift its strategy by controlling discretionary spending and trimming business operations.
"Kaiser Permanente is continuing to innovate and adapt to address industry headwinds including the changing marketplace, rising consumer expectations, and the inflationary effects on the total cost of care," Kaiser chair and CEO Greg A. Adams said in a statement. "I have confidence in our integrated model and believe it provides us with unique opportunities to respond to the current environment."
In March, Kaiser acquired Geisinger, which brought the system's net income to $10.3 billion, compared to last year's figure of $2.5 billion. The total net asset gain from Geisinger in the first quarter was $4.6 billion. Kaiser reported a $13 million net gain in the third quarter.
A new program is making a difference in women's health outcomes, says this CFO.
Balancing clinical outcomes with financial sustainability is a difficult task, and CFOs are constantly on the prowl for new strategies. One avenue worth examining is the impact a health system is making on women's health.
CFOs need to examine sustainable financial strategies for boosting women's health outcomes. This could be as simple as more education opportunities, to as complex as pivoting care models for more streamlined care and better outcomes.
At OSF HealthCare, newly appointed chief financial officer Kirsten Largent is proud to share the strides the health system has made in women's health.
OSF HealthCare's program OSF OnCall Connect provides support to pregnant women with Medicaid insurance, and it's seen major success.
How it works
Available through the OSF OnCall Connect app, the pregnancy-postpartum program connects patients to a nurse instantly. The app provides several types of support, including : chronic condition monitoring, health and wellness education, and pregnancy care and postpartum support, which gives the user 24/7 access to specially trained nurses and advanced practice providers.
The program also provides OSF OnCall Advanced Care, which gives 24/7 access to a care team by phone or a tablet. Personalized care and support is designed with the patient's specific needs in mind, and then connects them to the right resources. The patient also has access to other health care providers, such as social workers, pharmacists and dietitians, as needed.
Users of the program have 24/7 support through the app, and receive information and education for each week of their pregnancy and for during their postpartum time.
This program is one that is supported through OSF HealthCare's work with the state of Illinois Department of Health and Human Services called Medicaid Innovation Collaboration (MIC).
Results
Kirsten Largent, newly appointed CFO as OSF HealthCare, couldn't be prouder of how the program has helped patients. Largent explains this area as one that ties back into the organization's strong focus on community and wellness.
"We are allocating our funds to address women's health needs across the ministry, and we do have a dedicated service line to women's services," Largent recently told HealthLeaders. "We think about where we're investing and looking at access for women's services and also promoting wellness."
Kate Johnson, clinical supervisor for Digital Care at OSF, says 970 women have signed up for the pregnancy and postpartum program since it was launched in August last year. With over 500 actively enrolled, Johnson says pregnant women, especially those who have a lack of resources, are eager to have the 24/7 connection offered through an app they can download on their smart phone or tablet, according to a press release.
"I think what we're seeing mostly is patients who are struggling with transportation to get to their actual OB provider appointments," Johnson said, "so we are able to align transportation for them in most cases."
Why Focus Just on Women's Health?
Women often suffer worse health outcomes than their male counterparts. With factors like longer life spans and more reproductive health care needs, women often require more intensive care, but that doesn't always play out.
Women are generally 20% to 30% more likely to be misdiagnosed than white men, and one study even found that women are 50% more likely to be misdiagnosed when having a heart attack.
This gap in women's healthcare also has economic consequences. A report by McKinsey found that in 2020, for example, only 1% of healthcare research and innovation was invested in female-specific conditions beyond oncology. But according to that same report, every $1 invested in women's health would return around $3 in economic growth.
Negative pregnancy outcomes are a particular disparity in women's healthcare, and in the United States, pregnant Black women are three times more likely than white women to die as a result of pregnancy.
Additionally, as the country prepares for an administration change, many women are concerned about their access to comprehensive reproductive healthcare and are preparing for regulatory changes in this area.
By investing in resources that create access to education and support for pregnant and postpartum women, whether that's an app, a partnership or beyond, CFOs can help lead the way towards better wellness outcomes for this group of patients. These investments in turn could boost women's health outcomes and prevent unnecessary readmissions and misdiagnosis, as well as create supportive mental health care for these patients.
Boosting women's health outcomes also shows promising financial outcomes.
Women often suffer worse health outcomes than men, and it can be costly to the health system, patients, and even the economy…but CFOs can step up.
Generally, women are 20% to 30% more likely to be misdiagnosed than men, resulting in more readmission and higher utilization for a health system.
There are also economic consequences. A report by McKinsey found that in 2020, for example, only 1% of healthcare research and innovation was invested in female-specific conditions beyond oncology. But according to that same report, every $1 invested in women’s health would return around $3 in economic growth.
CFOs can take the reins on women’s healthcare by educating staff, investing in tools and programs and creating initiatives to better health outcomes for women patients, which could, in turn, also have positive financial effects for a health system.
Be sure to check out the accompanying article here.
This proposal isn't sitting well with the industry.
Hospital leaders are fighting back against a Senate position paper advocating for site-neutral payments.
The proposal, drafted by U.S. Sens. Bill Cassidy, MD, R-La., and Maggie Hassan D-N.H., 1 advocates for site-neutral payments to reduce patient healthcare costs, reduce provider consolidation, improve Medicare financials, and aid rural hospitals in high-need areas.
Under this payment structure, Medicare would be required to pay the same rate for services carried out regardless of the care location. Medicare payment rates currently recognize fundamental differences between care in hospital outpatient departments and other settings.
Unsurprisingly, the American Hospital Association is not on board with this plan, arguing it would destabilize patient access to care.
"Simply put, this framework from Senators Hassan and Cassidy will limit and eliminate critical hospital-based care, resulting in increased wait times and decreased access to care for patients. It is irresponsible to think that clawing back up to $140 billion of Medicare spending for seniors won't destabilize access to care," AHA Executive Vice President Stacey Hughes said in a statement.
"Rather than addressing the root causes driving physician acquisitions, this instead proposes dramatic and untenable Medicare cuts, reducing seniors' access to critical hospital-based care," Hughes said "We urge Congress to address the true drivers of physician acquisitions, which include significant underpayments to providers and persistent delays and denials of care by commercial insurers."
Brian Peters, CEO of the Michigan Health & Hospital Association, wrote about the disadvantages of the proposal on LinkedIn, arguing that site-neutral payments ignore the very different cost structures between hospitals and other care sites.
"Here is an economic reality: being prepared to care for anyone, for any diagnosis, at any time, creates high fixed costs," he wrote. "[...] comparing hospitals with other sites of care is not comparing apples and oranges – it's comparing apples and space shuttles. More importantly, reducing healthcare costs can't come at the expense of reduced access to care."
The CFO Playbook
As hospitals push back against the proposal, CFOs must evaluate the potential financial and strategic impacts and zoom in on a few key considerations:
Cost Efficiency Initiatives: CFOs may need to step on the gas pedal to streamline operations, optimize workflows, and identify the best areas for cost reduction. The push for site-neutral payments is an incentive to adopt more efficient care delivery models, particularly in outpatient settings.
Advocacy and Policy Engagement: CFOs can get involved in ongoing discussions with policymakers and industry groups to provide data-driven insights into the financial challenges of hospitals. Engaging in advocacy can help ensure that the specific needs of their organizations—especially safety-net hospitals—are considered in future legislation.
Revenue Diversification: Providers could explore diversifying their revenue streams to reduce dependency on outpatient services. They can also focus on investing in value-based care models, which could potentially offer more predictable financial stability in a shifting reimbursement environment.
The Medicare Patient Access and Practice Stabilization Act would, if passed, boost physician pay by 4.7%, replacing Medicare’s planned 2.8% pay cut.
A bipartisan bill introduced in the House aims to provide much-needed relief for physicians by proposing a pay increase to replace scheduled Medicare reimbursement cuts set to take effect in 2025.
The Medicare Patient Access and Practice Stabilization Act would give a 4.7% payment update in 2025 and eliminate the 2.8% Medicare physician payment cut that is set for January 1.
The bill, sponsored by Reps. Greg Murphy, R-N.C., and Jimmy Panetta, D-Calif.,
is designed to address the growing financial pressures on providers, especially physicians, who have faced years of stagnating reimbursements despite rising operational costs.
The Industry POV
At the core of this bill is a provision that would raise physician reimbursement rates under Medicare. In addition, it would delay or entirely block the automatic Medicare payment cuts triggered by the "Sustainable Growth Rate" (SGR) formula, which was originally implemented to control Medicare spending, but has since been criticized for threatening to undercut providers' financial stability. The cuts are scheduled for 2025 unless Congress intervenes.
The American Medical Association has been urging Congress to take action, emphasizing that Medicare reimbursement for physician services, when adjusted for inflation, has steadily declined 29% since 2001.
Jason Marino, director of congressional affairs at the American Medical Association, said in a statement: “We are ruffling some feathers in Washington. Some of them want to just give us a little fix, maybe reduce the cut a little bit, but still give us some cut and want us to go away. And this is not the time to shrink away. This is a time to be fully engaged with the Hill, with Congress and really push this issue.”
MGMA' Senior Vice President of Government Affairs Anders Gilberg also commented:
"We urge Congress to quickly return from recess to pass this critical legislation, stopping the full 2.8% proposed cut to the Medicare physician conversion factor and providing a modest inflation update for 2025. These annual cuts represent an ever-present creeping decline that threatens the viability of our nation's medical groups. The fact that physicians must rely on Congress each year for a last-minute payment fix underscores just how broken the Medicare reimbursement system is. Moving forward, Congress must enact permanent, commonsense reforms that enable medical groups to keep their doors open and protect patients' access to care."
In July, CMS proposed a 2.8% reduction in the conversion factor for the 2025 Medicare Physician Fee Schedule final rule.
On top of this, CMS projects a 3.6% increase in provider expenses for 2025, and physicians would be faced with a 6.4% cut, unless Congress intervenes.
The CFO POV
Considering the bill’s uncertain path through Congress, CFOs will need to prepare for multiple scenarios. If the bill is passed, CFOs should assess how the increased reimbursements will impact their financial projections, especially in terms of cash flow and budget forecasting.
Increased physician compensation could improve recruitment efforts and reduce turnover costs, but it may also lead to higher operational expenses, which need to be balanced against other revenue streams.
If the bill fails to pass and Medicare cuts are enacted in 2025, CFOs will need to have contingency plans in place. They could consider renegotiating contracts with Medicare Advantage plans, exploring alternative revenue streams, or looking into cost-saving initiatives like technology adoption or more efficient resource allocation.
Additionally, CFOs should keep an eye on the political landscape, as changes in policy could prompt rapid shifts in reimbursement rates or regulatory guidelines.
For many health systems, the increase feels like just a drop in the bucket.
We’re here once again. the Centers for Medicare & Medicaid Services has finalized a 2.9% pay increase for hospital outpatient services in 2025. This increase is based on the projected hospital market basket increase of 3.4%, and factors in less 0.5 percentage points for multifactor productivity.
The updates are aimed to result in an additional $2.2 billion in OPPS payments for hospitals in 2025 compared to 2024.
While this is a slight increase from the 2.6% proposed in July, much of the industry is crying out that it is simply not enough.
On the ball as always, the American Hospital Association is arguing that the slight pay bump is far below what hospitals need to have a chance at addressing today's operational challenges.
AHA Senior Vice President Ashley Thompson released a media statement saying:
“Medicare's sustained and substantial underpayment of hospitals has stretched for almost two decades, and today's final outpatient rule only worsens this chronic problem. The agency's final increase of less than 3% for outpatient hospital services will make the provision of care, investments in the healthcare workforce, and addressing new challenges, such as cybersecurity threats, more difficult. These inadequate payments will have a negative impact on patient access to care, especially in rural and underserved communities nationwide.”
While some health systems are gradually improving finances, many feel the increase is just not enough. And these sentiments seem appropriate given that nearly 40% of health systems are operating in the red, according to a Kaufman Hall report. Several factors are playing into the downward trend, including market positioning, payer mix, depth of outpatient services, wage inflation and pricey contract labor.
CMS' rule comes three months after the agency finalized a 2.9% pay increase for inpatient hospital payments in 2025.
Where Does This Leave CFOs?
For some CFOs, this adjustment could offer an optimistic outlook for budget forecasting. It could allow for more predictable reimbursement for services provided in outpatient settings, which is important to continue the shift toward more value-based, ambulatory care models. The rule could enable some CFOs to better manage cash flow, especially for outpatient-focused providers and those looking to expand their outpatient services.
While this increase is a step in the right direction, it still doesn’t solve systemic issues and greater operational challenges. The healthcare industry needs to look at deeper structural changes to combat rising costs.
As more procedures shift from inpatient to outpatient settings, the financial models for hospitals need to evolve rapidly.. CFOs must navigate these changes carefully, ensuring that outpatient departments remain financially viable in the face of stagnant reimbursement rates and rising costs.
Additionally, CFOs may need to carefully strategize to create sustainable financial balance and ride out operational challenges. One trend seen by some health systems is cutting contract labor where possible to improve earnings.
Medicare reimbursement rates and site-neutral payments also play into these complicated issues. Stay tuned for a deeper dive on these two additional contributing factors.
CFOs can play a big role in AI adoption and innovation.
AI has swiftly moved into healthcare and providers all over the country heap the benefits for their systems. But approaching AI adoption in the wrong way, like moving too fast, can have largely negative impacts.
Health systems can leverage their internal relationship with their AI tools to boost income and uncover new opportunities for growth, and CFOs can play a big role in helping their organizations utilize AI for financial growth.
Generative AI in particular can help health systems tighten the screws on a number of challenges such as patient engagement and supply chain improvements.
Here are four steps CFO can take to create a balanced AI adoption.
Kirsten Largent’s extensive finance experience positions her well to take on the role of chief financial officer.
As the healthcare landscape grows more complex each year, appointing visionary leaders can make all the difference.
Enter Kirsten Largent, the incoming Chief Financial Officer of OSF HealthCare, a nonprofit organization based in Illinois.
Largent will succeed Michael Allen as OSF’s CFO and has been with OSF for almost 31 years, holding a variety of positions, previously the senior vice president of financial operations.
She has worked to modernize the financial planning process and develop a long-range plan focused on financial risk assessment and debt capacity analysis. She also worked to redesign the capital allocation process to align capital decisions to long-range strategic and financial plans. Additionally, she established a governance council to function as the monitoring body of the capital process.
On OSF’s website the organization offers numerous health and wellness resources including blogs, nutrition facts, symptom checkers, interactive tools, and a health library.
“That preventive or wellness focus, I think really does dramatically improve patient outcomes,” Largent says.
She says the organization has really leaned into a value-based care model that’s focused on quality, which has helped reduce the cost of delivering care, something she plans to continue as she steps into her executive role.
An Innovative Mindset
Largent says innovation “is in our DNA” at OSF HealthCare, and that begins with understanding where technology can be used to improve financial operations.
“It’s helped us become more efficient, and also use that technology to personalize care in that holistic way,” she says.
Digital innovation has also helped OSF provide critical care access to rurally based patients.
“We have a lot of patients that live in a rural setting or patients that also have financial struggles,” she says. “So, providing that access to both those populations is an area focus for us in innovation.”
Largent says the organization currently uses some automation, mainly in revenue cycle, which has been a helpful in streamlining some operations, and the organization is also exploring how AI and other technology investments can improve operations.
“In my role as CFO I think I can support [my team] through deployment of resources for innovation, ensuring that we're allocating a proper amount of capital so that we're investing in those new technologies,” she says.
While using technology for improvement is one thing, Largent also plans to focus on long-term growth and financial sustainability.
“The foundation of our financial planning is a long-term financial plan. We set those long-term targets, and our focus has been to strengthen our balance sheet and then at the same time create capacity so we can invest in all our different strategic initiatives,” she says.
“We use it as a guide to make our investments in a way that's financially sustainable.”
Largent also knows that there’s no straightforward path to measuring a ROI for innovation. “Financial rewards for innovation come later, as it takes time to understand and embed innovation in our operations.”
Whether it’s a new building, or a new care setting, says Largent, the innovation wheels are always spinning at OSF.
“We always, as an executive team, ensure that we think about innovation as part of a new project.”
Boosting women's health outcomes also shows promising financial outcomes.
CFOs sit at the crossroads of clinical outcomes and financial sustainability, and women’s health has a major impact on both. When health systems prioritize women’s health, the effort emerges not only as a moral imperative but also as a strategic financial opportunity.
Women often suffer worse health outcomes than their male counterparts. With many more factors to consider, like longer life spans and more reproductive health care needs, women often require more intensive care.
However, that care is not always a given. Women are generally 20% to 30% more likely to be misdiagnosed than white men, and one study even found that women are 50% more likely to be misdiagnosed when having a heart attack.
This gap in women’s healthcare also totes some economic consequences. A report by McKinsey found that in 2020, for example, only 1% healthcare research and innovation
was invested in female-specific conditions beyond oncology. But according to that same report, every $1 invested in women’s health would return around $3 in economic growth.
With strategic investment and operational initiatives, CFOs have the opportunity to take the reins on women’s health, for financial and clinical success.
The CFO Playbook
Step One: Education
The first step towards tackling women’s health challenges is to acknowledge them. CFOs should start by recognizing where their organization stands by examining women’s care utilization, readmission rates and misdiagnoses.
Surveys among medical staff can also help paint the picture of women’s health in your organization. What challenges are physicians and nurses seeing in direct care? Take note and focus on the most solvable challenges.
Examine the opportunities for better education around women’s health by looking at what programs or tools that staff, as well as patients, can access to better understand the complexities of women’s healthcare. When medical staff better understand women’s healthcare, including diagnoses and symptoms, women patients are more likely to trust their doctor.
Step Two: Examine The Options
Once a health system has identified the challenge it can tackle, examine the options for doing so. Would specific services need more attention or might they work better as outpatient services? Would a third-party partnership make a difference? For example, CommonSpirit, UCSF Health, and Cedars-Sinai have all partnered with Tia to provide in-person and virtual care for women’s physical, mental, and reproductive health.
Would a specific technology help ease the challenge? Collaborating with CMOS and CNOS can help CFOs get the full picture on clinical outcomes, and collaboration with CTOs can help them decide where new tech might help. Be resourceful and examine all options.
Step Three: Invest
CFOs can set their organization up for success by investing in women's health initiatives. Whether that’s in research and data collection, education programs, clinical tools, or specialist staff. CFOs can create a framework to monitor investments and identify gaps and unmet needs.
Lastly, CFOs can focus on building initiatives to create better, more informed health outcomes for women. Creating a space for continued education for staff on women’s healthcare can be a simple initial solution. Better informed staff can create better clinical outcomes.
Another option is zooming in on current care models. Health systems can examine building new care models that work cohesively for women patients. One example is Kaiser Permanente, which developed the Cocoon Care Program in Georgia to reduce maternal morbidity and mortality.
Community Health Systems reported its third quarter income on October 23, coming in at $3.09 billion. The 69-hospital system saw minor growth since last year, but its earnings were notably dampened by some payer activity.
Despite higher patient volumes and growth in its ambulatory surgery center, CHS saw payer denials and downgraded coding affect its Q3 earnings. Additionally, the health system took a financial hit from operational disruptions and damage from Hurricane Helene last month.
"We are seeing some payers aggressively deny payment for medically necessary services that have been provided for our patients,” CHS CEO Tim Hingtgen told investors and analysts on the earnings call. “For several quarters now, the challenges that we and our industry are facing regarding increasing denial activity by payers has been well documented. And over the last few years, in response to this challenge, we have stood up an enhanced utilization review program and centralized physician adviser services to ensure our patients are placed in correct care status and that we receive appropriate payment for their care."
More than half of those denials and downgrades are from Medicare Advantage plans, Chief Financial Officer Kevin Hammons told investors on the call.
"While denial activity is not new, the tactics used by the payers have become more aggressive, and we have experienced an approximate doubling of denials in the quarter compared with the prior year, which is an increase above our expectations," he said. "This resulted in an approximate $10 million headwind for the quarter."
CHS logged a net loss of $391 million, a loss of $2.95 per share in Q3, a 330% decrease from a loss of $91 million, or a loss of 69 cents per share, in the same quarter a year ago, according to the report.
The Payer Problem
We’ve said it before and we’ll say it again: Payer denials are wreaking havoc across the healthcare landscape. With these more aggressive tactics, as well as AI powered solutions to deny care, payers are leaving providers scrambling.
Specifically, many Medicare Advantage plans operated by commercial payers are often taking less-overt avenues to deny care or delay reimbursement. A report by Kodiak Revenue Cycle Analytics hones in on one of these tactics.
Many health systems have created financial balance by reducing their contract labor costs. For CHS, the system’s contract labor spend decreased $4 million, bringing it to $41 million in the third quarter.
While tactics for dealing with payer challenges can be limited for providers, CFOs need to examine all available options. Some suggest conducting weekly payer meetings to ensure both parties have accurate up-to-date data and minimize the margin for error.
Providers can also use software to automate the prior authorization process, which can improve claim approval rates. One payer is jumping on this option to help ease the struggles of the prior authorization process. CFOs can also conduct regular internal audits to identify and correct coding and billing errors.
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