Kaiser Permanente is a “non-profit” healthcare system, but lately it has not been acting that way.
In California, Kaiser is registered as a Public Benefit Corporation. Under California non-profit law, “a Public Benefit Corporation must be formed for public or charitable purposes and may not be organized for the private gain of any person.”
“Although public benefit corporations may qualify for important benefits, includingexemption from income tax, they are subject to important legal restrictions. One critical restriction is that the assets of a public benefit corporation are considered irrevocably dedicated to charitable purposes, and cannot be distributed for private gain…Legally, those assets must be used for the charitable purposes for which they were raised…”
Other states where Kaiser Permanente operates have similar public benefit obligations for non-profits.
This paper explores several ways in which Kaiser Permanente acts more and more like a for-profit corporation, reaping billions of dollars a year in profits, building massive financial reserves, and paying dozens of executives a million dollars or more a year. Meanwhile, Kaiser is leaving behind the values, community relationships and connection to patients and healthcare workers that made it such a success.
If it were eligible, Kaiser would be 34th on the 2018 Fortune 500 revenue-based ranking of public and private corporations. This puts them ahead of mega-corporations like IBM, Dell, HP, Freddie Mac, Morgan Stanley, Goldman Sachs, American Express, Aetna, PepsiCo, Coca-Cola, Disney, Lockheed Martin and Nike. Among privately held for-profit corporations, Kaiser would rank 3rd, behind only Cargill and Koch Industries, according to Forbes.
Kaiser also has outsized profits. The corporation took in more than $3 billion in net income during the first quarter of 2019, bringing its profits to more than $9 billion since January 2017. Kaiser’s net income for the first quarter of 2019 (January-March) was almost 50% higher than Coca-Cola’s for the same time period. Compared to other healthcare providers, Kaiser’s first-quarter profits are three times higher than those of for-profit HCA Healthcare, the largest health system in the US.
What’s more, the company currently sits on $35 billion in reserves, more than the city budgets of Los Angeles, San Francisco, San Diego, Oakland, San Jose and Sacramento combined.
Big Pay Days
More than 36 Kaiser executives made at least $1 million in 2017.
- No executive made that much at other leading non-profit organizations like the American Red Cross, YMCA of the USA and the Smithsonian Institute.
- Only a handful of executives at healthcare non-profits Blue Cross Blue Shield Association and St. Jude’s Children’s Research Hospital were paid $1 million or more.
Kaiser CEO compensation grew 60 percent to more than $16 million in 2017, which is more than $44,000 a day and nearly $7,700 an hour.
- This means he made more than 16 times the average salary of CEOs at other similar leading non-profits, including the American Red Cross, Blue Cross Blue Shield Association, and St. Jude’s Children’s Research Hospital.
Providing an Increasingly Questionable Public Benefit
When it comes to providing public benefits, Kaiser is failing to meet its responsibilities:
Despite its obligation to act on behalf of the community in order to qualify for massive tax breaks, Kaiser underserves Medicaid patients. Medicaid provides healthcare for 21% of Americans, but Kaiser’s Medicaid patient volume is less than a third of that figure.
- In California, Kaiser’s home and by far largest state, 28% of patients in California’s other nonprofit hospitals are Medicaid patients, but it’s only 8% at Kaiser.
- 18 of the 25 California hospitals with the lowest percentage of lower-income Medicaid patients are Kaiser hospitals.
Additionally, Kaiser is turning its back on what had been the most successful and largest worker-management partnership in the country, a collaboration that has been a source of innovation and problem-solving for two decades – thus undermining the company’s goal of trying to be the best place to receive and deliver care.
At the same time, Kaiser is aggressively outsourcing good jobs to companies that pay low wages with fewer benefits and wants to limit the wages and cut the benefits and job security of its frontline healthcare employees.
Kaiser: Keep Thrive Alive
In recent years, Kaiser has less and less acted like a company whose mission is help California “thrive.” Kaiser needs to get back on track, start living up to its non-profit obligations, and once again make the needs of patients, workers and communities its top priority.
 pg. 3 Attorney General’s Guide for Charities, California Department of Justice, Charitable Trusts Section, January 2019. https://oag.ca.gov/sites/all/files/agweb/pdfs/charities/publications/guide_for_charities.pdf; see also Corp. Code, § 5130
 pg. 7 Attorney General’s Guide for Charities, California Department of Justice, Charitable Trusts Section, January 2019. https://oag.ca.gov/sites/all/files/agweb/pdfs/charities/publications/guide_for_charities.pdf
 Washington; Oregon; Hawaii
 America’s Largest Private Companies, 2018 Ranking. https://www.forbes.com/largest-private-companies/list/
 https://about.kaiserpermanente.org/our-story/news/announcements/kaiser-foundation-health-plan-and-hospitals-financial-update-q1-2019; Kaiser Foundation Health Plan and Kaiser Foundation Hospitals Audited Combined Financial Statements 2017 and 2018.
 Kaiser: https://about.kaiserpermanente.org/our-story/news/announcements/kaiser-foundation-health-plan-and-hospitals-financial-update-q1-2019; Coca-Cola: http://d18rn0p25nwr6d.cloudfront.net/CIK-0000021344/4a0dcc55-304e-44c9-89a5-1bcde67e4f95.pdf
 https://www.forbes.com/sites/ashleaebeling/2019/05/15/worlds-largest-healthcare-companies-2019/#e4f26d138086; https://investor.hcahealthcare.com/press-release/hca-reports-first-quarter-2019-results
 Kaiser Foundation Health Plan, Inc., Quarterly Financial Reporting Form, Department of Managed Health Care, State of California, For the Quarter Ending 12/31/2018. Accessed at: https://wpso.dmhc.ca.gov/fe/search/; Combined budgets for these cities for 2018 was $25.7 B
 2017 IRS Form 990, Schedule J.
 6.8% of Kaiser members are Medicaid enrollees. Per analysis of 2017 Kaiser Consolidated Community Benefit Report for California and CMS Medicaid Enrollment Data, Kaiser’s total Medicaid enrollment was approximately 800,000 in 2017 against a membership total of 11.8 M: https://oshpd.ca.gov/ml/v1/resources/document?rs:path=\Data-And-Reports\Community-Benefit-Plans\2017\106015000_NS_CBP_2017.pdf; https://data.medicaid.gov/Enrollment/Managed-Care-Enrollment-by-Program-and-Plan/ghyh-r8nn; https://healthy.kaiserpermanente.org/static/health/annual_reports/kp_annualreport_2017/?kp_shortcut_referrer=shareNav#/numbers
 Calculated using Total MediCal Inpatient Discharges/Total Inpatient Discharges. 2017 HAFD Pivot table. https://data.chhs.ca.gov/dataset/hospital-annual-financial-data-selected-data-pivot-tables.
 Facility ranked using same calculation and data as prior footnote.
 Kaiser to outsource landscaping at Northern California facilities. Becker’s Hospital Review. March 12, 2019. https://www.beckershospitalreview.com/human-capital-and-risk/kaiser-to-outsource-landscaping-at-northern-california-facilities.html