Dive Brief:

• Kaiser Permanente had a record amount of net income in 2021, as investment returns more than offset a decline in operating income as COVID-19 expenses rose in the pandemic's second year.
• The Oakland, California-based integrated system reported net income of $8.1 billion last year, compared to the $6.4 billion recorded in 2020 and beating its previous record of $7.4 billion, set in 2019.
• It's not an uncommon story for nonprofits, which generally sit on a huge pot of investment assets, to see their bottom line boosted by returns. But the scale to which these returns hoisted Kaiser's net income in 2021 is notable: 93% of the system's net income was due to such "other income and expense" last year.

Dive Insight:

Kaiser cared for an increasing number of COVID-19 patients during the delta and omicron surges last year, and saw expenses rise as it expanded testing and mass vaccination sites. As a result, the 39-hospital system, which also operates a sizable outpatient business and insurance plans, saw its operating results flag in 2021.

"After almost 2 years, the COVID-19 pandemic continues to impact Kaiser Permanente just as it does our daily lives," CEO Greg Adams said in a statement on the financial results released Friday.

Kaiser's operating margin shrunk throughout 2021, as expenses due to surging COVID-19 patients and labor unrest swelled at a fast clip, and outpaced revenue growth. The system saw its margin dwindle from from 4.4% in the first quarter to 1.5% in the second and just 0.2% in the third.

For the full year, Kaiser brought in revenue from operations of $93.1 billion, up 5% year over year. However, expenses grew 7% to $92.5 billion, resulting in an operating income of $611 million, down 72% from 2020.

That's a margin of 0.7%, compared to the 2.5% margin posted in 2020 when it generated $2.2 billion in operating income.

However, strong investments due to robust financial markets resulted in total other revenues of $7.5 billion, almost double the $4.1 billion notched in 2020.

That more than offset the decrease in operating income, Kaiser said.

Nonprofits been heavily criticized (especially over the pandemic) for bringing in huge amounts of income. Last year, Kaiser's $6.4 billion in net income was among the highest in the U.S., beating out the biggest for-profit operator, HCA Healthcare, and other nonprofit giants like Mayo Clinic. The systems, which receive generous tax breaks in exchange for providing charity care, have also faced concerns that they're acting increasingly like for-profit corporate entities, including growing activity in venture capital and skyrocketing executive salary.

Kaiser, which noted its integrated business model also helped it weather the pandemic on strong financial footing, covered 12.5 million members at the end of 2021 — an increase of almost 185,000 people compared to 2020.

The payer, which is active in eight states and Washington, D.C., said the increase was mostly in government programs like the individual exchanges set up by the Affordable Care Act, along with Medicare and Medicaid.

Medicaid growth alone drove more than half of the 2021 membership increase, Kaiser said. That membership growth is less valuable to the system, however, than more lucrative commercially insured patients, as the safety-net insurance tends to reimburse less for care. It's also less stable, as states are poised to resume eligibility checks for Medicaid coverage this year when the COVID-19 public health emergency expires, as industry expects.