Kaiser Permanente’s operating margins in the third quarter were meager because it weathered labor turmoil and the surge in COVID-19 patients.

The Oakland, California-based integrated medical system generated $38 million in operating revenue for the quarter ended September 30, with revenue of $23.2 billion. Non-profit companies disclosed on FridayThis corresponds to a profit margin of 0.2%, compared with a profit margin of 2.1% in the same period last year, when the company’s operating income was US$456 million and revenue was slightly less than US$22 billion.

Tom Meyer, the corporate treasurer of the health system, said that margin compression is the result of increased costs for COVID-19 patients.

As an integrated system, Kaiser Permanente’s patients are also the insured persons of its health insurance.

“Literally, all our facilities are staffed and so on, and then in the case of utilization due to members coming in, we will bear the cost of taking care of them,” Meyer said.

Meyer said that the company’s health plan membership renewal was carried out near the beginning of the year, so the premium income was determined very early, but the annual cost continues to rise. In the third quarter, spending increased by 7.5% year-on-year to $23.1 billion, while revenue increased by 5.5%.

“It’s not uncommon for profit margins to fall during this year,” Meyer said. “Due to the delta variant COVID-19 surge and the continued incremental cost of related expenses, this year has worsened a bit compared to the third quarter a year ago.”

Meier said that Kaiser Permanente’s profit margins may be lower in the next quarter, and then rebound in 2022.

Half of Kaiser Permanente’s expenses are related to labor. Meier said that, like other health systems, the company was forced to pay more for traveling nurses and contract workers during the surge in patients, which increased labor costs.

Union employees in the health system have also experienced severe turmoil.Nearly 32,000 Kaiser workers in California, Oregon and Washington Announced on Thursday that they plan to strike November 15th. The union opposes Kaiser Permanente providing new employees with lower wages than existing employees, etc.

Kaiser Permanente was also in trouble in the third quarter, as more of its 12.5 million health plan members transitioned from the more profitable business policy to the Medicaid program, which is another factor in reducing profits. Some of these changes are the result of people losing their jobs during the pandemic.

In the third quarter, the health system spent US$878 million on capital projects, significantly lower than the US$964 million a year ago. Meier said that as the COVID-19 pandemic continues, Kaiser Permanente is reconsidering its capital plan to ensure that funds are allocated to the right projects.