Today's post is the fourth in an ongoing series we're publishing on key players in healthcare vertical consolidation. Nearly everyone in healthcare comes into contact with these players. Often, in fact. They are your customers, your acquirers, your competitors. But in many people's minds, they often occupy that same paradoxical space as the U.S. government: simultaneously omnipotent and incompetent, against whom resistance is futile, and yet also lumbering and inflexible. But does that paradox reflect reality? This series aims to show these giants for what they are—where they are true juggernauts and where they are paper tigers. This post will cover Kaiser's approach to vertical integration. (And in this case, when we say vertical integration, we actually mean it).
This case profile, as with all others in the series, is broken down into five parts—and you can use the links below to advance directly to any section(s) of interest:
Topline summary: Summary of each organization’s current approach to vertical consolidation
Org structure: Major business units and revenue lines, including notable (non-exhaustive) brands within each
Recent news: Major organizational developments (related to vertical consolidation) as of the time of publication
Union's analysis: Our read on the type of strategies most at work within each org (portfolio, flywheel, platform). For background on this, read our previous blog post on vertical consolidation.
Open questions: What to watch for in the coming months and years; developments that could shift our take
Topline summary: Kaiser's approach to vertical integration
Often pointed to as the preeminent example of a platform approach in healthcare, the reality is that KP’s model varies by market. In California, a fully-owned and integrated plan-provider model has flourished, while Kaiser has yet to fully replicate this success in markets where it has a less dominant provider presence. The recent establishment of Risant Health (and subsequent acquisitions of Geisinger and Cone Health) appears to be an attempt to replicate the company’s California platform approach—but it remains to be seen whether the organization can successfully transition mature/legacy systems to this model.
Org structure: Kaiser Permanente
Kaiser Permanente is the smallest organization that will feature in this series about vertical conglomerates, but it's certainly not a bit player—the organization is the fifth largest insurer in the U.S.
KP has a presence in seven states and the District of Columbia., but the majority of its business is centered on the West Coast, particularly in California—as of 2020, 9 million of its over 12 million enrollees were based in California.
California is also where most of the hospitals that KP directly owns and operates are located, with a handful of additional acute care facilities in Oregon and Hawaii. In other markets, Kaiser relies on a highly curated network of non-aligned hospitals to provide acute care services to its members. To round out its care delivery assets, Kaiser also has a large and substantial medical group that includes over 23,000 physicians and 68,000 nurses.
Kaiser generally operates as a closed-system, HMO-style model. Enrollment in the health plan provides access to Kaiser-owned provider facilities and enrollees are required (through benefit design) to use those facilities exclusively, with the exception of emergency care.
Relative to its size, Kaiser has relatively narrow margins, owing mostly to its not-for-profit status (it is also the only not-for-profit organization that features in this series). But crucially, that doesn’t make it low cost relative to its competitors, mostly because the cost of care is difficult to inflect relative to local competitors, and Kaiser tends to operate in relatively affluent areas.
Recent news: Developments in Kaiser's approach to vertical integration
The most notable development within the KP portfolio in the past few years has been the establishment, as of April 2023, of a new subsidiary called Risant Health. This appears to be Kaiser’s attempt, through its hospital division, to try its hand at a different strategy from the homegrown approach that it has taken on the West Coast, in which it has owned and operated (and in nearly all cases, built) its hospitals, and the partnership approach that it's taken in its non-Pacific markets.
Risant is positioned as a value-based health system platform, and is a subsidiary through which Kaiser intends to acquire mature health systems and bring them into the Kaiser model. Risant completed its first acquisition of Geisinger Health in April of 2024, followed quickly by Cone Health in December 2024.
At first glance, these two acquisition targets might seem surprisingly different from one another. Geisinger, with a sizeable and successful regional health plan that feeds a substantial amount of its provider business, much more closely resembles the Kaiser model on the surface. However, both systems serve relatively rural areas with lower-than-average population mobility, offering the sort of stable population base that is necessary for financial success under a population health-based model. And Cone Health has invested heavily in value-based care infrastructure ever since the passage of the ACA—the system was one of the earliest participants in the Medicare Shared Savings ACO program and has maintained steady participation through the evolution of the Medicare ACO models, going on to participate in the Next Gen ACO model, the Direct Contracting model, and, currently, the ACO REACH program. The organization has successfully achieved savings in all but one year of participation.
Union's analysis: Our read on Kaiser's approach to vertical consolidation
Portfolio strategy: Limited emphasis
Although Kaiser does play in both the provider and plan sectors, its assets are designed to rise and fall together, NOT to hedge against one another. Its owned provider assets are only accessible to Kaiser health plan members—they’re not meant to generate revenue on their own, or to make up for any financial slack on the part of the health plan business. So while the organization does have some degree of diversity across their business segments, it would be difficult to describe KP's approach as a portfolio strategy. And in contrast to other vertical consolidators, Kaiser hasn't made significant moves into the pharma, tech, or consulting sectors.
Flywheel strategy: Somewhat significant emphasis
Kaiser’s closed network model is effectively a flywheel by design—enrolling in a Kaiser health plan will naturally direct patients to the Kaiser provider network. But the flywheel only operates in one direction (from plan to provider), not in the reverse, as many of the other vertical consolidators are attempting.
Platform strategy: Significant emphasis
Kaiser is the classic example of a platform approach, given the closed network nature of its model. That said, it's really only a pure example of a platform approach on the West Coast—which is, probably not coincidentally, where their model has been most successful.
Open questions about Kaiser's approach to vertical integration
Growth strategy: Risant represents a new approach to hospital operations for Kaiser, who has had the most success in markets where they directly own and operate hospitals (e.g. CA) as opposed to partnering with independent systems. Will Risant’s approach prove a more effective way for Kaiser to (profitably) grow share outside of its core market in California?
Integration strategy: Risant’s success will hinge on KP’s ability to successfully export its model to large, entrenched organizations, as opposed to taking a homegrown approach. Can it successfully execute on this level of integration?
Parting thoughts: Kaiser's approach to vertical integration—and what to watch as Risant integrates Geisinger and Cone
Kaiser is frequently (and rightfully) heralded as a the preeminent example of a platform approach within healthcare.
The structure of its model mean that its assets rise and fall together, setting it apart from every other major healthcare vertical conglomerate, all of whom are betting to a large extent on diversification as a cornerstone to financial stability.
Control has historically proven essential to KP's success—by far its most successful market is California, in which the organization has taken a homegrown approach to building out its physician network and hospital assets.
Risant Health will test the exportability of Kaiser's model, which has proven difficult to replicate in a partnership context. Whether acquisition of a mature health system assets will offer the degree of control necessary to successfully replicate the organization's value-based platform approach remains to be seen. Success will ultimately come down to:
Kaiser's ability to inflect the physician culture and behavior at these two systems. As we've talked about within the context of General Catalyst's acquisition of Summa, physicians don't really have a boss. Whether Kaiser can shift physician culture will probably be the biggest make-or-break factor in these deals.
The ability of the acquired systems to fully embrace a population health mindset within the context of a hybrid (i.e. non-closed, non-HMO) model. Neither Cone nor Geisinger will have the luxury of closing the doors of their provider assets to patients and enrollees from non-affiliated health plans.
Despite the notable challenges Risant will face, it has chosen wisely in its acquisition targets, although this may not be immediately obvious on the surface. Geisinger, with its large health plan, is a natural choice. And while Cone Health is a newer player in the value-based space, it commitment to value-based care in the post-ACA era has been steady and clear.
Want more on vertical integration?
Read our blog post on the various forms that vertical consolidation can take
Review our profile of UnitedHealth Group's approach to vertical consolidation
Review our profile of CVS Health's approach to vertical consolidation
Review our profile of Cencora's approach to vertical consolidation.
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