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If Kaiser Permanente was a for-profit, publicly traded company, it would come in at number 63, by revenue, on the 2007 Fortune 500 listing, just ahead of The Walt Disney Company.

In fact, as a not-for-profit organization, Kaiser Foundation Health Plan and Kaiser Foundation Hospitals raked in considerably more profit (on a net income basis) last year than Best Buy, Safeway, Medco, Costco, Kroger (which also owns Ralphs), Cardinal Health, and McKesson. Continuing the list, it made about as much as CVS/Caremark and Sprint Nextel, but just slightly less than Sears Holdings (which also owns Kmart).

If the concept of a not-for-profit making that much money worries you, the tale only gets worse for Kaiser Permanente members. Those sumptuous profits are coming at the expense of the future stability of the largest health insurer in California.

Kaiser Permanente is approaching its perfect storm, the coalescence of an expected deterioration in the rolls of traditional members, a rapid escalation in spending to try to repair the unreliable (and already enormously costly) HealthConnect project, and, at long last, the inability to raise member dues further (since payers simply can’t afford higher rates anymore).

When I learned, last year, that Kaiser Permanente could face losses of billions of dollars through 2009, I was shocked. (Kaiser Permanente later called those projections a “worst case scenario.”) Our organization had grown revenue and income by leaps and bounds for years: could that growth finally come to an end?

Right up to fiscal year 2007, those projections show that all financial signs should be pointing to healthy. By and large, they are. But the warning bells are sounding.

Under George Halvorson, Kaiser Permanente’s financial “transparency” has become murky, at best. Looking at the provided figures for 2006, you would probably notice that net income increased a whopping 30 percent last year. You’d even be pleased (or not) to know that our operating margin increased from 2.6 to 2.8 percent. But, in real numbers, that means our operating income likely only increased around 19 percent, far less than our reported net income increase of 30 percent.

While net income provides an important metric, it doesn’t provide a true picture of our organization’s health, and is more susceptible to one-time adjustments and transactions that could mask true financial changes or problems.

If Kaiser Permanente can’t report upfront, honest financial numbers to the public, you have to wonder why. Perhaps fortunately for Kaiser Permanente, there really isn’t any governmental entity that pays much attention to the truth in financial reporting of not-for-profits. That oversight (or, ironically, that lack of oversight) is quite unfortunate for the organization itself, and especially for our members.

Here’s an interesting snippet from Erik Sherman’s blog.

Ironically, Mr. Deal first sent his complaints to Kaiser’s compliance officer and to the board of directors:

Kaiser’s assistant general counsel sent Mr. Deal a letter saying that “a thorough investigation” found no evidence of misconduct by the executives, nor of a “disastrous failure” of the HealthConnect project.

And yet there was this internal report. In either case it’s clear that the board has some problems. Either it knew of the system issues and ignored them - which would seem like criminal negligence if patient health was affected - or it was incapable of unearthing this report. In either case, this would seem a clear issue of board dysfunction.