To say it’s been a bad couple of years for Kaiser Permanente would be putting it mildly.

The Oakland-based company lost $270 million last year and expects to end 1998 with more than $200 million in net losses. Company executives say they underestimated the cost of treating a surge of new members, and health care costs in general are skyrocketing.

But the biggest portion of the losses is related to a shortage of nurses and available beds. Nationally, Kaiser’s membership rose 19.8 percent last year, to almost 9 million. But the HMO was forced to send an unexpectedly large number of patients outside its system for care, increasing expenses. Those “outside claims” in California accounted for $180 million of last year’s loss.

“When you have operating losses to the tune that they do, it can be very serious,” said Steve Valentine, president of the Camden Group in El Segundo. “They cannot have those kind of losses forever.”

Can Kaiser pull itself back into the black?

Philip Jensen, vice president of finance for Kaiser Permanente’s California division, insists it can. And health care analysts agree that it’s on the right track.

Kaiser’s recent moves to raise premiums, its sale of an ailing operation in Texas last month, and its plans to sell off operations in North Carolina, Ohio and parts of New England, are cited as steps toward a turnaround.

Jensen said the company also is recruiting nurses, slowing expansion plans and consolidating administrative functions among its Southern and Northern California operations.

“I think they have generally identified the issues they need to address,” said Richard Sinaiko, chief executive of health care consulting firm HPEN Inc. in Los Angeles. “They will most likely be very successful at turning things around. It is just a matter of time.”

One thing Kaiser is unlikely to do is close hospitals, although it’s no secret that the HMO’s hospital operations have been a big drain. In Los Angeles, Kaiser’s seven hospitals lost a combined $42.6 million in 1997, according to the Office of Statewide Health Planning and Development.

Though there were widespread rumors earlier this year that the company was looking to sell some of its struggling hospitals, analysts and Kaiser executives now say that probably won’t happen.

“Selling the hospital operations is not in the strategy,” said one source who is advising Kaiser’s Southern California operations. “They are going to look more at where they can consolidate, like merging satellite facilities together, and administrative costs. There will also be more rate increases to bring rates up to market level and renegotiations with some staff on contracts.”

Jensen said Kaiser is making significant steps toward improving its financial performance. Last month it opened two new hospitals in California one in Baldwin Park and the other in Northern California. That should help reduce Kaiser’s referrals to more-costly outside providers. Kaiser has been forced to make the referrals because its own facilities couldn’t accommodate the surge in members that occurred last year through mid-1998.

Kaiser also demanded substantial 1999 rate increases from its customers. For example, the California Public Employees Retirement System, which provides health benefits to more than 1 million state employees and retirees, agreed to a 10.75 percent increase next year.

Kaiser’s old rates were up to 20 percent lower than the competition a big factor in last year’s 19.8 percent gain in membership. There are more than 3 million Kaiser members in Los Angeles County alone.

John Edelston, president of HealthPro, a health care consulting firm in Woodland Hills, points out that Kaiser’s huge membership gain will actually pay off handsomely in the future. Once it has the capacity to treat those patients it should bounce back.

In fact, Edelston says Kaiser might be using its current losses as an excuse to raise premiums more than is really necessary. “If you look at the number of enrollees they have, their loss was minimal,” he said. “It is not such a bad situation for them. It is not like they are going out of business.”

Still, Jensen pointed out the importance of reinvesting in new equipment and infrastructure capital costs that require much better financials.

“It is hard to stay viable when you are having hundreds of millions of dollars in losses,” said Jensen. “We do still require net income. Breaking even is not sufficient in the long run.”