I think they asked the right question, though not one that would have turned up on a form in the past. Doctors need to know accurately the sex of their patients in order to practice their science. But sex and gender are not simple or binary.
An Australian medical school, Monash Universtiy, concisely explains where the question as phrased by Kaiser Permanente is coming from:
The Kaiser questionnaire also asks for "other." Some people are "other," born with some variation of the biological characteristics of both sexes. These folks are frequently termed intersex. Since societies have usually enforced pretty rigid gender dichotomies between what we assume are binary sexes, many intersex people have been altered, as babies, to appear more "normal." Medicine needs to know our actual biological characteristics, to the extent we can provide the answers.