Hospital giant Sutter Health points to first-quarter loss of $1 billion as tip of iceberg
In reporting a $1.08 billion loss Thursday for its first quarter, Sacramento-based Sutter Health laid out in striking detail the cost for health care providers as they confronted a disease of pandemic proportions.
Like other hospital operators, Sutter ended elective procedures in mid-March and shut down many units that provided ancillary services as it geared up for a surge in patients who had COVID-19, the respiratory illness caused by the coronavirus.
Outpatient surgical cases plummeted by 73 percent by April 30. Sutter Treasurer Jonathan Ma revealed this setback and others in an 11-page report that offers a detailed picture of the financial upheaval being confronted by hospital providers all around California.
As Californians followed stay-home orders from the governor and local health officers, doctors affiliated with Sutter’s network saw patient visits sink 60 percent in that same period.
And, emergency room visits also tumbled by 43 percent as accidents diminished on lightly trafficked roadways and patients opted not to go to ER’s where a surge of people with the highly contagious virus were expected.
As the amount of work dropped, Sutter began temporarily reassigning staff to facilities that needed more help and about 5,000 Sutter employees — roughly 10 percent of the workforce — couldn’t get enough working hours to cover a full-shift.
“Despite the persistent uncertainty of the situation, we are currently providing for employees who are available to work but cannot due to COVID-19-related staffing impacts, through a temporary wage and benefit continuation program, and prior to that a short-term disaster relief pay,” Sutter officials said in a statement to The Sacramento Bee.
Sutter also instituted a hiring freeze and cost-containment measures, including limiting the use of overtime, contract workers and temp agency staff, the statement said. Ma’s report noted the company also is retraining workers to help mitigate the impact of the pandemic on Sutter’s workforce.
Even as patient volume plunged, Ma said, Sutter was making investments to ensure it had the ventilators, personal protective equipment and beds needed if its 24 hospitals were overrun. It spent $26 million on N95 respirators and other PPE, $4 million for ventilators, $2.4 million to set up its own COVID-19 testing.
Before the pandemic, Sutter’s facilities used an average of 900 N95 respirators and 12,000 surgical masks daily. But as the number of COVID-19 cases increased, its medical personnel were using 5,000 N95 and 55,000 surgical masks each day, on average.
Although Sutter had its own bulk purchasing program and participated in a group purchasing organization known as Vizient, the health care giant nonetheless faced challenges to secure a sufficient number of supplies and equipment, including COVID-19 test kits and PPE.
“The difficulty of sourcing these critical supplies is further exacerbated by the lack of reliability of certain PPE sources,” Ma wrote. “Additionally, as others in the healthcare industry have experienced, some of Sutter’s PPE orders have been diverted away without Sutter’s consent or prior knowledge. Sutter anticipates diversions may continue to occur with future orders.”
Anticipating that some people might not want to come to doctor’s office as coronavirus was spreading in their communities, the company also invested $8 million in expanding its telehealth capacity.
Even with additional revenue from these visits, the company posted an operating loss of $236 million in the first quarter.
The added operating expenses were not the only drag on Sutter’s performance. The company also saw the value of its multibillion-dollar investment portfolio dive by more than $500 million, as Wall Street investors sold off shares in a panic over the impact of COVID-19 on corporate earnings.
Ma’s report predicted that the losses will continue for Sutter, to the tune of $300 million a month. He noted a $360 million operating loss for the month of April alone, before the company applies federal monies it received as part of COVID-19 relief package.
Sutter and its affiliates have received $205 million from the U.S. Department of Health & Human Services Provider Relief Fund, plus a $1 billion advance payment on services from the U.S. Centers for Medicare and Medicaid Services. The CMS funds are essentially a loan that providers must pay back within 12 months.
Ma said that Sutter’s portion of the DHHS funds will reduce its April operating loss to $168 million.
When will patients feel safe returning to hospitals and doctors’ offices? How long will hospitals have to set aside ICU beds in anticipation of COVID-19 surges? When will PPE and equipment be readily available? The difficulty for Sutter, Ma said, is that the company can’t predict how long it will have to meet the challenges of a world where there is no effective treatment for COVID-19.
While the CMS funds will assist with reserves, expenses and cash flow over 12 months, Sutter has expanded its access to bank credit to $600 million, up from $500 million.
Despite these measures, the impact of stock market losses, even if they are just on paper, could have far-reaching financial consequences for Sutter. Bond agencies could lower Sutter’s rating, affecting covenants governings when it has to make payments and how much it has to pay. As the pension money it has invested declines, it also could be forced to make additional payments to ensure funding requirements are met.
“The need for Sutter to adjust its entire integrated network to respond to COVID-19 has been, and continues to be, a costly and difficult endeavor,” Ma stated. “Sutter anticipates in the near term at least a $300 million per month reduction in operating performance until containment of COVID-19. While Sutter’s liquidity remains sufficient, its future liquidity needs may change as the pandemic and economic outlook evolves.”
This story was originally published May 15, 2020 at 5:21 PM with the headline "Hospital giant Sutter Health points to first-quarter loss of $1 billion as tip of iceberg."
