Sutter Health posts $134 million in 2020 income, so why is its financial report so bleak?
Sutter Heath reported Thursday that it earned income of $134 million in 2020 as its investments surged in value, but the health-care giant suffered losses from its business operations for a second consecutive year.
Last year’s operating loss totaled $321 million as the company made investments to care for thousands of patients who had COVID-19. Around California and the nation, hospital providers have said this viral pandemic has dealt them crushing financial blows.
Sutter Health CEO Sarah Krevans noted in a news release: “We invested heavily to respond to the pandemic because it was the right thing to do, but it came at a cost as we experienced one of the toughest financial years in Sutter’s 100-year history. It will take several years to fully recover.”
As bad as the 2020 loss was, it was an improvement over 2019, when Sacramento-based Sutter reported the loss from operations was $548 million.
The losses will have implications for both Sutter employees and patients, with company leaders again stating they are in the midst of a sweeping review of operations and finances that will result in “closing some programs and services that are seeing fewer patients and redeploying staff to busier parts of its integrated network.”
“We will take the necessary steps to make our operations sustainable, while continuing to provide high-quality care and keep our patients, clinicians and communities safe,” Krevans said.
The organizational restructuring will not happen overnight, Sutter leaders said, but they are committed to making operations financially sustainable.
The COVID-19 pandemic exacerbated an already-difficult financial environment for the company, Sutter leaders said, noting that the company had been operating just above break-even for years, with an operating margin of 0.19% in 2018, 1.7% in 2017 and 2.18% in 2016.
The operating margin reflects how much money a company makes for every $1 of sales, so Sutter earned less than penny per dollar in 2018, not quite 2 cents in 2017 and slightly more than 2 cents in 2016.
For the last two years, however, the company has spent more than it earned in sales, overshooting the $1 mark by two-thirds of a penny in 2019 and 2.3 cents in 2020.
This trajectory, Sutter leaders said Thursday, is unsustainable.
Costs increased as Sutter made purchases and converted its facilities to handle patients stricken with COVID-19, company executives said, but also because labor costs generally are among the highest in the nation in areas where Sutter operates and payments from Medi-Cal and Medicare do not fully cover those and other costs.
More than 60 percent of Sutter’s hospital gross charges came from those government payers in 2019, according to data hospital officials cited from the California Office of Statewide Health Planning and Development. The Sutter release noted that the company continues to care for more Medi-Cal patients in its hospitals than any other health system in Northern California.
Sutter leaders noted that their network reinvested more than $2 billion to cover the unreimbursed costs associated with Medicare and Medi-Cal plans.
Despite the new financial pressures of operating in a pandemic, Sutter spent roughly $431 million to update its facilities last year. Those expenditures included expansions at both Sutter Davis Hospital. and Sutter Roseville Medical Center. However, Sutter leaders are re-evaluating other planned capital projects in light of budgetary concerns.
The pandemic also fueled broad patient adoption of tele-health services, and Sutter said its data definitely showed how vital this option has become. In 2019, Sutter conducted 7,400 video visits, but in 2020, that number skyrocketed more than 100 times to over 1 million.
This story was originally published March 4, 2021 at 12:17 PM.
