Samuel Merritt University

Sacramento nonprofit Sutter Health reported a dip in revenues and a bump in expenses, though the system is still waiting on potential millions from a state program. Sutter Health ended its third quarter with a $37 million operating loss (-0.1% operating margin) and a $98 million net loss, though those totals don’t include millions of potential revenue the organization is waiting for the government to approve. The Sacramento-based nonprofit system reported $3.8 billion in total operating revenues for the period ended Sept. 30, which was down 4.6% from the third quarter of 2022’s nearly $3.99 billion. Operating expenses increased 2.5% year over year from the third quarter of 2022’s $3.74 billion to $3.84 billion. Across the nine months of 2023, Sutter’s $11.43 billion in total operating revenues and $11.35 billion total operating expenses represent year-over-year increases of 3.6% and 5.6%, respectively. These place the organization at an $80 million year-to-date operating income (0.7% operating margin), which is down from the prior year’s $288 million (2.6% operating margin). Though Sutter’s operations are a fair berth behind 2022, a key piece missing in this year’s tally is pending revenue and expenses related to the 2023-24 hospital fee program enacted in California to fund Medi-Cal coverage expansions. During the first nine months of 2022, respective revenue and expenses from the program were $385 million and $249 million, bringing Sutter $136 million in operating income through the program. Sutter has submitted related revenue and expenses to the Centers for Medicare & Medicaid Services and is awaiting approval, meaning that neither met the criteria to be included in this week’s filing. On the other hand, $128 million received from the Federal Emergency Management Agency to reimburse COVID-19 pandemic costs were included in the year-to-date revenue tally, according to the filing. In management’s commentary on the nine-month results, Sutter attributed a 4% gain in patient service revenues to higher patient volumes. A 5.6% rise in year-to-date operating expenses came from a combination of labor force expansions and merit increases, increased volumes and supply pricing pressures. Adding these numbers to 2023’s more stable investment market leaves Sutter’s nine-month net income at $365 million. This is a major turnaround from the $538 million net loss of the same time last year, which management noted was “due to an increase in change in net unrealized gains and losses on investments of $996 [million] and a prior year loss on deconsolidation of affiliate [Samuel Merritt University] of $208 [million]” during that year. As of Sept. 30, Sutter’s nine-month gross patient revenue payer mix broke down to 43.7% Medicare, 18.9% Medi-Cal, 34.7% commercial and 2.7% other. Outpatient revenues comprised 45% of its nine-month total revenues. The 22-hospital nonprofit employs about 54,000 people, 35,000 full-time, and lists 4,098 licensed beds. Across the entirety of 2022, it reported $278 million in operating income but a $249 million net loss. Sutter’s reports of higher volumes are in line with recent weeks’ quarterly disclosures from large for-profit health systems such as HCA Healthcare and Tenet Healthcare. Kaiser Permanente, another California nonprofit, shared news a few days ago of a $239 million third-quarter gain.

Sutter Health's 0.8% operating margin and $265 million net income are clear improvements over the previous year's second quarter, when middling volume recovery and a rough investment market dragged performance. Sutter Health logged a $29 million operating income (0.8% operating margin) and $265 million bottom line for the quarter ended June 30, thanks in part to higher patient volumes and their accompanying revenues. Those tallies are ahead of the $51 million operating loss (-1.5% operating margin) and $457 million of the second quarter of 2022, according to a regulatory filing from the Sacramento-based system. Year-to-date, the nonprofit now sits at a $117 million operating income (1.5% operating margin) and $463 million of income attributable to its controlling interests. Three-month and six-month total operating revenues, respectively, rose 9% year over year to $3.8 billion and 8.2% year over year to $7.6 billion. These were headlined by 11.4% and 9.7% increases in patient service revenues that were primarily fueled by higher patient volumes, management wrote in the filing. Within the second quarter alone, inpatient admissions rose 6.2% year over year while emergency room visits and outpatient revenues increased by 7.2% and 13.2%, according to the current and prior filings. Average length of stay stayed flat at 4.8 days. Those increases were accompanied by year-over-year jumps in operating expenses, 6.6% for the quarter and 7.2% for the half year. Management chalked these up to a combination of inflationary wage trends, contract labor needs, pricing pressures and greater patient volumes. Sutter also enjoyed a stronger investment market in 2023. While six-month investment income was just $79 million in 2023 compared to $112 million in 2022, change in net unrealized gains and losses on investments was $251 million during the more recent period compared to the prior year’s $656 million loss. Sutter spans 23 hospitals, 33 ambulatory surgery centers and dozens of other locations, according to its website. It employs more than 53,000 people and delivers care to more than 3 million Californians. The organization is coming off a tricky year, having reported a $278 million operating income but a $249 million net loss across 2022, the latter of which was dragged down by investment markets and the $208 disaffiliation of Samuel Merritt University. Leadership said at the time that the stable operations would support reinvestment into expanded patient access, workforce recruitment and cost mitigation. The organization's higher volumes and revenues during the second quarter echo the trends reported in recent weeks by large for-profit health systems such as HCA Healthcare and Universal Health Services. So far among its fellow nonprofits, integrated giant Kaiser Permanente has reported a $741 million operating income (2.9% operating margin) and $2.1 billion net income for the latest quarter.

Northern California nonprofit Sutter Health saw total operating revenues increase 7.5% year over year thanks to volume gains, management wrote in a new financial filing. Sacramento, California-based Sutter Health saw $88 million in operating income (2.3% operating margin) and a bottom-line gain of $194 million during the first quarter ended March 31, according to a Thursday financial filing. It’s a somewhat steadier start to the year than the nonprofit saw in the first quarter of 2022, when it had reported a slightly stronger $95 million operating income (2.7% operating margin) but a $184 million net loss. The latter sum had been weighed down by shifting investment valuations and the $208 million disaffiliation of Samuel Merritt University. Total operating revenues increased 7.5% year over year to $3.8 billion and included $128 million in COVID-19 reimbursement from the Federal Emergency Management Agency. Patient service revenues also rose 7.9% year over year to $3.2 billion, which system management wrote was “primarily due to increased patient volumes.” The quarter’s roughly 46,700 total admissions were a slight bump over 2022’s quarterly average of about 45,150. Operating expenses for the quarter increased 7.9% year over year to $3.7 billion. Much of the jump was fueled by a 12.5% jump in purchased service expenses due to contract labor needs, management wrote, though pricing pressures and wage inflation trends also drove respective 7.5% and 5.9% year-over-year increases. Across nonoperating items, Sutter logged $19 million in investment income, a $82 million change in net unrealized gains and losses on investments and $31 million from other components of net periodic post-retirement cost. The collective $132 million in net nonoperating income was a turnaround from the prior year’s $261 million net nonoperating loss. Sutter saw its cash and cash equivalents rise $126 million from $514 million to $640 million over the course of the quarter. Sutter employs roughly 52,000 people (33,000 full-time) across 23 hospitals, 33 ambulatory surgery centers and other care locations. Across 2022, the Northern California system reported a $278 million operating income but a $249 million net loss, a mixed performance that still had the system in a stronger place than several of its large nonprofit peers. Leadership said at the time that the stable operations would support reinvestment into expanded patient access, workforce recruitment and cost mitigation. Of note, in April Sutter named Dominic Nakis as its temporary senior vice president and chief financial officer. The system said it tapped the Advocate Aurora Health vet for a 12- to 18-month stint as it seeks someone to fill the role more permanently. The uptick in patient volumes reflects similar trends reported during for-profit health systems like HCA Healthcare and Tenet Healthcare’s recent first-quarter earnings calls.