Sutter Health starts major financial review after posting $321M loss in 2020

Northern California-based hospital system Sutter Health posted a $321 million operating loss for 2020, the second year in a row the system ended in the red.

The system said Thursday that it is going to start a “sweeping review” of its operations and finances that will include restricting and closing some programs and services as well as seeing fewer patients.

“The organization’s financial recovery will not happen overnight, but it is committed to making operations sustainable so that Sutter can continue to serve its communities,” the system said in a release.

Sutter’s $321 million operating loss, which constitutes a negative 2.4% operating margin, is better than the $548 million loss it posted in 2019.

Sutter generated $13.2 billion in operating revenues for 2020 compared with $13.3 billion in 2019. But the system’s operating expenses generated $13.5 billion in 2020, which was down from the $13.8 billion in operating expenses from 2019.

RELATED: Sutter Health posts $607M in first 9 months of 2020 as COVID-19 impacts finances

The 24-hospital system said it spent at least $121 million on supplies, equipment and technology to combat the COVID-19 pandemic in 2020.

“These expenses, combined with unpredictable patient numbers and disruptions due to multiple natural disasters over the past few years, significantly impacted Sutter’s financial situation and already declining operating margins,” the system added.

Sutter added that other factors have led to the losses for 2020.

“Northern California is home to 11 of the 12 highest hospital wage indexes in the country, which helps make the costs of delivering care here more expensive,” the system said. “Labor costs represent more than 60% of Sutter’s total operating expenses.”

Hospitals across the country have faced higher labor expenses to shore up staff to combat the virus and higher expenses for travel nurses.

The system generated $10.5 billion in patient service revenue in 2020, a decline from the $11.4 billion generated the year before.

Sutter got approximately $812 million in money from a $175 billion fund created under the CARES Act. It also reported nearly $1 billion in advance Medicare payments that must be repaid by the summer of 2022.

But Sutter did not mention the impact of a major $575 million settlement with the state over allegations of price gouging. The system tried and failed in the summer to delay court proceedings linked to the settlement because of financial issues related to the pandemic.

Sutter has done worse than other larger hospital systems that ended 2020 on a bright financial note. Not-for-profit systems such as Mayo Clinic and the University of Pittsburgh Medical Center (UPMC) posted positive earnings at the end of the year thanks to higher acuity and, in UPMC's case, an increase in its insurance business.