Nonprofit health systems' Q3 earnings: Baylor Scott & White, Sutter Health's operations stand tall among the pack

Motley earnings numbers from more than a dozen major nonprofit health systems show third-quarter operating incomes landing on both sides of zero, though issues such as labor shortages, limited volume recovery and worsening payer mix look to be a constant across much of the sector.

Baylor Scott & White led the pack with a $257 million operating income for the period ended Sept. 30, 2022, though it was closely followed by Sutter Health’s $244 million.

Baylor is among the outlier systems whose financials have been holding strong through the last few years, and the quarter’s 7.7% operating margin represents a slight improvement over the 7.4% of its 2022 fiscal year (ended June 30). It attributed the quarter’s 5.6% year-over-year (YoY) increase in consolidated total operating revenue to a blend of premium revenue increases, higher surgical volumes and favorable service mix that “returned to and/or exceeded pre-COVID levels.”

Sutter’s operations have been back and forth this year with a $91 million Q1 gain and a $51 million Q2 loss before the most recent quarter’s $244 million. Though it’s still well behind its numbers from last year, the organization's leadership highlighted the quarter’s relatively flat salaries and progress toward long-term financial resiliency.

“Significant challenges remain, including inflationary pressures, supply chain uncertainties, increased labor costs and staffing shortages, and rising drug prices,” a spokesperson said regarding the numbers. “Our priorities include preparing for seismic infrastructure updates, reinvesting in our communities and supporting our clinicians in service to our mission.”

Topping the other end of the spectrum was Bon Secours Mercy Health and Providence’s respective $141 million and $164 million operating losses—though the latter’s could be viewed as an improvement in light of the $934 million it was down during the prior two quarters.

Both of those systems highlighted a continuation of the inflationary and labor trends that had increased their expenses during the year’s earlier quarters.

Providence, for instance, noted an additional $526 million of agency and overtime expenses during the past nine months in comparison to 2021. Bon Secours Mercy said in its filing that the economic pressures offset improvements to patient volumes that had “approached historical pre-pandemic levels.”

Other operating results of note included: UPMC, whose health services division logged a $103 million operating loss but was buoyed by the integrated system’s insurance services division; Intermountain Healthcare, which is fresh off a merger that helped boost its revenue by 28% and its expenses by 35%; and Advocate Aurora Health, which inched closer to its own pending merger with a narrow 0.2% operating margin.

Regardless of how they stuck the landing, virtually every system reported feeling the continued impact of labor shortages. Banner Health was among that list, reporting a 7% YoY increase in year-to-date contract labor costs and noting that understaffing in certain locations negatively impacted capacity and patient volumes.

The reports also suggest some heterogeneity across the patient volume metrics of different markets as demand for non-COVID care continued to recover. Several systems noted their surgical or elective volumes have yet to return to pre-pandemic levels, and some highlighted worsened case mixes that limited year-over-year revenue growth.

Similar to earlier quarters, across-the-board non-operating losses weighed heavily on the organizations’ bottom lines. Nearly every system posted a nine-figure investment loss during the quarter, though a nearly $1.7 billion net investment loss at Kaiser Permanente easily took the cake.

The investment losses led to 11 of the 13 nonprofits to notch a negative net income during the three months ended Sept. 30. See below for a breakdown of the numbers (and note that for systems reporting year-to-date results, third quarter numbers represent the difference between nine-month and six-month totals).


Nonprofit Health Systems' Q3 Earnings ($ millions)
  Total Operating Revenues Total Operating Expenses Operating Income Net Income
Kaiser Permanente 24,253 24,328 -75 -1,550
CommonSpirit Health 9,011 8,988 23 -397
Providence 6,866 7,031 -164 -612
UPMC 6,376 6,449 114 -260
Mayo Clinic 4,117 3,960 157 -312
Sutter Health 3,985 3,741 244 103
AdventHealth 3,971 3,910 60 -305
Intermountain Healthcare 3,685 3,685 0 -582
Advocate Aurora Health 3,657 3,649 8 -311
Baylor Scott & White 3,335 3,078 257 135
Banner Health 3,069 3,096 -26 -198
Bon Secours Mercy Health 2,768 2,909 -141 -328
SSM Health 2,330 2,403 -73 -93