Sutter Health slips to -0.1% operating margin, $98M net loss in Q3

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.