Sutter Health Financials

The Sutter Health network of doctors, hospitals and other health care service providers announced its financial performance for 2010. Sutter Health’s combined 2010 systemwide income from the day-to-day operations of its hospitals, care centers and other services was $685 million (operating margin of 7.5 percent), compared to $471 million in 2009 (operating margin of 5.5 percent). Sutter Health also posted a gain of $236 million in investment income and changes in net unrealized gains and losses from investments classified as trading in 2010, compared to a gain of $244 million in 2009. Total income for 2010 was $878 million, compared to $677 million in 2009. The system’s total 2010 operating revenues were $9.1 billion, compared to $8.5 billion in 2009.

Sutter Health’s 2010 operating performance includes $88 million of net supplemental payments associated with California’s program to obtain federal matching dollars to partially offset underpayments in previous years for the care of Medi-Cal patients. Operating expenses do not include interest and depreciation associated with $1.6 billion of assets under construction. Operating Sutter’s new technologically-advanced, seismically-compliant hospitals will add over $300 million in annual interest and depreciation expenses to the cost structure.

Meeting California’s Seismic Regulations
Sutter Health has more critical (SPC 1) seismic building obligations than any other California health care organization. Capital spending continued on five major earthquake safety-related hospital replacement projects in Santa Rosa, Burlingame, Oakland, Castro Valley and Sacramento. Total costs associated with these projects will exceed $2.3 billion. After securing entitlements, Sutter Health expects to invest another $1.8 billion on hospital projects in San Francisco. As of year-end 2010, nearly half of Sutter’s facilities are compliant with California’s new seismic codes through 2030. The remaining hospitals are expected to be compliant by their respective deadlines.

Caring for the Underserved
During 2010, Sutter provided record levels of care and services for the poor and underserved and other benefits for the broader community. Sutter Health’s 2010 commitment to community benefit was a record $751 million, compared to $650 million in 2009. This amount includes unreimbursed costs of providing care to Medi-Cal patients as well as investments in medical research, health education and community-based public benefit programs such as school-based clinics and prenatal care for low-income patients. Sutter Health hospitals cared for 22% of all Medi-Cal patients discharged in 2009 from the counties served by Sutter (per OSHPD; 2010 Medi-Cal data not yet available).

Sutter Health’s commitment to providing charity care has continued to grow, reaching an average of more than $2.3 million each week in 2010. Sutter Health’s traditional charity care contribution increased from $105 million in 2009 to $121 million in 2010.

“Consistently strong financial performance allows Sutter Health to continue delivering on our mission of improving health care in the communities we serve,” said Sutter Health President and CEO Pat Fry. “Our responsibilities include serving growing populations of people unable to pay for their own health care, keeping pace with lifesaving technology and ensuring we comply with legislative mandates including California’s earthquake safety regulations that require facility replacements and upgrades.”

Accelerating Technology
Sutter Health invested $851 million in capital in 2010 and expects to invest $6.5 billion in capital over the next five years (2011-2015). Much of Sutter’s current and upcoming investment is linked to advances in patient care technology. For example, Sutter is replacing paper-based patient records with a more costly, sophisticated electronic health record that enhances patient care, linking doctors, hospitals and patients throughout Northern California. Sutter has installed the electronic health record (EHR) in its physician medical foundations and at one acute care hospital. There are over 1.3 million patient records in Sutter’s EHR and 415,000 patients have online access to their personal health record. Implementing and accelerating the EHR at Sutter’s remaining affiliated hospitals will cost an additional half-billion dollars.

“The needs of our communities continue to grow, and meeting our financial goals will be increasingly difficult in a very challenging environment where the government, employers, and other plan sponsors look for ways to reduce the amount of money they pay for health care,” Fry said, noting that Medicare will reduce reimbursement to Sutter Health by nearly $2 billion over the next ten years to help cover the federal government’s share of the cost associated with health care reform.

Sutter Health announced in February it plans to reduce expenses by $700 million by 2014.

Federal Health Care Reform
While Sutter Health supports the core components of federal health care reform, accompanying reimbursement changes will challenge the health care network. “We recognize the strain of health care spending on the Federal and State budgets and are gearing up for the additional mandates as well as cuts in reimbursement,” said Sutter Health Chief Financial Officer Robert Reed. “At the same time we must invest to prepare for the advent of health exchanges and accountable care organizations. We must also invest in programs to continue to improve the delivery of care for our patients, while meeting new regulations such as the change in the International Statistical Classification of Diseases and Related Health Problems (ICD-10) that will require an extensive investment in changes to computer applications and staff training.”

Sutter Health 2010 Financial Results

Dollars in millions
	2010	2009
Operating Revenues	$9,116	$8,494
Operating Expenses	8,431	8,023
Operating Income	685	471
Investment Income	124	11
Change in net unrealized gains/losses from investments classified as trading	112	233
Income	921	715
Less income attributable to noncontrolling interests	(43)	(38)
Income attributable to Sutter Health	878	677
Capital Investment	851	833

updated September 1, 2011