Sutter Health Announces 2003 Financial Performance

Gearing up for $7 billion investment in facilities and IT, Northern California health care network hits income goal for second time in memory.

SACRAMENTO, Calif., April 30, 2004 —Continuing its recovery from a decade of financial losses and barely break-even performance, Sutter Health announced today that it achieved its earnings goal for the second year in a row. For 2003, the Northern California-based network of hospitals and physician organizations posted combined systemwide income from the day-to-day operations of its hospitals, care centers and other services of $389 million (representing a 7 percent operating margin), compared to $265 million in 2002. Sutter Health posted an additional $76 million in investment income, bringing total 2003 operating income (including investment income) to $465 million, compared to $284 million in 2002. Sutter Health's total revenues were $5.7 billion in 2003, compared to $4.9 billion in 2002. Not since 1989-1990 has Sutter Health met its earnings goal in two consecutive years. Sutter Health's ten-year averaged earnings margin is 2.4 percent.

As a not-for-profit community-based organization, Sutter Health reinvests any earnings it achieves into the preservation and improvement of local health care services. During 2003, Sutter spent a record $649 million on services for the poor and underserved and on benefits for the broader community, up 39 percent from $466 million in 2002. This investment includes charity care, the unpaid costs of participating in public programs including Medi-Cal and Medicare, and investments in medical research, health education and community-based public benefit programs such as school-based clinics and prenatal care services.

Sutter Health leaders attributed the network's strong performance to a combination of strong investment income, volume increases, continued operational turnarounds and belt-tightening. "Unlike any period I can recall, our affiliates really focused their efforts to grow their community programs and services and to improve efficiency," said Sutter Health Chief Executive Officer Van R. Johnson. He said more than 80 facility building projects in three dozen cities and towns are being undertaken to replace aging facilities and strengthen the physician delivery network in order to advance patient care and improve access to health care services in rapidly growing communities. Sutter believes its capital investment plan represents the most comprehensive health care facility master planning process ever mounted in Northern California.

In addition to its $5.7 billion capital improvement investment, Sutter announced this month that it will spend $1.2 billion on information technology over the next decade to improve care and support caregivers in their day-to-day work.

Investment income contributed substantially to Sutter's financial health in 2003, according to Sutter Health Chief Financial Officer Robert Reed. "Investment income accounted for a full 16 percent of our net income, representing an increase of $57 million over the previous year," he said.

In addition, Sutter saw a 3 percent increase in patients treated in 2003 as a result of new programs and services, and an increase in the number of physicians associated with the system.

The year 2003 also saw operational turnarounds at key affiliates. Alta Bates Summit Medical Center in Berkeley and Oakland continued its financial recovery, while Sutter's Sonoma County operations trimmed losses in 2003 by more than $20 million compared to the prior year. "It is because of our overall financial health and system approach to sharing revenues that struggling safety net hospitals can continue serving their communities despite financial hardships," added Sutter CEO Johnson.

"We continue to believe that a 5 percent operating margin is the minimum level necessary to adequately fund our commitments," Johnson said. "Increasingly, these commitments include unfunded state mandates like seismic retrofitting and nurse staffing requirements. We're also working to comply with industry-led initiatives like Leapfrog, which is encouraging health care providers to make specific investments in human resources and information technology to improve patient safety. The fact that our financial health has taken a turn for the better in the past two years has meant that we're in a strong position to fund these initiatives. This is good news for the communities we serve."

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Contact
Karen Garner
Sutter Health
916-286-8297

Bill Gleeson
Sutter Health
916-286-6772