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The COVID-19 pandemic has delivered a major blow to Sutter Health’s bottom line, sinking its operating margin to almost -11%.

The not-for-profit lost $321 million on $2.9 billion in revenue in the quarter ended June 30. The Sacramento, Calif.-based system’s margin was already slim—just $36 million on $3.3 billion in revenue in the prior-year period, a 1% margin.

The health system’s finances deteriorated under California’s mandatory suspension of elective procedures that began in March. Sutter’s admissions and patient days both fell almost 10% in the quarter. Emergency room visits fell almost 20%. Sutter’s outpatient revenue was down 14%.

Spokeswoman Amy Thoma Tan said in an email that it could take the health system years to recover from this “unprecedented crisis.” “While we have seen some patient volumes rebound, responding to COVID-19 continues to require extensive resource investments,” she said.

All told, Sutter’s patient service revenue plummeted by 24% in the quarter year-over-year as the pandemic forced the system to suspend elective procedures. Premium revenue fell 5%.

Expenses were mostly flat in the quarter at just under $3.3 billion. Within that, salary and benefit costs jumped 6%, Some expenses declined, including supplies, which fell 16%, as fewer items were necessary for surgeries during the suspension. Purchased services fell 5% year-over-year.

Positive investment performance brought Sutter’s net income to $220 million in the quarter ended June 30, compared with $113 million in the prior-year period.

It’s unclear how long the pandemic will continue to disrupt Sutter’s operations, Thoma Tan said.

“What we do know is that the affordability challenges that existed before this pandemic—changes to our payor mix and increasing labor, technology and facilities costs—have been further heightened by recent events,” she said.

The judge overseeing the antitrust lawsuit against Sutter hasn’t yet approved a preliminary settlement, which includes a $575 million payment and ceasing all-or-nothing contracting practices, anticompetitive bundling of services, and other mandates. The settlement will resolve allegations from a high-profile, class-action lawsuit in which plaintiffs accused Sutter of a range of anticompetitive practices that allegedly drove up the cost of healthcare in Northern California.

At an Aug. 12 hearing, Judge Anne-Christine Massullo expressed “grave reservations” about a potential lack of diversity in the process of choosing a monitor to oversee Sutter’s compliance with the settlement terms. Attorneys recommended Jesse Caplan with Affiliated Monitors. The monitor will assess compliance for up to 13 years, and Massullo noted it will be a potentially multi-million-dollar job.

“How could you conduct a nationwide search and end up with a monitor who is not a woman and not a person of color?” Massullo said at the Aug. 12 hearing. “That should concern everyone.”

Sutter

Source: Sutter’s margin hits -11% amid pandemic

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