Contact: Sutter Health News Media Line, 1-800-428-7377
Overview: Over the past two years, the Sutter Health system (Sutter) has responded to the COVID-19 pandemic and managed the pandemic’s vast impact across its Northern California footprint. Through efforts from teams across the network, Sutter reported an operating income of $199 million and an operating margin of 1.4% in 2021—despite ongoing challenges including staffing availability and $500 million per year in inflationary pressures, as well as regulatory and labor costs. Additionally, Sutter posted $880 million in investment income and changes in net unrealized gains and losses from investments in 2021.
Statement: “We’re making significant progress on our path to recovery, but we continue to face strong financial and inflationary headwinds. We must stay focused on efforts that help our integrated network reduce costs and streamline our operations as these are integral to our affordability and to serving our communities well into the future.” — James Conforti, Interim President and CEO, Sutter Health
Fiscal Challenges Remain:
In 2021, Sutter began organizational recovery work to support its mission of providing greater access to affordable, high-quality care. During that time, the network transitioned many support services staff to regular work-from-home status, reducing real estate costs. It instituted a hiring freeze and other measures to help reduce non-clinical and non-direct patient care roles, while still directing resources to clinical care and addressing staffing shortages on the frontlines. It also adopted program service changes in areas with historically low volumes, while redeploying many impacted employees to busier parts of the network.
While these measures—paired with a slightly positive operating margin—have made a positive impact, efforts are ongoing to support the necessary reinvestments into the network and to serve patients into the future. Critical reinvestments include seismic retrofits, technology upgrades and other infrastructure—investments that must move forward regardless of Sutter’s balance sheet.
Furthermore, Sutter incurred nearly $900 million in losses in 2019 and 2020 as a result of longstanding structural challenges detailed below, which were exacerbated by the COVID-19 pandemic. Over the next three years, Sutter will continue to face flat revenues and increased expenses and inflation.
- Labor costs accounted for nearly 50% of expenses in 2021 and continue to increase. Northern California is already home to 11 of 12 of the nation’s highest hospital wage index values, which makes the costs of delivering care in the region more expensive than elsewhere in the country. Additionally, Sutter had to rely on expensive temporary and registry staff when COVID-19 surges hit and staffing shortages ensued.
- Rising drug costs now also count for 7% of Sutter’s total operating costs. Outpatient infusion is one of the fastest growing drug expense areas and now represents 30% of Sutter’s total spend on medications. Seven of the top 20 most expensive drugs had cost increases greater than 30% in 2021. Additionally, a single new medication for COVID-19 patients resulted in $12 million in Sutter’s costs in 2021.
- Supply chain costs and other ongoing costs of the pandemic continue to increase. For example, in 2021, Sutter purchased 130 million pieces of personal protective equipment and spent $72 million on COVID tests/supplies, gloves and masks, which cost 48% more compared to 2020.
- Inflation is causing Sutter $500 million in additional costs per year. Despite these challenges, Sutter’s focus on affordability remains a high priority. Sutter has held the average overall rate increases to health plans to the low single digits annually since 2014, which is well below the current cost of inflation. In 2021 Sutter renewed agreements with a number of health plans, including Blue Shield of California and Anthem Blue Cross.
Over the next year, Sutter will continue its work through efficiencies and cost savings, including increasing its reliance on generic drugs, using fewer suppliers of the same products and adopting new and upgraded software to streamline services.
About Sutter Health
Sutter Health’s integrated, not-for-profit network of associated clinicians, employees and volunteers support more than 3 million Northern Californians in communities across 22 counties. Headquartered in Sacramento, Calif., the Sutter Health system provides access to high quality, affordable care through its network of hospitals, medical foundations, ambulatory surgery centers, urgent and walk-in care centers, telehealth, home health and hospice services.
# # #