Healthcare Business News

Sutter slashing costs

System looks to trim $700 million from hospital expenses by 2014

By Melanie Evans
Posted: February 28, 2011 - 12:01 am ET

Sutter Health, Sacramento, Calif., will seek to squeeze $700 million from expenses by 2014 beyond the estimated $200 million already cut from spending during the prior two years, an executive said.

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Sarah Krevans, a Sutter senior vice president and president of its Sacramento Sierra region, said the system is seeking to reduce hospital expenses so the system no longer loses money on its Medicare patients with a broad effort under way to improve quality and efficiency.

Patrick Fry, Sutter's CEO, began meeting with managers about the system's operations this month, according to a letter the system began mailing to 50,000 employees last week. Fry's letter said the expected growth of safety-net insurance under the Patient Protection and Affordable Care Act and customer complaints of high prices made the spending cuts necessary.

“Under federal healthcare reform, the government will provide health coverage to 32 million uninsured Americans,” he wrote. “The government will help cover these new costs by paying healthcare providers less.”

The Congressional Budget Office estimates 32 million uninsured will gain coverage as a result of the 2010 law, which expands eligibility for Medicaid, the safety-net insurer, and offers subsidies to low- and middle-income customers in newly created insurance exchanges. Not all exchange customers are expected to qualify for subsidies, according to the CBO.

Sutter “must find ways to continue serving growing numbers of government-sponsored patients at a cost close to what Medicare insurance pays us,” the letter continued.

Krevans said the system's early efforts—which have targeted prevention of central line-associated bloodstream infections, sepsis and ventilator-associated pneumonia—helped reduce Sutter hospitals' loss on Medicare patients to 25% from 30% between 2008 and 2009. Each percentage point reduction amounts to roughly $10 million in savings across the system, she said.

Medicare accounted for 39% of Sutter's total business in 2009, though Krevans stressed the efficiency efforts are not limited solely to Medicare patients.

Figures for 2010 are not yet available, she said, but executives expect the losses to narrow and project the system has squeezed $200 million from its spending to date.

Sutter, which owns and manages 24 hospitals in California and Hawaii, reported operating income of $468 million on revenue of $6.4 billion for the nine months ended Sept. 30, the most recent figures available. The system's operating margins through the recession hovered slightly above 6%. During the next four years, Sutter is expected to spend $5.2 billion on information technology, physicians, renovation and construction.

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