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Sutter Health sees surplus rise as expenses fall


By Beth Kutscher
Posted: June 13, 2014 - 4:30 pm ET
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Sutter Health, a 24-hospital system in Sacramento, Calif., reported a small dip in revenue for the first quarter of the year, largely because of less revenue from capitated contracts. The system currently treats 252,315 individuals on a capitated basis across its hospitals.

However, it also reported lower expenses compared to the year-ago period, leading to a boost in its operating surplus.

For the quarter ended March 31 (PDF), Sutter reported a $47 million operating surplus on net patient-service revenue of $2 billion and capitation revenue of $214 million. In the first quarter of 2013, it saw a $40 million operating surplus on $2 billion in net patient-service revenue and $236 million in capitation revenue.

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Like other California healthcare organizations, Sutter did not book revenue from the state's provider fee program, which still needs approval from the CMS.

Sutter also saw a 4.3% decrease in admissions and a 3% decrease in emergency room visits, which were offset by higher revenue from outpatient activity. Outpatient care represented 36% of its revenue in the first quarter of 2014, compared with 35% in the year-ago period.

The system also saw fewer uninsured patients, 6.5%, compared with 7.7% in the same period last year. More patients also had Medicaid coverage: 20.7%, compared with 18.1% a year ago.

Despite Sutter's stable operating results, lower returns from its investments led to a 35.3% decrease in overall net income, which was $77 million for the quarter, compared with $119 million in the prior-year period.

Both Fitch Ratings and Standard & Poor's have affirmed Sutter Health's AA- rating with a stable outlook, system officials said in the report. Moody's Investors Service is currently conducting a credit-rating review, according to the system.

In addition to its financial results, Sutter also revealed a number of ongoing legal and regulatory matters in its quarterly report that could have a potential material effect in the future.

An internal compliance audit has turned up “certain physician financial arrangements that may constitute potential violations of federal regulatory standards,” Sutter said. While it had already brought some of these issues to the government's attention as long ago as 2010, it anticipates more disclosures this year, the report said.

Sutter Health is also responding to requests from the Department of Justice related to its implantable cardioverter defibrillator program. The DOJ is conducting a national investigation into whether Medicare beneficiaries received the devices appropriately, based on national coverage criteria, the system said. The inquiry spans the period between October 2003 and June 2010.

Finally, Sutter said some of its affiliates have recently received, and are responding to, requests from government agencies including the Federal Trade Commission, the Office of the Attorney General and the Office of Civil Rights.

“In recent years, government activity has increased with respect to investigations and allegations concerning possible violations of reimbursement, false claims, anti-kickback and anti-referral statutes, and regulations by health care providers,” the report said, without elaborating.

Labor disputes could also affect the system later this year. Sutter said about 24% of its 49,000 employees are covered by a collective-bargaining agreement. Of that group, 6% have contracts that expired in 2013 and are still being negotiated, and 21% are working under a contract that will expire this year.

Follow Beth Kutscher on Twitter: @MHbkutscher


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