Sacramento, Calif.-based Sutter Health says a new network it plans to form in Northern California is a sign of the company's health, despite rumors to the contrary swirling around the resignation of its longtime chief executive officer.
Sutter and its Palo Alto Medical Foundation, comprising 150 physicians, have signed a letter of intent with Stanford Health Services to create a regional healthcare network. Stanford Health consists of 509-bed Stanford University Hospital and its clinics, including 400 physicians.
The resignation last month of Patrick G. Hays after 14 years as president and CEO prompted speculation that Sutter's recent expansion binge had strained the system (Oct. 31, p. 26).
"The lid is about to come off Sutter. It's in bad health," said an industry source who asked to remain anonymous. Sutter's strategy of "buying into" medical groups without restructuring them to accept managed care is "fundamentally flawed," he said.
Steve Heath, Sutter's vice president of communications, conceded that Sutter Medical Foundation "continues to struggle" with issues of cost containment, ratio of specialists to primary-care physicians and compensation. While the foundation's results are affecting Sutter's bottom line, new leaders at the foundation are addressing the problems, he said.
Sutter's board also decided to eschew a national search for a new CEO and consider only internal candidates to replace Mr. Hays. In a letter to employees, Sutter said the decision "is a clear indication not only of the board's respect for, and confidence in, senior management...but also of the unity of vision and direction between board and management."
The letter also said speculation that Sutter is in shaky financial condition has no basis in fact.
Sutter said it has assets of $1.2 billion, liquid reserves of more than $300 million, a debt-to-equity ratio of about 1-to-1, and operating results that are "up significantly" from last year.
Although adjustments still need to be made, operating income is almost $17 million for the first nine months of the current fiscal year, compared with $12 million in the same period last year, Mr. Heath said. Last year net income was $9 million on revenues of $957 million.
"The announcement...about the new relationship with Stanford is certainly proof that we are moving forward aggressively with our major initiatives," the letter to Sutter employees said. Palo Alto and Stanford signed a joint planning agreement in March 1992, but the institutions failed to reach a consensus on an affiliation.