Sutter Health, one of Northern California's largest hospital systems, lost $7.8 million on operations last year, although investment income enabled it to stay in the black.
Even so, net income at the Sacramento-based not-for-profit plunged 36% to $38.6 million, compared with $60 million in 1997. Revenues increased 8% to $2.9 billion.
Some of the operational red ink came from Omni Healthcare, the struggling Sacramento, Calif.-based health plan in which Sutter owns a two-thirds stake.
But officials downplayed the 1998 operational loss, attributing it primarily to one-time real estate and computer write-downs.
"It's essentially a 'break even' on operations," said Bob Reed, Sutter's chief financial officer. If $10.7 million in charges for obsolete medical office buildings and non-Y2K compliant computer equipment are excluded, "operations slipped from a slight profit (in 1997) to a slight loss last year," he said.
Nonetheless, Sutter's 1998 overall profit margin was just 1.3%, down from 2.3% the previous year. Officials say the organization must generate a 5% margin over the long term to stay financially healthy. "That's the minimum that's required to be self-sustaining," Reed said.
Other factors contributing to Sutter's shrinking profits are Medicare-risk reimbursement rates that are not keeping pace with medical costs and continuing losses at Omni. The for-profit health plan lost $2 million on $186 million in revenues in 1998, according to spokeswoman Susan Bitar.
In 1997, Omni lost $196,000 on revenues of $174 million.
Sutter and co-owner St. Joseph's Regional Health System, of Stockton, Calif., put Omni on the market in April 1998, but decided late last year to maintain control and abandon high-cost rural markets, including Humboldt and Del Norte counties (Dec. 14, 1998, p. 26).
Omni's enrollment has declined precipitously during the past year, from 164,000 in the spring of 1998 to less than 139,000.
Sutter officials would not break out financial figures relating to Sutter's medical group affiliates.
The 26-hospital system has a network of 5,000 doctors and affiliated medical foundations in the California cities of Modesto, Palo Alto, Sacramento, Santa Rosa and Yuba City.
Sutter rival Catholic Healthcare West took a beating on its medical group business last year, which helped drive San Francisco-based CHW into a $32 million operating loss (April 5, p. 22). The 48-hospital Roman Catholic system would have turned a $7.6 million operating profit in the fiscal year ended June 30, 1998, without the $39.6 million loss incurred by its CHW Medical Foundation.
More recently, CHW posted a net loss of $23.8 million for the quarter ended Sept. 30, 1998, compared with an $8 million profit for the year-ago quarter.
Sutter doesn't make its quarterly financial results available to the public.