Sutter Health's operating profit dropped to $4 million last year, down from the previous year's $10 million, according to figures the system released on Friday.
Executives of the Sacramento, Calif.-based not-for-profit system of 27 hospitals blamed the decline on reduced payments from Medicare and private health insurers.
They also said the figures reflect the undisclosed costs of fighting the state of California's antitrust lawsuit against Sutter's December 1999 acquisition of 420-bed Summit Medical Center in Oakland (See story, p. 18).
With investment income factored in, Sutter's total profit rose to $51 million last year from $43 million in 1998. Total revenue rose to $2.9 billion from $2.7 billion during the same period.
"The (recent) wild fluctuation of the stock market is testimony to the fact that we cannot go into the future dependent on interest income," said Sutter spokesman Bill Gleeson. "We need to improve our operating margins."
Wanda Jones, president of New Century Healthcare Institute, a San Francisco-based hospital consulting firm, said she believes hospital systems like Sutter need to reinvent themselves in the wake of declining reimbursements.
"Too many systems are operating based on what it costs to deliver services, rather than figuring out what they are getting paid and restructuring along that premise," she said.
Gleeson said Sutter would be more aggressive in seeking discounts for the system's supplies and seeking payment hikes in contract negotiations with health plans.
At Sutter Health Central, an operating division that includes five Sutter hospitals in the Sacramento area and in Yolo and Placer counties, outpatient services for pregnant teens and adult diabetics were recently cut. The changes are expected to save the division about $1 million a year, according to Sutter Health Central spokeswoman Nancy Turner.
Sutter Health Central lost $5 million on operations in 1999 on revenue of $708 million, one of the biggest division losses within Sutter and a big drop from the $5.7 million profit the division posted in 1998 on revenue of $714 million.
