Sutter Health CEO Patrick Fry in a letter mailed this week to employees said the California system must cut $700 million from expenses by 2014 as the number of publicly subsidized patients grows.
Living on Medicare pay
“Here is our challenge,” Fry wrote. “Sutter Health must find ways to continue serving growing numbers of government-sponsored patients at a cost close to what Medicare insurance pays us.” Fry met earlier this month with managers at the Sacramento-based system to discuss Sutter's financial challenges, he wrote. More meetings with “thousands more managers” will follow in coming weeks.
The letter underscores maneuvering among major health systems ahead of planned reductions to Medicare payments and an expected squeeze on revenue from other payers. Catholic Healthcare West, also based in California, recently said by 2020 the 34-hospital system would cut costs to spend less than Medicare pays.
Sutter owns and manages 24 hospitals in California and Hawaii and operated with healthy margins through the recession. The system also continues to make significant capital investments, though executives did scale back spending to hold on to cash in 2009. During the next four years, Sutter is expected to spend $5.2 billion on information technology, physicians, renovation and construction.
Medicare pay to Sutter hospitals will drop by nearly $2 billion during the next decade, Fry's letter said. Meanwhile, doctors and hospitals could see pay cuts from Medicaid as California grapples with a budget crisis.
“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.”
Thirty-two million uninsured will gain benefits under the Patient Protection and Affordable Care Act largely through expanded safety net insurance and subsidies offered through newly created insurance exchanges, though an estimated 5 million exchange customers will not be eligible for subsidized care, according to the Congressional Budget Office.
“Despite legal maneuverings and congressional debate about the future of healthcare reform, we fully expect that these deep government reimbursement cuts will continue—along with demands that doctors and hospitals deliver more care for less money,” Fry wrote.
The chief executive noted the system also faces competitive pressure and its customers have claimed Sutter's competitors offer lower prices. Fry did not outline how the system would reduce its spending, but cited as an example efforts under way since 2007 to reduce central line bloodstream infection. Through last September, the effort cut costs by $37 million, reduced the rate of infection by 76% and saved 52 lives.
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.