Sutter Health operates two dozen hospitals in two states and finished last year with marginal revenue growth. Nonetheless, profit increased for the giant California health system.
Slower expenses trump sluggish revenue growth
That's because Sutter Health cut spending so that expenses grew even more slowly than its slow-growing revenue, says Brad Spielman, an analyst with Moody's Investors Service who tracks the Sacramento-based system for the credit-rating agency. Expenses inched upward by 1.9% as revenue crept higher by 3.1%, financial statements show. “It's a fairly impressive achievement,” Spielman says.
One that Sutter hopes to repeat in coming years, as Modern Healthcare reported earlier this year. In February, the system's chief executive said continued expense cuts were necessary to prepare for more patients and lower reimbursement expected under the health reform law.
Efforts to slow spending will cut $700 million from Sutter expenses through 2014 on top of $200 million the system squeezed from budgets during 2010 and the prior year.
Sarah Krevans, a Sutter senior vice president and president of its Sacramento Sierra region, said at the time the system would seek to no longer lose money on Medicare through efforts to boost efficiency and quality.
When calculating health system operations, Moody's analysts subtract revenue that results from a California hospital fee. (The state uses cash from the fee to secure federal funding that is distributed to hospitals.) After also subtracting operations for a hospital Sutter Health stopped managing in 2010, the system's revenue for that year was flat—and expenses declined 1.4%, according to Moody's.
“In this environment of shrinking revenue growth, increased operating pressure and unfavorable utilization trends they are improving profitability,” Speilman says.
You can follow Melanie Evans on Twitter: @MHmevans.
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