Sutter Health, the Sacramento, Calif.-based system, continued to benefit from higher Medicaid payments and a decrease in uninsured. But like many of its peers, the 25-hospital group is grappling with higher labor and supply costs.
Hospitals across California have been seeing higher revenue this year from the state's provider fee program, which was on hold in 2014 and is now being brought up to date. The program collects a fee from hospitals which is then matched with federal dollars and used to supplement Medi-Cal payments.
Sutter credited the program's return for contributing to a 14.2% increase in revenue in the first six months of the year compared with the same period last year.
Admissions continued to be flat over 2014, while emergency room visits were up 13.5% in the first half of the year. However, as the average length of stay ticked up, the average occupancy rate at its hospitals increased to 57.5% from the year-ago period's 53.8%.
Revenue from outpatient activities also increased 7.5% and represented 37.5% of revenue, up from 36.8% in the comparable period.
Its provision for bad debt also fell to $76 million in the first half of the year, down from $122 million in the same period last year.
Against that higher revenue, however, came higher costs.
Sutter increased its spending on purchased services—including compensation in its medical group—by 13.2%. Higher drug prices also drove an 11.4% increase in supply costs. And the system spent $26 million on electronic health-record costs and $16 million on other initiatives.
Sutter is consolidating many of its back-office support functions and streamlining the organization into two regional operating units, down from its current five. The system also is investing in a health plan and a number of care management initiatives.
Fitch Ratings last month affirmed Sutter's AA- rating, noting that its operating cash flow has improved since 2013, which was a more challenging year for the system.
In total, Sutter reported a $204 million operating surplus on $5.4 billion in revenue in the first half of the year, compared with a $140 million operating surplus on $4.8 billion in revenue during the same period in 2014.
Its operating margin increased to 3.8% from 2.9%