Sutter Health, a 25-hospital system based in Sacramento, Calif., overcame rising costs in the third quarter as it saw additional revenue from higher volume, fewer self-pay patients and the return of the state's provider fee program.
The financial results represented a continuation of the trends it has seen throughout the year. California's provider fee program, which had been on hold in 2014, has now added $300 million in revenue. And Sutter has seen its provision for bad debt decrease 23.6%, or $38 million, in the first nine months of the year.
Admissions were essentially flat in the third quarter, but emergency room visits increased 10.1%. Outpatient revenue increased 8.3% and accounted for 38% of revenue in the quarter, up from 37.1% in the year-ago period.
Yet Sutter has continued to grapple with rising costs, which increased 12.9% (PDF) during the first nine months of the year compared to the same period in 2014. Its expenses grew across the board, with pressure coming from higher salaries and benefits, pharmaceutical supplies and contracted services. The system also has spent $38 million on electronic health-record costs year-to-date and $25 million on new initiatives.
Sutter has been consolidating its operations into two regional units, down from five, as well as investing in a health plan and care-management programs.
Like many of its peers, the system also saw a decrease in investment income, which depressed its bottom line.
Moody's Investors Service in September revised its outlook on Sutter to stable from negative, citing an improved financial performance in 2014 that is expected to continue. However, the credit rating agency pointed to Sutter's $5 billion capital plan over the next five years as well as the likelihood that it will raise more debt as potential challenges.
Sutter reported a third-quarter operating surplus of $96 million on $2.8 billion in operating revenue compared with an operating surplus of $84 million on $2.5 billion in revenue during the same period last year. Its operating margin was stable at 3.4%.