Poor investment results contributed to Sutter Health's nearly $200 million net loss in 2018, after the not-for-profit health system posted strong net income in the prior year.
Sacramento, Calif.-based Sutter's net loss followed $893 million in net income in 2017, the health system revealed in its 2018 audited financial statement. That was mainly driven by a steep investment loss, as Sutter becomes the latest major health system to reveal damage sustained in the equities market downturn at the end of 2018.
Sutter lost $267 million on investments in 2018, compared with a $651 million gain on investments in the prior year.
Lisa Page, a Sutter spokeswoman, said in a statement the system's investment and pension portfolios are well diversified and have risk controls in place to withstand changes in the financial markets.
"While investment returns were positive earlier in the year, Q4 market volatility resulted in a net loss," she said. "The investment market has recovered in early 2019."
Sutter generated $201 million in operating income on $12.7 billion in operating revenue in 2018, compared with $326 million in operating income on $12.4 billion in operating revenue in 2017. The system's total operating revenue grew 2% year-over-year, while total operating expenses grew 3% during that time, to $12.5 billion in 2018.
Page pointed out that Sutter's 2018 results reflected $160 million less from the Hospital Fee Program compared with the prior year. The program is designed to help offset the cost of caring for Medicaid patients.
It wasn't a stellar year on the volumes front, either. Sutter's admissions were down 2.8% to 187,713 in 2018, and patient days dropped 2.5% in the year. Emergency room visits dipped 2.8% in that time to 844,249. Average length of stay was stable at 4.5 days in both 2018 and 2017.
Sutter continued to generate a higher proportion of revenue from outpatient services in 2018. Outpatient revenue comprised 40.6% of total revenue last year, compared with 38% in 2015.
A higher proportion of Sutter's patient service revenue came from its physician practices, classified as medical foundations, in 2018 compared with the prior year. Last year, $3.4 billion of the nearly $11 million in total patient service revenue, or 31.4%, came from Sutter's medical foundations, compared with about 30% in 2017. Meanwhile, the proportion that came from its acute care settings was 65% in 2018, compared with 66% in 2017.
Sutter's cost of charity care rose to $89 million in 2018, compared with $65 million in 2017. Sutter said its total community benefit spending in 2018 came out to $734 million, compared with $612 million in 2017. Of that, $435 million was the system's estimated unreimbursed cost of treating Medicaid patients.
The health system, which employs about 53,000 people, continues to fight a number of high-profile legal battles. The system wrote it is scheduled to go to trial August 12 in the ongoing antitrust lawsuit filed by a grocery workers' union that California's Attorney General joined after filing his own lawsuit containing similar allegations. The suits accuse the system of using its market power to engage in unfair contracting practices that lead to high prices and reduced competition. Sutter, by contrast, say it complies with applicable laws and regulations.
The U.S. Department of Justice has intervened in a False Claims Act lawsuit brought by a former employee that accuses the system of submitting unsupported diagnosis codes to inflate its Medicare Advantage payments.
Sutter now says it could be on the hook for up to $50 million in potential liabilities stemming from a multi-employer health plan its runs with Dignity Health and Verity Health System depending on the results of Verity's bankruptcy proceedings.
Sutter wrote that it has allocated about $4.6 billion to a capital fund to pay for seismic retrofits and replacement facilities to comply with California's earthquake retrofit requirements among other things. Most of the system's facilities are already compliant or have received extensions that make them compliant until 2030, the system said.
The system said it invested $924 million in 2018 in new facilities and technology in its communities, extending its total investment to nearly $10 billion over the past decade.
"Thanks to our integrated network, we continue to make care more accessible and more equitable," Sutter CEO Sarah Krevans said in a statement. "We focused efforts on better connecting patients to the right care service, at the right time and in the right place. We also maintained our commitment to care for the underserved. We're proud to play a strong role in making our overall communities healthier."
