Sutter Health posted a sizable operating loss in 2020 as the pandemic interrupted the pipeline of routine care and drove up labor expenses.
The Sacramento-based not-for-profit health system lost $321 million on $13.2 billion in operating revenue in 2020, a 2.4% loss margin. That's compared with a $548 million operating loss in 2019 on $13.3 billion in operating revenue, a 4.1% loss margin. The 2019 loss was due to a large antitrust lawsuit settlement, without which the system would have generated $27 million in operating income.
Sutter CEO Sarah Krevans said in a statement that it will take several years for the health system to fully recover from the effects of the COVID-19 crisis.
"We invested heavily to respond to the pandemic because it was the right thing to do, but it came at a cost as we experienced one of the toughest financial years in Sutter's 100-year history," she said.
Sutter said in a statement it's undertaking a "sweeping review" of its operations and finances, including restructuring and closing some programs and services that are seeing fewer patients and redeploying staff to busier areas.
"The organization's financial recovery will not happen overnight, but it is committed to making operations sustainable so that Sutter can continue to serve its communities and provide the high-quality care Sutter is nationally recognized for delivering," the system said.
Sutter's 2020 revenue includes $791 million in federal stimulus grants, which represents the majority of the grants the system received. Without those grants, revenue would have declined almost 4% year-over-year. Instead, it declined just 0.6% including the grants.
Sutter spent $6.6 billion on salary and benefit expenses in 2020, a category that ballooned by 6% from 2019. Spending on purchased services—the second largest expense category at $3.4 billion—declined 2.2% year-over-year. Supply spending was flat at $1.6 billion.
The health system said it spent $121 million on COVID-19 supplies, equipment and technology alone, not counting the outside staffing it had to bring in. Competition for travel nurses at the height of the pandemic doubled or even tripled their normal pay rates.
Sutter's investment income was also down in 2020, landing at $205 million, compared with $246 million in 2019. The system has a significant allocation in bonds, and 2020's low interest rates put a damper on realized investment returns. Another California healthcare giant, Kaiser Permanente, also had weaker investment income in 2020 that dampened its net income.
Sutter's net income came out to $134 million in 2020, up from $114 million in 2019.
Sutter's 2019 finances include a $575 million payment that's part of a preliminary settlement in an antitrust lawsuit in which several parties, including California's Attorney General, accused the health system of anticompetitive business practices, including all-or-nothing contracting and denying access to cheaper health plans. The parties are still working toward a final settlement.