Sutter Health posts net loss for second straight quarter

Dive Brief:

  • Sutter Health posted a $457 million net loss in the second quarter, compared to net income of $636 million in the year-ago period, as higher expenses and reduced investment gains dragged on the Northern California hospital system. The weaker results followed a $184 million net loss in the first three months of the year.
  • An operating loss of $51 million in the latest period was a setback from the $106 million in operating income it generated in the second quarter of last year and from the progress of the first quarter, when Sutter generated $95 million in income from operations.
  • Volatile financial markets hurt investment income, which declined to $56 million in the second quarter from $251 million a year ago. Unrealized losses on investments totaled $495 million, compared to an unrealized gain of $270 million year over year, the nonprofit system disclosed Friday.

Dive Insight:

Health systems overall faced a difficult start to the year as the cost of caring for patients exceeded revenue, with some analysts predicting that challenges will linger through the second half.

The latest update on provider finances from Kaufman Hall found hospital expenses stuck near historic highs this summer, buoyed by elevated labor and materials costs. Fitch Ratings, in a gloomy outlook published last month, predicted it could take years for hospital operating margins to rebound to pre-pandemic levels.

Illustrating the ongoing strain on hospitals, for-profit Community Health Systems in late July posted a steep net loss for the second quarter, while Universal Health Services reported its profits were cut in half. All four major for-profit hospital operators saw net income decline and patient admissions fall in the second quarter compared to the year prior.

Sutter Health was forging a path to financial recovery in 2021 after two years of pandemic-driven losses stemming from escalating labor costs and softer patient volumes. Now, the system is again contending with operating expenses that are outstripping revenue.

Sutter’s total operating revenues in the second quarter declined slightly to $3.49 billion, while total operating expenses grew 4% to $3.55 billion as spending on salaries and employee benefits, purchased services and supplies all increased from a year ago.

For the first six months of the year, costs for purchased services surged 15.6%, primarily due to professional fees, Sutter said. Earnings (excluding investment income) before interest expense, taxes, depreciation and amortization, or EBITDA, for the first half of the year decreased 5.9% to $464 million, compared to the same timeframe the year before, while the operating margin declined to 0.6% from 0.8%.

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