- Sutter Health, one of California’s largest and most powerful hospital networks, is getting pounded by losses related to the COVID-19 outbreak, according to a report issued to bondholders.
- Sutter posted an operating loss of $236 million for the first quarter ending March 31, and a net loss of almost $1.1 billion. That’s even though California officials did not begin locking down activities in the state until the second part of March. Sutter saw an operating loss of $360 million in April alone, after the first quarter concluded, suggesting net losses for the second quarter could be even larger.
- Much of the losses are attributed to the abrupt cutoff of patient flow to Sutter hospitals, clinics and medical offices. Only 5.7% of its intensive care unit beds are being used to treat COVID-19 patients, Sutter reported, and almost 32% of its ICU beds were unused as of May 11.
For decades, Sacramento-based Sutter Health has been considered the most powerful hospital operator in Northern California, with facilities throughout the Bay Area and even the more rural part of the state north of San Francisco. Critics allege its market dominance contributes to the long-term cost imbalance for hospital services between the northern and southern parts of the state.
Like many other chains and hospitals, it took only a few weeks of the COVID-19 outbreak and California’s statewide stay-at-home order to hamstring Sutter’s operations. Between March 17 and the end of April, inpatient bed days at Sutter hospitals declined by 23%, its ambulatory facilities have experienced volume declines of 73%, and emergency room visits were down 43%.
In the Wednesday note to bondholders, Sutter reported unaudited losses of $1.1 billion on revenue of $3.2 billion for the first quarter. It netted $394 million on revenue of $3.3 billion in the same period last year.
Yet the numbers for Sutter could get grimmer over the second quarter as revenue continues to sink. For April, it projects operating losses of $360 million and a negative operating margin of 50.5%, not counting congressional relief funds.
“Sutter anticipates in the near term at least a $300 million per month reduction in operating performance until containment of COVID-19,” it reported. It is also spending tens of millions of dollars to purchase equipment to confront a potential resurgence of COVID-19 this fall and winter — on top of some $57 million it has already spent to prepare for the pandemic.
As a result, Sutter says it has either cut the hours of about 5,000 of its employees, reassigned them or sent them for retraining.
While Sutter noted that California is slowly reopening the state after six weeks of shutdown, it remains to be seen whether patient flow will return to normal. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, warned this week that reopening too soon could lead to a spike in new coronavirus cases.
The funds Sutter has received from the Coronavirus Aid, Relief, and Economic Security Act have alleviated the financial pain to some extent. It has received $205 million to date, plus another $1 billion in accelerated Medicare claims payments from CMS. Factoring that in, Sutter says April operating losses would be cut to $168 million.
Sutter is also sitting on about $6 billion in cash and liquid investments, but notes it has lost $500 million from its portfolio since the start of the year. It has also borrowed $400 million from a $500 million credit line so far this year and obtained another $100 million credit line last month.