Minneapolis-based Allina Health is doubling down on improving its operating margin as it awaits regulatory approval of its planned merger with Sacramento, Calif.-based Sutter Health, which would create a 39-hospital system.
Allina reported an operating loss of $38.9 million (-2.5% margin) for the three months ended June 30, 2026, down from an operating loss of $50.9 million (-3.4% margin) from the same period in 2025. The system’s total revenue was $1.6 billion and its expenses were $1.6 billion in the second quarter of 2026.
“We plan to continue to improve our financial performance,” Doug Watson, executive vice president and CFO of Allina, told Becker’s. “We also are very cognizant that if we close Dec. 31 [with Sutter], we’re going to want to bring – as quickly as we can – some of the innovations and opportunities … to the community in Minnesota that will evolve as we get to an actual closing.”
Mr. Watson pointed to a few things that weighed down Allina’s results in the second quarter.
The first was Allina’s $1 billion Richard M. Schulze Surgical and Critical Care Center at Abbott Northwestern Hospital in Minneapolis, which opened to patients Aug. 29. The 620,000-square-foot center, which features advanced technology and capabilities, also included costs related to training and other expenses that the system could not capitalize.
The second was a May and June dip in patient volume, a trend Mr. Watson said other systems across the country also saw. Since then, volumes have picked back up, with the last few weeks being “quite busy.”
Lastly, Mr. Watson pointed to the shutdown of insurer UCare at the end of 2025. When its members had to move to other plans, he said it created some market disruption.
“I think it caused some people to defer care or to not be sure where to go,” he said. “We made a big effort to try to educate our own patients to make sure that they knew where their benefits were now because they had to make choices at open enrollment. I think that certainly has been an impact, and that’s carrying into this next year nationally.”
To combat these industry challenges, Mr. Watson said the system has invested in three moves to improve its margins.
1. Getting better data to the front lines. Allina has “dramatically improved” its cost accounting to track specific labor and supply costs, sharing this information with its operators and clinicians so they can make better real-time decisions and think about resource utilization. “In a large health system like this, we’re six-plus billion in revenue, small changes can add up to large dollars,” Mr. Watson said.
2. Preparing for HR 1. Mr. Watson said Minnesota does not have a large directed payment program. However, Allina submitted its program and had it grandfathered in, but CMS has not acted on it yet. He said Allina is also working with Cedar and Optum to help patients keep their coverage as Medicaid work requirements and other changes take effect. “We don’t [want] situations where people fall off of coverage, and then something goes unattended for a period of time, and then shows up in the emergency room as a much bigger clinical challenge, but also economically will create an even bigger challenge,” he said.
3. Learning from peers and preparing for integration with Sutter. Mr. Watson said Allina has compared notes with nonprofit systems in other states and markets. He is also preparing for the planned Sutter integration, though that work cannot fully begin until the deal is closed. He noted Sutter’s ambulatory expansion in California as an area where Allina is eager to learn.
Allina still plans to close with Sutter at the end of 2026, pending regulatory approval. “Certainly, from a finance and accounting standpoint, that’s my preference,” Mr. Watson said.
It’s a combination that would place the system at the center of an M&A boom in Minnesota, which has become a battleground for major deals. Mr. Watson said the shift is due to financial pressure as more baby boomers move into government payer coverage, which Minnesota is feeling earlier without a directed payment program. He also noted the state’s long innovation history.
“We’re all thinking, ‘Well, we need to change, and we need to do some things differently,'” he said. “If we can identify partners that are additive, where the combination creates something of value, I think that’s something that is being explored.”
