As many health systems remain focused on cost containment and recovery, Sutter Health is leaning into growth and pairing it with tighter financial and operational discipline.
Luke Rockenbach, CFO of Sacramento, Calif.-based Sutter Health’s Silicon Valley Division, said the past year has been defined by managing rapid expansion in one of the country’s most expensive and complex healthcare markets while protecting margin and access. The division has grown about 10% year over year for three consecutive years, a pace that requires a different playbook than simple expense reduction.
Rather than separating strategy from cost control, Mr. Rockenbach’s team anchored on a small set of financial guardrails that could flex with growth. One of the most important was total labor cost as a percentage of net revenue, a metric designed to scale alongside volume, payer mix changes and workforce demands.
“Putting in that discipline and that strategic structure in place early in 2025 allowed for us to be flexible as we made decisions and pivoted throughout the year,” he said during an interview with the “Becker’s Healthcare Podcast.”
That approach paid off. The Silicon Valley Division expanded its margin by more than a full percentage point in 2025, while continuing to add volume and invest in capacity. The same framework is carried into 2026, with an even sharper focus on productivity and asset utilization.
Beyond labor, Mr. Rockenbach said the organization is scrutinizing how effectively it uses its most constrained and expensive assets: operating rooms, imaging equipment and clinician schedules. Eliminating “white space” has become a financial and access imperative, particularly in a market where adding square footage is costly and slow.
All of that discipline, however, sits alongside an aggressive growth agenda.
Sutter recently announced plans for a new hospital in Silicon Valley expected to open in 2031, and the division continues to expand its employed and affiliated clinician base to address access challenges for a highly sophisticated patient population. At the same time, the finance team has been deeply involved in reshaping how the organization manages risk-based care. About 10% of the division’s business is now capitated, or value-based, and Mr. Rockenbach said leaders realized they were not operating that segment with the level of intentionality it required.
“What we saw exiting 2024 and entering 2025 is while we had the membership and while we had fantastic clinicians and in parts a very integrated clinical delivery network, we were not being proactive in running the value-based care business with the intention that it needed,” he said.
The response was multifaceted. The division stood up dedicated workstreams to identify its sickest and highest-utilizing patients, intervening earlier to stabilize care or redirect patients to more appropriate settings. It also placed RN case managers inside non-Sutter hospitals — including Good Samaritan and Stanford — to support patients who present outside the system and help manage admissions, discharges and care transitions.
Another major shift was addressing site-of-care decisions. Many clinicians were not consistently factoring value-based economics into referral patterns, particularly when patients moved outside the Sutter network. The team is now focused on site of service to drive patients into the high quality, low cost setting for care.
Perhaps the most significant cultural change has been learning to “act like a payer” while remaining a provider organization. If patients are seeking care outside of the Sutter network, is it the right care? How can the system adjudicate those claims appropriately and gain the right authorizations to bend the cost curve? Blending fee-for-service and value-based care in the same clinics has required new mindsets, processes and capabilities — from contracting and authorization to claims adjudication and utilization management.
“When you blend both fee for service and value-based care in the same building, it’s like running two very different businesses in the same clinic sometimes,” Mr. Rockenbach said. “It’s a challenge to get mindsets in the space where they’re thinking about the patient differently. It’s not that we treat patients differently, but the patients that have signed up for these value-based care programs have specifically asked us to help manage their care.”
That shift has already delivered measurable results. The Silicon Valley team was able to bend the cost curve in its value-based population at a time when other divisions struggled to do so, a success Mr. Rockenbach attributes to tighter care coordination and more disciplined network management.
Looking ahead, he sees the role of finance becoming even more forward-looking as the pace of change accelerates and new technologies, including artificial intelligence, reshape decision-making. The traditional finance function of explaining what already happened is no longer sufficient.
“The job of a finance person is to tell the story of what happened and then to tell the story of what’s going to happen,” he said. “Focusing on what’s going to happen will be more and more prominent. The challenge in 2026 is really spending every single day looking forward, finding insights, working with operations to deploy strategies and tactics so that we continue to care for patients and in doing so, we do it in a sustainable way that continues to maintain margins so we can reinvest for our patients.”
