Sutter Health reports higher operating revenues, income in first half of 2018

Sacramento, Calif.-based Sutter Health saw revenues and operating income increase in the six months ended June 30, according to recently released unaudited financial documents

Here are five things to know:

1. The health system reported operating revenues of $6.3 billion in the first six months of 2018, up 6.5 percent from revenues of $5.9 billion in the same period a year earlier. Sutter said the increase was primarily attributable to higher patient service revenues and premium revenues, which climbed 5.3 percent and 11.3 percent year over year, respectively.

2. Sutter's operating expenses climbed 4.3 percent year over year to $6.1 billion in the six months ended June 30.

3. Sutter ended the first half of 2018 with operating income of $145 million, up 806 percent from $16 million in the same period of 2017. The health system's operating margin increased from 0.3 percent in the first half of 2017 to 2.3 percent in the first six months of 2018. The significant increase in operating income is attributable to changes in the accounting standards used related to California's Hospital Fee Program. Changes to accounting standards related to a state fee program will make year-over-year comparisons difficult until Q4 2018 for Sutter Health.

4. What is the fee program? California enacted legislation for a hospital fee program to fund certain Medi-Cal coverage expansions. The program charges all hospitals a quality assurance fee that is used to obtain federal matching funds for Medi-Cal with the proceeds redistributed as supplemental payments to California hospitals that treat Medi-Cal patients. Sutter's accounting firm confirmed that revenue could be recorded without CMS approval for the 2017 audited financial statements. Sutter said the system accrued $3 million in Q2 2017 for the program, and in Q2 2018 it accrued $76 million because of this change in revenue recognition.

5. After factoring in investment income, which declined due to a drop in value of certain securities and debt extinguishment, Sutter's net income was $174 million in the first six months of this year, compared to $350 million in the same period a year earlier.

Editor's note: This story was updated Sept. 18 at 5:47 p.m. CST to include information about California's Hospital Fee Program and the accounting standard change enacted for Sutter Health. An earlier version of this story ran with the headline, "Sutter's operating income surges 806% in first half of 2018."

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