Sut­ter slash­ing costs

Sys­tem looks to trim $700 mil­lion from hos­pi­tal ex­penses by 2014

Modern Healthcare - - Regional News - Me­lanie Evans

Sut­ter Health, Sacra­mento, Calif., will seek to squeeze $700 mil­lion from ex­penses by 2014 be­yond the es­ti­mated $200 mil­lion al­ready cut from spend­ing dur­ing the prior two years, an ex­ec­u­tive said.

Sarah Kre­vans, a Sut­ter se­nior vice pres­i­dent and pres­i­dent of its Sacra­mento Sierra re­gion, said the sys­tem is seek­ing to re­duce hos­pi­tal ex­penses so the sys­tem no longer loses money on its Medi­care pa­tients with a broad ef­fort un­der way to im­prove qual­ity and ef­fi­ciency.

Pa­trick Fry, Sut­ter’s CEO, be­gan meet­ing with man­agers about the sys­tem’s op­er­a­tions this month, ac­cord­ing to a letter the sys­tem be­gan mail­ing to 50,000 em­ploy­ees last week. Fry’s letter said the ex­pected growth of safety-net in­surance un­der the Pa­tient Pro­tec­tion and Affordable Care Act and cus­tomer com­plaints of high prices made the spend­ing cuts nec­es­sary.

“Un­der fed­eral health­care re­form, the gov- ern­ment will pro­vide health cov­er­age to 32 mil­lion unin­sured Amer­i­cans,” he wrote. “The gov­ern­ment will help cover these new costs by pay­ing health­care providers less.”

The Con­gres­sional Bud­get Of­fice es­ti­mates 32 mil­lion unin­sured will gain cov­er­age as a re­sult of the 2010 law, which ex­pands el­i­gi­bil­ity for Med­i­caid, the safety-net in­surer, and of­fers sub­si­dies to low-and mid­dle-in­come cus­tomers in newly cre­ated in­surance ex­changes. Not all ex­change cus­tomers are ex­pected to qual­ify for sub­si­dies, ac­cord­ing to the CBO.

Sut­ter “must find ways to con­tinue serv­ing grow­ing num­bers of gov­ern­ment-spon­sored pa­tients at a cost close to what Medi­care in­surance pays us,” the letter con­tin­ued.

Kre­vans said the sys­tem’s early ef­forts— which have tar­geted preven­tion of cen­tral lin­e­as­so­ci­ated blood­stream in­fec­tions, sep­sis and ven­ti­la­tor-associated pneu­mo­nia—helped re­duce Sut­ter hos­pi­tals’ loss on Medi­care pa­tients to 25% from 30% be­tween 2008 and 2009. Each per­cent­age point re­duc­tion amounts to roughly $10 mil­lion in sav­ings across the sys­tem, she said.

Medi­care ac­counted for 39% of Sut­ter’s to­tal busi­ness in 2009, though Kre­vans stressed the ef­fi­ciency ef­forts are not lim­ited solely to Medi­care pa­tients.

Fig­ures for 2010 are not yet avail­able, she said, but ex­ec­u­tives ex­pect the losses to nar­row and pro­ject the sys­tem has squeezed $200 mil­lion from its spend­ing to date.

Sut­ter, which owns and man­ages 24 hos­pi­tals in Cal­i­for­nia and Hawaii, re­ported op­er­at­ing in­come of $468 mil­lion on rev­enue of $6.4 bil­lion for the nine months ended Sept. 30, the most re­cent fig­ures avail­able. The sys­tem’s op­er­at­ing mar­gins through the re­ces­sion hov­ered slightly above 6%. Dur­ing the next four years, Sut­ter is ex­pected to spend $5.2 bil­lion on in­for­ma­tion tech­nol­ogy, physi­cians, ren­o­va­tion and con­struc­tion.

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