Dive Brief:

• Despite an improvement in operational results, a university breaking off from Sutter Health drove the nonprofit to a net loss of $184 million in the first quarter of 2022, compared to an income of $189 million the same time last year.
• Samuel Merritt University in Oakland, California, disaffiliated from Sutter to become an independent nonprofit in January, a move that resulted in a loss on deconsolidation of $208 million for the Sacramento-based nonprofit.
• In results posted this week, Sutter also shared it's poised for another year of labor disputes, as roughly half of its collective bargaining agreements with unionized employees have expired or will expire within a year.

Dive Insight:

The Northern California system launched a "sweeping review" of its finances last year after the pandemic hit its operations hard. In early 2022 however, Sutter improved its operational performance for the period ended March 31, as operating revenue increased and expenses dipped.

Sutter brought in income of $95 million from operations, compared to an operational loss of $49 million in the first quarter of 2021. The 28-hospital system's operating margin increased to 2.7% from a negative operating margin of 1.4% same time last year.

The system pointed to a reduction in salaries and benefits, which decreased $52 million in the quarter due to a reduction of employees and additional pension-related costs.

That contrasts with many of its for-profit peers, which reported the need for temporary nursing staff and higher labor costs contributed to rising salaries and benefits expenses in the first quarter.

Like many other nonprofit systems, income from investments is usually a major contributor to Sutter's bottom line. However, the opposite was true this quarter, as "an unfavorable market" caused investment income to drop to $56 million, compared to $150 million same time last year. That contributed to the net loss, Sutter said.

"Sutter continues to make progress on its path to recovery, but this quarter is a reminder that financial pressures remain," a system spokesperson told Healthcare Dive, noting Sutter plans to continue focusing on efforts to reduce costs and streamline operations.

Sutter is also looking at another year full of contract negotiations with its workers, as contracts' expiration conflates with record stress and burnout during COVID-19.

The system employs some 53,000 workers, with roughly a fourth represented by labor unions. Sutter said in its financial documents that it's currently in negotiation or will be in negotiation during 2022 for about half of its contracts with unionized workers.

Of the 60 collective bargaining units that represent its employees, 37 are or will be in negotiations this year while eight are currently in negotiation for an initial agreement.

Sutter noted the best means for avoiding labor disruptions remains "fair, market aligned negotiations focused on finding mutually agreeable resolutions," but "while working to mitigate any potential work stoppages through successful negotiations, Sutter remains prepared to address the possibility of work stoppages."

On April 18, more than 8,000 nurses and employees at 15 Sutter facilities held a one-day strike in protest of Sutter's alleged refusal to address concerns about safe staffing and worker protection. Registered nurses at the system have been in negotiations for a new contract since last June, with little movement, according to National Nurses United.