By Lisa Rapaport, The Sacramento Bee, Calif. Knight Ridder/Tribune Business News
Apr. 5--Sacramento-based Sutter Health will spend $3.5 billion over the next 15 years to renovate, expand and seismically retrofit medical facilities in Northern California, company officials announced Thursday.
Through the end of 2006, Sutter has budgeted roughly $280 million on local projects, including the addition of a 60-bed acute care tower at Sutter Roseville Medical Center and the construction of a 156-bed maternal-child hospital at Sutter Medical Center in Sacramento.
This is the latest in a spate of building projects recently unveiled in Sacramento as health care systems struggle to keep pace with soaring population growth and changing patient needs at a time when the vast majority of California hospitals operate on tight budgets.
'Clearly Sutter is bullish on the market in Sacramento or they wouldn't be making this level of commitment,' said Robert David, regional vice president of the Hospital Council of Northern California.
Sutter, which last year reported net operating income of $35 million on revenues of $3.5 billion -- for an operating margin of 1 percent -- plans to pay for construction costs by improving its margins and going to the bond market for additional funds.
As many hospitals in California remain focused on breaking even, Sutter hopes to reach margins between 3 and 4 percent.
It will require some corporate belt-tightening -- and it will also mean Sutter needs to negotiate with health insurers to get more money for patient care, said Van Johnson, president and chief executive officer.
Yet Johnson said he believes -- and analysts agree -- that Sutter's goal is possible.
'Over the last few years we've held our operating costs pretty well in check, and we're beginning to see the fruits of being able to keep costs down,' Johnson said.
Like every health system grappling with growth, Sutter must balance rapid-expansion desires against a concern that heavy debt could damage their credit rating, making it harder for them to finance future projects, said Lisa Zuckerman, an analyst with ratings agency Standard and Poor's.
While Sutter and other systems may pine for higher rates from health insurers to help finance capital plans, Zuckerman cautioned that these payments alone will not cover costs.
'A lot will depend on holding down costs for malpractice insurance, pharmaceuticals and labor,' Zuckerman said.
Patients will also pay, albeit indirectly.
Improved access to care brought on by expansions at Sutter and elsewhere could lead to higher health care premiums as insurers pass on the cost of higher payments to hospitals.
Still, in Sacramento, where patients can wait weeks for physician appointments and hours for critical care in hospital emergency rooms, the building boom is long overdue, said David, of the Hospital Council.
'I would venture to say that a lot of this is catch-up from the years when hospitals were so underpaid they couldn't afford to change a light bulb,' David said.
Kaiser Permanente plans to spend $1.5 billion over the next 10 years on local capital projects, including a 50-bed expansion of its Roseville hospital and new medical offices in Folsom and Elk Grove.
UC Davis Health System, which has spent more than $500 million for construction and equipment during the last 10 years, expects to invest at least another $600 million on projects including its Medical Investigation of Neurodevelopmental Disorders (M.I.N.D.) Institute, its genome and biological sciences building, and an addition to the Sacramento hospital's surgery and emergency departments.
Mercy Healthcare Sacramento will spend $70 million on a new heart center at Mercy General Hospital, and emergency room expansions are under way at Methodist Hospital and Mercy Hospital of Folsom.
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(c) 2002, The Sacramento Bee, Calif. Distributed by Knight Ridder/Tribune Business News.
