Moody's downgrades Highmark credit rating, citing 'considerable risks' with West Penn debt
Highmark faces a challenging future as it gets to work turning around the finances of West Penn Allegheny Health System, which it acquired this week, according to a report from Moody's Investors Service.
Moody's on Thursday downgraded Highmark's debt rating and insurance financial strength rating citing concerns over whether it can “establish WPAHS as a credible alternative delivery system to University of Pittsburgh Medical Center before its contract with UPMC expires at the end of 2014,” the rating agency said.
Highmark is now the parent organization for an insurance business called Highmark Health Services and a hospital division called Allegheny Health Network. It purchased financially struggling West Penn Allegheny as the centerpiece its health network that will compete with UPMC.
The $1.1 billion purchase included spending $604 million for West Penn Allegheny's bond debt, which Moody's said weakens Highmark's financial position.
Highmark spokesman Aaron Billger declined to comment.
“While Highmark's affiliation with WPAHS provides Highmark needed flexibility in its provider network, there are considerable risks involved,” Steve Zaharuk, a Moody's senior vice president, said in the report. “These include the ability to improve the financial condition of WPAHS while promoting and delivering quality and efficient health care, and perhaps most importantly, convincing its membership base to switch from the UPMC network to the WPAHS network.”
To be financially successful, Highmark needs to move a large portion of its 2 million members in Western Pennsylvania who see UPMC doctors and are treated at UPMC hospitals to Allegheny Health Network, which includes West Penn Allegheny's five hospitals, Jefferson Regional Medical Center and St. Vincent Health System in Erie.
At the same time, it faces the expiration of its reimbursement contract with UPMC, the largest hospital system in the region. Without a new contract, Highmark's members won't have in-network access to UPMC, which could cause them to leave Highmark for another health insurance company that does have access, including UPMC Health Plan, Aetna Inc., United Healthcare and Cigna Corp.
UPMC this week reiterated its stance that it will not sign a new contract with Highmark.
“UPMC looks forward to competing with the newly formed Highmark-WPAHS integrated delivery network and to continuing to serve consumers with the innovative, high-quality, cost-effective health care and insurance services UPMC is known for,” spokesman Paul Wood said.
Highmark's debt rating was lowered to Baa3, from Baa2, and its insurance financial strength rating was dropped to Baa2, from Baa1. The Baa3 rating is one notch above junk, a status that increases borrowing costs.
Moody's also noted that its outlook on Highmark is negative and that isn't likely to change in the next 12 months.
But it could move to stable if Highmark makes “significant progress” in turning around West Penn Allegheny, extends its contract with UPMC, maintains its insurance membership at current levels and achieves profit margin of 3 percent.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.
Add Alex Nixon to your Google+ circles.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Large-scale batteries are integral in shift to renewable energy
- Plastics, tech sectors crucial to cracker plants
- Natural gas industry tries to find uses for abundance of product from shale drilling
- Hackers rip into heart of open-source software
- Open enrollment puts varied impact of health care law back in focus
- Energy Spotlight: Steve Anthos
- 113 Federal Reserve staffers earn more than chief Yellen
- Student loan debt presents paradox
- EDMC loses $664M; executives receive six-figure bonuses
- ‘Foodies’ get fill in Western Pa. as groceries hire chefs to offer tips
- Duquesne University business center helping Hispanic startups