Highmark tussle sullies UPMC credit rating
By Alex Nixon
Published: Wednesday, Sept. 18, 2013, 12:01 a.m.
UPMC's contract fight with health insurer Highmark Inc. has resulted in “heightened credit risk” for the largest hospital system in Western Pennsylvania, a credit rating agency said Tuesday.
Fitch Ratings downgraded its outlook on UPMC to negative, from stable, on concerns that it could lose patients in 2015 after reimbursement contracts with Highmark expire.
Two other rating companies, Moody's Investors Service and Standard & Poor's, maintained stable outlooks for UPMC in recent days.
But S&P analysts, in a report released Monday, noted: “We believe the organization faces considerable competitive and financial risk over the next two to three years.”
Highmark, the state's largest health insurer, supplies about 21 percent of UPMC's $5 billion in annual hospital revenue. And UPMC has increasing competition from Highmark's system of hospitals, Allegheny Health Network, Fitch noted.
“We are not surprised,” UPMC spokeswoman Susan Manko said. “We've said it before: The competitive insurance market benefits the entire community, but decreases UPMC's profitability.”
Despite the competitive pressures, Manko said, “UPMC has been and will continue to be strongly positioned to continue meeting the needs of our communities.”
Though Fitch dropped its outlook on UPMC, it rated $225 million in bonds that UPMC plans to issue as “AA-,” near the top of its ratings scale. Moody's rated the bonds “Aa3,” and S&P gave them an “A+” rating.
UPMC and Highmark are engaged in a fierce marketing campaign, saturating airwaves with television commercials in recent months.
UPMC is trying to persuade insurance customers to leave Highmark so they can keep less-costly in-network access to UPMC hospitals and doctors. Options include UPMC's health plan and plans from national insurers Aetna Inc., Cigna Corp. and United Healthcare.
Highmark's ads accuse UPMC of cutting off access to its insurance customers and being a monopoly, and they ask the hospital giant to renew contract negotiations.
Fitch said UPMC management believes it can persuade “a sufficient number of former Highmark subscribers” to move to another insurer but noted “the magnitude of the shift will not be known with any certainty until the close of the open enrollment period for 2015.”
For the fiscal year ended June 30, UPMC's operating income dropped to $132 million, down from $351 million in the prior year. But net income, which includes investment gains, jumped to $359 million, up from $221 million.
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or firstname.lastname@example.org.
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