Ratings agency sees more uncertainty for WPAHS [Pittsburgh Post-Gazette]

June 19--Highmark's$475 million commitment to the West Penn Allegheny Health System will not be enough to stabilize the financially ailing system, according to a major ratings agency.

Moody's Investors Service says continued declining patient volume and operating losses that in nine months has already surpassed the total for all of 2010-11 means West Penn Allegheny "will need more capital and/or operating support over the next two years."

West Penn Allegheny and Highmark officials declined comment Monday on the Moody's report.

The analysis came in a ratings update in which Moody's affirmed West Penn Allegheny's Caa1 bond rating on its $737 million of Series 2007 fixed rate bonds, with a negative outlook.

The report acknowledged its belief that insurer Highmark will be willing to continue supporting WPAHS, and noted that Highmark's plan to acquire the region's second-largest health system should win state approval by fall.

Without Highmark's intervention, Moody's said, West Penn Allegheny may have defaulted on its bond payments.

But, the report added, "Until the transaction closes, the organizations cannot fully execute operating strategies to make WPAHS more viable and, therefore, there is still a great degree of uncertainty and lack of information regarding funding and implementing such strategies."

Two years ago, WPAHS was in the process of downsizing in hopes of stemming its losses, most notably by closing West Penn Hospital's emergency department. Since Highmark announced its commitment to acquire the health system last year, the health system has reversed direction on that strategy.

In January, then-Highmark CEO Kenneth Melani announced a $20 million upgrade at Forbes Regional Hospital in Monroeville, which will soon face competition from the new UPMC East hospital. In February, the West Penn emergency department reopened and the hospital is expanding some services there.

While saying the Highmark affiliation is positive for West Penn Allegheny in the short term, the change in strategic direction brings "a high degree of uncertainty," according to the Moody's analysis. "Without further details including a budget, projections and funding estimates, it is unclear whether this strategy will be successful."

Last week, Highmark said it also was committing $75 million to the Jefferson Regional Medical Center in Jefferson Hills, and it will guarantee up to $200 million of Jefferson's long-term obligations for a new "strategic partnership" that will be part of the insurer's plans to develop a regional integrated health care delivery system.

Moody's currently gives Highmark a Baa2 rating with a negative outlook.

By Steve Twedt

Highmark's$475 million commitment to the West Penn Allegheny Health System will not be enough to stabilize the financially ailing system, according to a major ratings agency.

Moody's Investors Service says continued declining patient volume and operating losses that in nine months has already surpassed the total for all of 2010-11 means West Penn Allegheny "will need more capital and/or operating support over the next two years."

West Penn Allegheny and Highmark officials declined comment Monday on the Moody's report.

The analysis came in a ratings update in which Moody's affirmed West Penn Allegheny's Caaa1 bond rating on its $737 million of Series 2007 fixed rate bonds, with a negative outlook.

The report acknowledged its belief that insurer Highmark will be willing to continue supporting WPAHS, and noted that Highmark's plan to acquire the region's second largest health system should win state approval by fall.

Without Highmark's intervention, Moody's said, West Penn Allegheny may have defaulted on its bond payments.

But, the report added, "Until the transaction closes, the organizations cannot fully execute operating strategies to make WPAHS more viable and, therefore, there is still a great degree of uncertainty and lack of information regarding funding and implementing such strategies."

Two years ago, WPAHS was in the process of downsizing in hopes of stemming its losses, most notably by closing West Penn Hospital's emergency department. Since Highmark announced its commitment to acquire the health system last year, the health system has reversed direction on that strategy.

In January, then-Highmark CEO Kenneth Melani announced a $20 million upgrade at Forbes Regional Hospital in Monroeville, which will soon face competition from the new UPMC East hospital. In February, the West Penn emergency department reopened and the hospital is expanding some services there.

While saying the Highmark affiliation is positive for West Penn Allegheny in the short term, the change in strategic direction brings "a high degree of uncertainty," according to the Moody's analysis. "Without further details including a budget, projections and funding estimates, it is unclear whether this strategy will be successful."

Last week, Highmark said it also was committing $75 million to the Jefferson Regional Medical Center in Jefferson Hills, and it will guarantee up to $200 million of Jefferson's long-term obligations for a new "strategic partnership" that will be part of the insurer's plans to developed a regional integrated health care delivery system.

Moody's currently gives Highmark a Baa2 rating with a negative outlook.

Steve Twedt: [email protected] or 412-263-1963.

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