S&P cuts its outlook for Highmark profits to negative [The Pittsburgh Tribune-Review]

Jan. 28--Standard & Poor's Ratings Services downgraded its outlook on Highmark Inc. on Monday because of the rising costs of acquiring West Penn Allegheny Health System, building a new health integrated health system, and giving rate increases to UPMC.

S&P affirmed its "A" rating of Highmark, but dropped its outlook on the state's largest health insurance company to negative, from stable on concerns that profit will drop.

"The outlook revision reflects our expectation that Highmark's operating earnings will weaken further in 2013 primarily because of concessionary pricing actions implemented during the company's contentious contract negotiations with UPMC, as well as expenses related to its integrated delivery strategy and preparing for health care reform," Jon Reichert, S&P credit analyst, said in a statement.

As part of its contract extension with UPMC, announced in May last year, Highmark agreed to raise reimbursement rates paid to UPMC by 9.9 percent three times between July 2012 and July 2014. The extended contract expires on Dec. 31, 2014.

Highmark's costs for building a health system to compete with UPMC also are rising. The insurer announced this month that it would buy out investors holding West Penn Allegheny bond debt for about $635 million. That cost comes on top of the $475 million it already agreed to pay for the nearly bankrupt hospital operator.

Highmark is awaiting state approval to close the acquisition of West Penn Allegheny.

In documents filed with the state Insurance Department last week, Highmark forecast that its net income this year would drop to $106.1 million, down from $412.6 million last year, a 74 percent decline.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or [email protected].

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