Second investor service company alters ProMedica's bond rating due to financial losses

Dec. 27--A second investor service company has altered ProMedica's bond rating because of financial struggles associated with its insurance subsidiary, Paramount.

New York-based Standard and Poor's Global affirmed ProMedica's 'BBB' rating, which is two notches above "junk status," but changed the health care system's outlook from stable to negative due to operating losses of $102.8 million in fiscal year 2019. Paramount had an operating profit of $26.8 million in 2018. But Standard and Poor's also said it was confident that ProMedica was on the right track to address the financial losses.

In a statement, Standard and Poor's Global Ratings credit analyst Anne Cosgrove confirmed that the outlook change was due to Paramount's struggles with Medicaid.

"The outlook revision reflects ProMedica's weaker financial performance in fiscal 2019 owing to Paramount's state Medicaid product that led to a significant operating loss of $102.8 million for the interim period ended Sept. 30, 2019," the statement read. "And what we view as weaker credit metrics for a 'BBB' rating."

In October, another New York-based investor service company, Moody's, downgraded ProMedica's bond rating, due to a "very weak year-to-date fiscal 2019 performance."

ProMedica executives weren't made available for comment Friday.

In October, Tausha Moore, a spokesman for ProMedica, said in a statement that the health care system was facing "challenges" with Paramount, but felt confident about the company's financial future.

The October downgrade was "primarily the result of challenges our Paramount business has had with Ohio Medicaid over the past year and the resulting impact on our finances," Ms. Moore said in the statement.

She added: "In the meantime, ProMedica continues to have a strong balance sheet, with approximately $1.5 billion in cash to support its financial stability. We are confident about our future and our ability to strengthen ProMedica's financial standing."

In November, ProMedica instituted a "new membership enrollment freeze on Medicaid," its chief financial officer, Steve Cavanaugh, said during a conference call. Mr Cavanaugh said the freeze would be implemented until the company resolves the reimbursement rate issue it faces, noting that ProMedica identified "enrollment errors stemming from the Ohio Department of Medicaid."

In September, Paramount got a $36 million retroactive rate adjustment and will get an additional $12 million in the fourth quarter.

But Paramount has identified approximately $65 million in enrollment errors and needs further adjustments to cover that shortfall going forward, Mr. Cavanaugh said in the November conference call.

"We are working with the state and I think they are generally in agreement with that figure," Mr. Cavanaugh said.

In a release to announce the shift to a negative outlook, Standard and Poor's wrote that it was confident in ProMedica's progress and decisions it has made to address the financial losses, which the company justified as reason enough to not lower its rating.

"We believe management is proactively addressing these challenges and has made some progress to date, including freezing the state Medicaid product to new entrants, receiving retroactive rate payments from the state, and looking to increase premium rates," the release said.

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