A.M. Best Co. has affirmed the issuer credit ratings (ICR) of 'aa-' of Spectrum Health System (Spectrum) and its cornerstone hospital, Spectrum Health Hospitals (SHH) (d/b/a Butterworth Hospital and Blodgett Hospital). A.M. Best also has affirmed the financial strength rating (FSR) of A- (Excellent) and ICR of 'a-' of Spectrum's subsidiary, Priority Health, and upgraded the FSR to B+ (Good) from B (Fair) and ICR to 'bbb-' from 'bb+' of Priority Health's direct subsidiary, Priority Health Government Programs (PHGP). The outlook for all ratings is stable. All companies are domiciled in Grand Rapids, MI (see also A.M. Best Company).
Spectrum's rating reflects its strong operating margin, leading market share within its primary service areas, a high level of integration with its well capitalized flagship health plan and the favorable results of its cornerstone facilities. While Spectrum's debt-to-capital ratio has increased over the past several years, its interest coverage and liquidity ratios currently remain very favorable due to its strong operating earnings and cash flow.
Spectrum is an integrated health care delivery system, which operates hospitals and various other medical and health care related facilities throughout Michigan. SHH operates as one entity on two campuses and represents a significant portion of total revenues to the system, while also enjoying consistently positive operating margins. Butterworth Hospital and Blodgett Hospital also are characterized by a wide array of specialty services and excellent quality scores, with the majority of recent construction and system enhancements being associated with these campuses.
Spectrum also operates Spectrum Health - Reed City Hospital, Spectrum Health - United Memorial Hospital and Spectrum Health - Kelsey Memorial Hospital, which are relatively smaller, community, specialty and/or critical access hospitals providing health care services in West Michigan.
Priority Health provides coverage for medical, hospital and other health care services to its members through various commercial lines and Medicare products and provides coverage to Medicaid recipients located in Michigan through a PHGP subsidiary. A.M. Best views the government program entity as an integral and growing part of the group, which has contributed favorably to Priority Health's overall membership, revenue and earnings growth. While PHGP's stand-alone capitalization is somewhat low, it is both implicitly and explicitly supported by both Priority Health and Spectrum.
A.M. Best considers the integration of Priority Health and Spectrum as very beneficial, given the payor mix stability provided, steerage of patients to the Spectrum facilities and Priority Health's sizeable revenue contribution to the system, demonstrating the advantages of the insurance and delivery system's integration. In return, Priority Health and PHGP receive a meaningful rating enhancement as part of Spectrum, which is reflected in their current ratings.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
Keywords: Hospital, Legal Issues, A.M. Best Company.
This article was prepared by Managed Care Weekly Digest editors from staff and other reports. Copyright 2010, Managed Care Weekly Digest via NewsRx.com.
