A.M. Best Co. has affirmed the 'aa-' issuer credit rating (ICR) of Spectrum Health System (Spectrum Health) (Grand Rapids, MI) and concurrently has assigned an ICR of 'aa-' to its cornerstone acute care hospital subsidiary Spectrum Health Hospitals (Grand Rapids, MI), which operate as Butterworth, Blodgett and the Helen DeVos Children's Hospitals (see also A.M. Best Company).
Additionally, A.M. Best has affirmed the financial strength ratings (FSR) of A- (Very Good) and ICR of 'a-' of Spectrum Health's insurance subsidiary, Priority Health (Grand Rapids, MI). A.M. Best has also affirmed the financial strength rating (FSR) of 'B' (Fair) and upgraded the ICR from 'bb' to 'bb+' of Priority Health Government Programs (PHGP) (Grand Rapids, MI). The outlook for all ratings is stable.
Spectrum Health's rating is driven by strong current and forecasted operating margins, its leading market share in the primary service area along with expansion projects and adequate, albeit decreased, liquidity as of fiscal third quarter 2009 with 135 days cash on hand for the total system. A.M Best will continue to monitor the systems liquidity measures throughout the year. Offsetting factors include increased debt to capitalization, which was 48% at 3-31-09 and unrealized investment losses that are projected to adversely affect the excess margin in fiscal year 2009 as well. Spectrum Health Hospitals, which operate the Butterworth, Blodgett and the Helen DeVos Children's Hospitals, contributes the majority of the consolidated hospital group's revenue and have consistently been profitable in the past. Butterworth is also characterized by a plethora of specialty services and excellent quality scores, with the majority of current construction associated with the Grand Rapids hospitals.
Spectrum Health also operates Spectrum Health - Reed City Hospital, Spectrum Health - United Memorial Hospital and Spectrum Health - Kelsey Memorial Hospital, which are relatively smaller, community and critical access hospitals providing healthcare services in western Michigan.
Spectrum Health is highly integrated with its well capitalized flagship health plan, Priority Health and several other affiliated entities. Priority Health's sizeable revenue contribution to the system, approximately one-half, demonstrates the advantages of the insurance and delivery system's integration. Additionally, the ratings of Priority Health reflect its strong stand-alone capitalization and improved operating results beginning of 2009. Offsetting rating factors include membership declines and modest unrealized investment losses. A.M. Best also notes that Priority Health's Medicaid subsidiary, PHGP, has reported three years of premium expansion, improved earnings and favorable capitalization on an absolute and risk-adjusted basis.
A.M. Best considers the integration of Spectrum Health and Priority Health very beneficial, given the payor mix stability, steerage of patients to system facilities and the health plan's historical favorable earnings trends. In return, the insurance affiliates receive rating enhancement as part of Spectrum Health, which is reflected in its 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.
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This article was prepared by Managed Care Weekly Digest editors from staff and other reports. Copyright 2009, Managed Care Weekly Digest via NewsRx.com.
