Best’s News & Research Service - August 17, 2007 10:11 AM (EDT)
A.M. Best Assigns Rating to Providence Health & Services and Affirms Ratings of Providence Health Plan
OLDWICK, N.J. //BestWire// - A.M. Best Co. has assigned an issuer credit rating (ICR) of “aa” to Providence Health & Services (PH&S) (Seattle, WA). Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the ICR of “a” of Providence Health Plan (PHP) (Beaverton, OR). The outlook for all ratings is stable.
PH&S’ rating is driven by its consistently strong operating margins—supported by all four of its operating regions—favorable market share and a well leveraged balance sheet characterized by good liquidity with days cash on hand of 174 days, low debt to capitalization at 27% and strong maximum annual debt service coverage at 5.8 times (all year-end 2006). A.M. Best does not expect any significant changes to either PH&S’ financial profile or earnings outlook in the medium term.
PH&S is a fully integrated health care delivery system, which operates hospitals and medical facilities throughout the Pacific Northwest and Southern California. The system is the result of a recent merger that took place on January 1, 2006 between Providence Health System and Providence Services. PH&S is regionally organized into four operating companies in the Alaska region, Washington/Montana region, Oregon region and California region and has also been nationally recognized for providing quality care and having a high level of integration throughout its system.
PHP supports the profitability of PH&S’ Oregon region by expanding the health system’s market share throughout that service area, enhancing utilization at PH&S’ Oregon facilities and providing a stable revenue and earnings stream. A.M. Best considers the health plan within this region as very beneficial, given the high level of integration. In return, PHP receives meaningful rating enhancement as part of the system, reflected in its current ratings.
Several of PH&S’ hospital facilities are located in regions with poor demographic indicators leading to a significant concentration in the Medicaid payor mix. While A.M. Best recognizes that Medicaid is not the largest source of revenue for these regions, it exceeds the national average. A.M. Best’s concerns are somewhat mitigated by PH&S’ ability to control operating expenses to offset pressure in reimbursement.
For Best’s Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.