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Report: Highmark must spend more than $475M on hospital

By - Last modified: June 19, 2012 at 9:53 AM

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The $475 million commitment made by Highmark Inc. to bail out the West Penn Allegheny Health System is not going to be enough to turn it around, according to a new report from Moody's Investors Service.

The credit rating company said June 15 the health system will "need more capital and/or operating support over the next two years."

Moody's affirmed West Penn's Caa1 bond rating, which affects $737 million of fixed-rate bonds. The outlook remains negative.

The current rating incorporates the ratings agency's belief that "Highmark will be willing and motivated to provide further support."

A Highmark spokesman said the company will not be commenting on this issue. Pittsburgh-based Highmark is the parent company of Highmark Blue Shield in Cumberland County.

The proposed affiliation with West Penn will become an acquisition for the insurer if state regulators approve it. That is expected to occur by the fall.

Without the $100 million already committed by Highmark, the health system was at risk of a bond default, Moody's said.

The agency said West Penn faces several significant financial challenges, including a high degree of uncertainty and execution over Highmark's strategy to expand the system.

Moody's also cited large operating losses — $88 million through the first nine months of the current fiscal year — along with a continued decline in acute-care discharges, weak cash position, an underfunded pension liability of nearly $200 million and heavy competition from the University of Pittsburgh Medical Center, West Penn's primary competitor.

West Penn reported a $75 million operating loss in fiscal 2011.

Last week, Highmark announced a "strategic partnership" with the Jefferson Regional Medical Center. That deal could be worth as much as $275 million.

Jason Scott

Jason Scott

Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin County. Have a tip or question for him? Email him at jasons@cpbj.com. Follow him on Twitter, @JScottJournal. Circle Jason Scott on .

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