In a credit report released this month, Moody’s announced it’s downgrading the credit rating for Partners HealthCare from Aa2 to Aa3. Standard & Poor’s also revised its outlook from stable to negative on Partner’s AA-rated debt, meaning that it may be downgraded if the financial picture doesn’t improve.
For an entity that frequently issues and finances debt to fund its operations, a lower credit rating means higher interest rates, making such activity more expensive.
The agencies mainly cited Partner’s Managed Medicaid insurer Neighborhood Health Plan as the reason for the lowered outlook. That plan, which offers health insurance to many low-income residents, suffered a $202 million operating loss in fiscal 2014, including a $92 million estimated payment for anticipated losses. That contributed to a $22 million operating loss for Partners HealthCare as a whole in the same fiscal year.
The agencies also pointed to the pending departure of CEO Gary Gottlieb, who is expected to leave in July.
“We are uncertain if this will usher in a period of change going forward,” the S&P report said. “Partners’ board remains committed to its existing strategies through the transition process.”
Moody’s also said Partners’ plan to acquire South Shore Hospital, Hallmark Health System and Emerson Hospital, which has gotten considerable public backlash and is under judicial review in Suffolk Superior Court, could cause future financial problems.
“Partners operates under heightened public and political scrutiny that may limit the system’s strategic and financial flexibility to acquire other hospitals, physician groups, or pursue strategic alternatives with NHP,” Moody’s said in its report.
Rich Copp, a spokesman for Partners HealthCare, said that despite the challenges outlined in the reports, the two credit rating agencies and Fitch Ratings, which kept Partners at an AA rating, noted the organization’s effective leadership team.
While the ratings haven’t changed Partners’ strategy, it emphasizes ongoing work the organization is doing to change, Copp said.
“Our focus remains on cost controls that will help generate stable operating margins and enable us to deliver the type of world class care patients and families have come to expect, and we’ll continue to work with the state on squaring away the rate situation at NHP,” Copp said.
