Moody’s Outlook Darkens for Team Health

https://www.healthleadersmedia.com/finance/moodys-outlook-darkens-team-health?spMailingID=16126344&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1701043585&spReportId=MTcwMTA0MzU4NQS2

UnitedHealth will cancel two-thirds of Team Health’s in-network contracts over the next 11 months.


KEY TAKEAWAYS

Moody’s Investors Service on Friday downgraded the outlook for Team Health from stable to negative.

UnitedHealth has also significantly reduced its payments to Team Health for out-of-network services.

Team Health has accused UnitedHealth of ‘aggressive and inappropriate behavior.’

Team Health Holdings Inc.’s ongoing contract fight with UnitedHealth Group Inc. is hurting the bond status on the Knoxville-based hospital staffing and management company.

Moody’s Investors Service on Friday downgraded the outlook for Team Health from stable to negative, after affirming the company’s B3 Corporate Family Rating and B3-PD Probability of Default Rating.

“The change of outlook reflects rising uncertainty around Team Health’s ability to reduce leverage given its recently disclosed dispute with UnitedHealth Group Inc., one of its largest commercial payors,” Moody’s said.

Moody’s also affirmed the B2 rating on Team Health’s senior secured credit facilities and Caa2 rating on its unsecured notes.

UnitedHealth told Team Health last month that it will cancel two-thirds of its in-network contracts with Team Health between October 2019 until July 2020.

UnitedHealth has also significantly reduced its payments to Team Health for out-of-network services, Moody’s noted.

Team Health provided a statement to HealthLeaders suggesting that it is lawyering up in preparation for more litigation with UnitedHealth.

“As Team Health continues to see more aggressive and inappropriate behavior by payors to either reduce, delay, or deny payments, we have increased our investment in legal resources to address specific situations where we believe payor behavior is inappropriate or unlawful,” the company said.

“To date, Team Health has been successful in getting reasonable reimbursements as a result of that litigation effort. Immediately following their most recent termination, United reached out to Team Health and we have begun negotiations,” Team Health said.

The hospital company said that, so far in 2019, it has successfully resolved eight lawsuits and has filed another 13 lawsuits.

“As United continues to arbitrarily terminate contracts, we expect to file more lawsuits for unfair payment practices and unjust enrichment – and despite United’s urgings we will not surprise bill patients to make up the difference,” Team Health said.

While Moody’s said it believes that Team Health and United will eventually reconcile, “modified contracts are likely to come with lower reimbursement rates for Team Health, which will reduce profitability.”

“Further, a drawn-out negotiation process may lead to disruption to hospital customers and contract losses,” Moody’s said.

“While there is a range of potential outcomes for Team Health, the company’s very high leverage raises the risk that even a modest reduction in profitability will significantly raise debt/EBITDA,” Moody’s said.

TeamHealth’s pro forma debt to EBITDA was estimated by Moody’s at approximately 8.2 times on June 30.

Moody’s noted that the B3 rating is supported by Team Health’s ability to generate positive cash flow of more than $100 million a year, and that the company’s liquidity remains solid.

“The company has a sizable cash balance ($299.4 million as of 6/30/2019), near full availability of its $400 million revolver and no near-term debt maturities,” Moody’s said.

“The company has also shown early signs of progress in executing its business turnaround. This affords the company some flexibility to absorb a modest negative development with respect to contract negotiations with UnitedHealth,” Moody’s said.

Even with that, Moody’s said, the reduced payments from UnitedHealth and potentially other insurers will create a “meaningful decline in free cash flow (that) will likely lead to a rating downgrade.”

“Reduced free cash flow would not only limit the company’s ability to repay debt, but also its ability to execute its tuck-in acquisition strategy,” Moody’s said.

“As United continues to arbitrarily terminate contracts, we expect to file more lawsuits for unfair payment practices and unjust enrichment – and despite United’s urgings we will not surprise bill patients to make up the difference.”

 

 

 

Trump admin opens door to fundamental changes in healthcare benefits

https://www.healthcaredive.com/news/trump-admin-opens-door-to-fundamental-changes-in-healthcare-benefits/556927/

The Trump administration has opened the door to altering how healthcare benefits are provided to millions of American employees. A new rule, set to go into effect next year, will allow employers to provide workers with funds to shop for coverage on their own, an option that could dramatically upend employer-sponsored coverage.

Instead of working with an insurer and allowing employees to pick from a few insurance options, employers will be able to funnel money into a standalone tax-exempt HRA (health reimbursement account) and employees could use those funds to shop for coverage on their own, either on the Affordable Care Act marketplaces or off.

“Long term, this added flexibility may reshape a significant number of employer coverage offerings and result in sizable shifts from employer to individual coverage,” Chad Brooker, an associate principal at Avalere who consults on healthcare reform and the impacts on business strategy, said in a statement.

White House officials said the change provides more flexibility to employers and gives workers greater choice when choosing coverage. The White House expects 800,000 employers to choose this defined benefit contribution option, which is expected to affect 11 million employees and their families.

The American Benefits Council cheered the move.

“We commend the Administration for taking what we believe is an important step toward greater flexibility in health care coverage,” the employer group’s president, James Klein, said in a statement.

But others voiced their concerns about potential costs and access issues.

Paul Fronstin of the Washington, D.C.-based Employee Benefit Research Institute said it may be overwhelming for some employees used to relying on their employers to do the bulk of the shopping for them or going to bat for them when an issue with the insurance carrier arises.

“Some people are going to like that and some people are going to hate it,” Fronstin told Healthcare Dive.

Positives of the idea are that it could lessen job lock, when an employee is somewhat stuck in a job because they don’t want to, or can’t afford to lose benefits, including health insurance.

With the unemployment rate near a historic low, Fronstin doesn’t expect large employers to switch immediately. However, when the next recession hits, “I think the future of health benefits gets put to the test,” he said.

But others say the idea that it solves job lock is overplayed.

The options on the ACA exchange, particularly in St. Louis, may come as a shock to employees who are used to robust networks, Kevin Guss, vice president of private client benefit services for St. Louis-based benefits consulting firm J.W. Terrill, told Healthcare Dive.

There are few providers selling individuals plans, out-of-pocket maximums are far higher and many have very limited networks with little out-of-network availability, he said.

“You can save money if you pursue this path, but buyer beware,” Guss said.