No matter what the outcome of healthcare reform, Standard & Poor's Corp. predicts burgeoning interest in credit ratings for HMOs.
"HMO credit ratings will play an important role in facilitating the financing of change for U.S. healthcare," the New York-based credit-rating agency said.
Standard & Poor's expects ratings to be used in issuing securities to fund managed-care organizations' expansions and acquisitions. In the future, ratings also may be used in nontraditional ways, the agency said. For example, a rating may be used for marketing purposes to demonstrate financial strength.
In an article appearing in Standard & Poor's CreditWeek, the agency indicated that a number of unrated HMOs are interested in a rating or a credit assessment. An actual rating or rating indication would help an HMO evaluate financing options, the agency said.
In the past two years, Standard & Poor's said it has rated some $750 million in securities for three for-profit HMOs-
FHP International, Foundation Health Corp. and United HealthCare Corp.
Since 1991, it has rated a similar amount of debt for five not-for-profit HMOs. They are Group Health Cooperative of Puget Sound, Harvard Community Health Plan, Health Partners/Group Health Plan, Health Insurance Plan of Greater New York and Kaiser Permanente.
The ratings assigned to the seven HMOs range from AA to BBB-. Because of the HMOs' unique operating characteristics and management goals, Standard & Poor's said it has no specific criteria that HMOs must meet to achieve a particular rating.
But the firm does take a special interest in certain financial indicators, including the ratio of funds from operations to capital spending, the ratio of funds from operations to debt, debt service coverage, the ratio of cash and liquid investments to medical claims and long-term debt, and days of cash on hand.