Citing "impediments" to California-based Kaiser Foundation Health Plan's ability to change in response to industry consolidation, Moody's Investors Service downgraded the ratings on Kaiser's unsecured senior debt.
The move comes a week after Well-Managed care
Point Health Networks and Health Systems International announced a $4.8 billion merger that will create the largest for-profit HMO, second in size only to not-for-profit Kaiser, which has 6.7 million enrollees (See related story, p. 2). Woodland Hills, Calif.-based WellPoint and HSI executives said the merger creates a platform for national expansion.
Moody's downgraded Kaiser's debt to Aa3 from Aa2, "prompted by Kaiser's flat membership growth in its core California markets and by the expectation that Kaiser will face greater challenges to maintaining its market share as a result of industry consolidation."
Kaiser's operations outside California are "lackluster" and the company will need to pour substantial capital into them to spur growth, Moody's said.
"Kaiser must build consensus among its Permanente Medical Group and Foundation Hospital organization. Kaiser's large base of operations, regionalized organization structure and the culture of having a social mission" may prove impediments to rapid change, Moody's said.
Dorothy Lee, vice president and senior analyst at Moody's, said that "getting everyone on board to pay attention" to the need for improved efficiencies takes longer at a not-for-profit company. And unfortunately, she said, "the buyers of healthcare are not as concerned with....overall social mission."
Kaiser also has to develop new product lines, she said.