Oxford Health Plans, which has become the poster child for struggling managed-care companies, is receiving mixed reviews as it attempts to implement its latest turnaround plan.
Moody's Investors Service, concerned that continuing weak operating performance could lead to a "significantly depleted cash position," changed its outlook on the Norwalk, Conn.-based health plan's bonds to "negative" on Sept. 23.
In doing so, Moody's cited Oxford's uncertain ability to improve performance in its "loss-plagued" Medicare business, retain the bulk of its 2 million-enrollee base, keep its contracting doctors happy while reducing their fees, and simultaneously augment its infrastructure and handle litigation.
Any further negative news in these areas could trigger a ratings downgrade, Moody's warned.
Patrick Finnegan, a Moody's senior vice president, called the report "a signal to investors" that a downgrade of Oxford's bonds and preferred stock-which already hold speculative ratings-could be coming.
But some Wall Street analysts are becoming more optimistic. Salomon Smith Barney's Geoffrey Harris upgraded his rating on Oxford from "neutral" to "outperform" after meeting with company officials late last month. Harris said the company recently made "significant headway" in its turnaround efforts.
That makes it less likely the company will need additional outside financing, he said, and more likely it will return to profitability by late next year-the target company officials set this summer.
"Their position is still somewhat precarious, but they're clearly taking steps in the right direction," said Rob Mains of Advest, a financial services firm.
In August, Oxford startled analysts by disclosing a $508 million second-quarter loss, including a $286 million writeoff for restructuring and turnaround costs, after it hemorrhaged $291 million last year. The company also announced that it would exit noncore Medicare, Medicaid and commercial markets, including Florida, Illinois and New Hampshire.
Oxford has no further news to report in those areas, according to a New York-based spokeswoman.
In June, Oxford stopped marketing and taking new enrollees in its Medicare HMO plans in Connecticut, New York, New Jersey and Pennsylvania-where it has a total of about 160,000 Medicare risk enrollees. The company is also leaving the Medicaid business in Connecticut and New Jersey.
In recent weeks, the company took large steps toward staunching its losses by entering Medicare HMO capitated contracts. It now has captitated contracts with Manhasset, N.Y.-based North Shore-Long Island Jewish Health System and Heritage New Jersey Medical Group.
Most of Oxford's enrollees live in greater New York, including Connecticut and New Jersey. Enrollment in commercial plans in that region has eroded only slightly so far, according to Moody's, but the credit-rating agency is concerned that there may be more erosion during this fall's open enrollment period.
Some observers believe the company is finally making progress in reversing the major operational and technological problems that caused it to lose mega-bucks last year.
Chief Executive Officer Norman Payson, M.D., helped fuel optimism among analysts and investors by deciding in August to buy an additional 2 million shares of Oxford's stock.