The U.S. healthcare sector has solid liquidity strength, and ongoing credit market volatility will not affect these issuers over the near term, according to a Fitch Ratings review. Fitch estimates that for issuers rated in the 'BBB+' to 'B-' range, total long-term maturities through 2009 are in total approximately $7 billion, while LTM free cash flow for the operators through second-quarter 2007 was approximately $5 billion. Likewise, outstanding cash on the balance sheet as of QII/07 was nearly $15 billion and credit facility availability was nearly $17 billion.
Healthcare companies have been frequent participants in the financial markets in the past several years and, as a result, their aggregate maturity schedule is very favorable over the next few years. "While Fitch believes that liquidity is sufficient for the sector over the next couple years, it should be noted that good liquidity is a requirement for the sector in order to provide financial flexibility to pursue strategic acquisitions or licensing arrangements, or to manage external stresses such as legal challenges and settlements associated with product liability or other material events," Fitch said in a release. "There are inherent event risks associated with the healthcare industry that require increased financial flexibility to ensure a stable credit profile," said Michael Weaver, managing director, Fitch Ratings.
According to Fitch, the for-profit hospital industry does represent a subsector of healthcare with greater liquidity concerns due to a challenging operating environment. This stems from rising levels of bad debt expense and uncompensated care. The sector has also accumulated much higher levels of debt, primarily from several significant leveraged transactions over the past year.
This report is part of the larger global liquidity review initiated by Fitch in May 2007 of its rated issuers across corporate finance as a number of liquidity-based sensitivities in the market continue to influence both issuer and investor decisions.
The full report 'Overall U.S. Health Care Liquidity Strong, but Hospital Operators Weaker' can be found on the Fitch Ratings web site at www.fitchratings.com. Specific liquidity analysis is provided for the pharmaceutical, medical device and for-profit hospital sectors of the healthcare industry.
Tuesday, October 9, 2007
S&P: Companies Adopt Aggressive Financial Policies, Harming Credit Quality
The universe of industrial companies that Standard & Poor's rates have displayed a steady decline in average credit quality over the past decade, according to a report published by Standard & Poor's Ratings Services. The median credit rating for U.S. nonfinancial corporations is now 'BB-', compared with 'BBB-' in 1997 and 'A' in 1980.
"Several factors have fueled this trend: an influx of mostly speculative-grade first-time issuers, the LBOs of some companies, and a move toward more aggressive financial policy," says the report, titled "Corporate Financial Policies Evolve Toward The More Aggressive." (The article is part of an ongoing series of reports called "The Leveraging of America.")
The credit squeeze that suddenly overtook the debt markets in July 2007 has highlighted the risks of relying on ready access to low-cost liquidity as a given. Still, it didn't take long after the last credit market problems in 1997-1998 and the economic downturn of 2000-2002 for companies to return to higher risk financial strategies. Those strategies have contributed to the changing mix of ratings on industrial companies -- only 30% of which are now investment grade.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at http://www.ratingsdirect.com/.
Standard & Poor's, a division of The McGraw-Hill Companies, is a provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data.
"Several factors have fueled this trend: an influx of mostly speculative-grade first-time issuers, the LBOs of some companies, and a move toward more aggressive financial policy," says the report, titled "Corporate Financial Policies Evolve Toward The More Aggressive." (The article is part of an ongoing series of reports called "The Leveraging of America.")
The credit squeeze that suddenly overtook the debt markets in July 2007 has highlighted the risks of relying on ready access to low-cost liquidity as a given. Still, it didn't take long after the last credit market problems in 1997-1998 and the economic downturn of 2000-2002 for companies to return to higher risk financial strategies. Those strategies have contributed to the changing mix of ratings on industrial companies -- only 30% of which are now investment grade.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at http://www.ratingsdirect.com/.
Standard & Poor's, a division of The McGraw-Hill Companies, is a provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data.
Friday, October 5, 2007
CMS - SEVEN MEDICARE PFFS PLANS ARE APPROVED FOLLOWING RIGOROUS MARKETING REVIEW
The Centers for Medicare & Medicaid Services (CMS) announced today that, after being found compliant with Medicare requirements through a comprehensive marketing review, seven health plan sponsors may resume marketing their Private-Fee-For-Service (PFFS) plans. The approvals allow the sponsors, as well as all other Medicare Advantage organizations, to market to newly eligible Medicare beneficiaries through October 1, 2007. The plans may also market to those beneficiaries with special enrollment periods.
The United Health Group, Blue Cross Blue Shield of Tennessee, Humana Inc., and Sterling Life Insurance Co. represent four of the seven sponsors that voluntarily suspended marketing PFFS plans earlier this year that are now approved. CMS completed a similar review of and approved PFFS-plan marketing by the three other sponsors, Coventry Health Care Inc., Universal American Financial Corp., and WellCare Health Plans Inc., in August.
“Overseeing the marketing activities of Medicare Advantage plans to ensure beneficiaries have access to the health care services they need, and are not discriminated against in any way is one of my top priorities,” said CMS Acting Administrator Kerry Weems. “CMS conducted a comprehensive review of these seven sponsors and found vast improvements to their internal controls and oversight processes consistent with regulations and guidance for Medicare private-fee-for-service plans. But we’re not stopping there. Medicare’s procedures to continuously monitor all plans marketing, including the activities of their agents and brokers, are now in place.”
Any plan that is found to be in violation of CMS requirements can be subject to a full range of available penalties, which can include suspension of marketing and/or enrollment, suspension of payment for new enrollees, civil-monetary penalties, and termination from the Medicare program.
The suspensions of the plan sponsors’ PFFS market activities were lifted only after CMS verified that each organization had the systems and management controls in place to meet all of the conditions specified in the 2008 Call Letter and the May 25, 2007 guidance issued by CMS. When marketing begins for the 2008 benefit year on October 1, 2007, all PFFS plans will be subject to the same standards, which include the following:
All brokers and agents selling the product must pass a written exam to demonstrate an understanding of Medicare PFFS policies and the products being marketed; Plans must telephone beneficiaries requesting enrollment in a PFFS plan to confirm that they understand the terms and conditions of the plan; A provider outreach and education program must be in place to ensure that providers are aware of PFFS plans and their payment provisions and are encouraged by the plans to provide services to PFFS enrollees; Plans must include specific disclaimer language in key enrollee materials to ensure beneficiaries understand the unique aspects of PFFS; Lists of planned marketing and sales events sponsored by the plan’s brokers and agents must be provided to CMS so that CMS can monitor these events.
“Sponsors selling private-fee-for-service plan products will be actively monitored through 1-800-Medicare, our Regional Office casework system and improved oversight systems,” added Weems. “In addition, we have forged new partnerships with State Insurance Commissioners and others to give us an even larger surveillance net to help monitor this program.”
CMS has more than a dozen new oversight activities underway. Some of these activities include:
Creation of a dedicated monitoring team and a comprehensive rapid response plan; Enrollment verifications of new PFFS plan enrollees by CMS to ensure the enrollees were not subject to inappropriate marketing activities and understand the characteristics of a PFFS plan; Increased “secret shopping” at PFFS marketing events; Random audits of PFFS agent training and test files; Thorough reviews of PFFS enrollment packages to verify all required disclaimers are included; Coordination with state insurance departments to share information about agent and broker complaints and license suspensions.
CMS has also developed an outreach plan to educate beneficiaries, advocacy organizations, and other interested parties about the marketing guidelines. “The best practice is prevention. We believe the new requirements and compliance plans build a system that is designed to prevent marketing violations,” Weems concluded.
For additional information on Private-Fee-For-Service (PFFS) click on the zip downloads issued on May 25, 2007 for more information http://www.cms.hhs.gov/PrivateFeeforServicePlans/Downloads/PFFS_Files2.zip
The United Health Group, Blue Cross Blue Shield of Tennessee, Humana Inc., and Sterling Life Insurance Co. represent four of the seven sponsors that voluntarily suspended marketing PFFS plans earlier this year that are now approved. CMS completed a similar review of and approved PFFS-plan marketing by the three other sponsors, Coventry Health Care Inc., Universal American Financial Corp., and WellCare Health Plans Inc., in August.
“Overseeing the marketing activities of Medicare Advantage plans to ensure beneficiaries have access to the health care services they need, and are not discriminated against in any way is one of my top priorities,” said CMS Acting Administrator Kerry Weems. “CMS conducted a comprehensive review of these seven sponsors and found vast improvements to their internal controls and oversight processes consistent with regulations and guidance for Medicare private-fee-for-service plans. But we’re not stopping there. Medicare’s procedures to continuously monitor all plans marketing, including the activities of their agents and brokers, are now in place.”
Any plan that is found to be in violation of CMS requirements can be subject to a full range of available penalties, which can include suspension of marketing and/or enrollment, suspension of payment for new enrollees, civil-monetary penalties, and termination from the Medicare program.
The suspensions of the plan sponsors’ PFFS market activities were lifted only after CMS verified that each organization had the systems and management controls in place to meet all of the conditions specified in the 2008 Call Letter and the May 25, 2007 guidance issued by CMS. When marketing begins for the 2008 benefit year on October 1, 2007, all PFFS plans will be subject to the same standards, which include the following:
All brokers and agents selling the product must pass a written exam to demonstrate an understanding of Medicare PFFS policies and the products being marketed; Plans must telephone beneficiaries requesting enrollment in a PFFS plan to confirm that they understand the terms and conditions of the plan; A provider outreach and education program must be in place to ensure that providers are aware of PFFS plans and their payment provisions and are encouraged by the plans to provide services to PFFS enrollees; Plans must include specific disclaimer language in key enrollee materials to ensure beneficiaries understand the unique aspects of PFFS; Lists of planned marketing and sales events sponsored by the plan’s brokers and agents must be provided to CMS so that CMS can monitor these events.
“Sponsors selling private-fee-for-service plan products will be actively monitored through 1-800-Medicare, our Regional Office casework system and improved oversight systems,” added Weems. “In addition, we have forged new partnerships with State Insurance Commissioners and others to give us an even larger surveillance net to help monitor this program.”
CMS has more than a dozen new oversight activities underway. Some of these activities include:
Creation of a dedicated monitoring team and a comprehensive rapid response plan; Enrollment verifications of new PFFS plan enrollees by CMS to ensure the enrollees were not subject to inappropriate marketing activities and understand the characteristics of a PFFS plan; Increased “secret shopping” at PFFS marketing events; Random audits of PFFS agent training and test files; Thorough reviews of PFFS enrollment packages to verify all required disclaimers are included; Coordination with state insurance departments to share information about agent and broker complaints and license suspensions.
CMS has also developed an outreach plan to educate beneficiaries, advocacy organizations, and other interested parties about the marketing guidelines. “The best practice is prevention. We believe the new requirements and compliance plans build a system that is designed to prevent marketing violations,” Weems concluded.
For additional information on Private-Fee-For-Service (PFFS) click on the zip downloads issued on May 25, 2007 for more information http://www.cms.hhs.gov/PrivateFeeforServicePlans/Downloads/PFFS_Files2.zip
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