Moody's Investors Service announced it has downgraded the outlook on Highmark's financial ratings due to news that the Pittsburgh-based health insurer fired former president and CEO Kenneth Melani, MD.
Previously, Dr. Melani had been put on unpaid administrative leave after he was charged with assault and trespassing. According to a police affidavit, Dr. Melani had a physical altercation with a man reportedly described as the husband of a woman with whom Dr. Melani was having an affair.
The Highmark board of directors announced it has since terminated Dr. Melani as president and CEO. J. Robert Baum, PhD, will serve as acting CEO effective immediately. In a statement, Dr. Baum said "the board has reviewed this situation thoroughly and has taken decisive action to address the matter. For 75 years, Highmark has served this community with integrity and is committed to maintaining the highest standards."
Moody's changed the outlook on Highmark's Baa1 insurance financial strength rating and Baa2 senior unsecured debt rating to negative from stable following the events. Moody's analysts said the change in outlook, which is not an overall downgrade, reflects "the additional uncertainty caused by the absence of Dr. Melani while Highmark is in the midst of three major issues currently facing the company." Those issues are the resolution of its contract with the University of Pittsburgh Medical Center, the acquisition of West Penn Allegheny Health System and the investment required to turn WPAHS around if the acquisition receives regulatory approval.
Moody's indicated Highmark's credit ratings could be fully downgraded if any of the following events occurs: an unsuccessful renegotiation with UPMC; a significant after-tax loss; an annual membership loss exceeding 5 percent; an increase in adjusted financial leverage to 40 percent; or a spike in Medicare and Medicaid revenue to 25 percent of total earnings.
Previously, Dr. Melani had been put on unpaid administrative leave after he was charged with assault and trespassing. According to a police affidavit, Dr. Melani had a physical altercation with a man reportedly described as the husband of a woman with whom Dr. Melani was having an affair.
The Highmark board of directors announced it has since terminated Dr. Melani as president and CEO. J. Robert Baum, PhD, will serve as acting CEO effective immediately. In a statement, Dr. Baum said "the board has reviewed this situation thoroughly and has taken decisive action to address the matter. For 75 years, Highmark has served this community with integrity and is committed to maintaining the highest standards."
Moody's changed the outlook on Highmark's Baa1 insurance financial strength rating and Baa2 senior unsecured debt rating to negative from stable following the events. Moody's analysts said the change in outlook, which is not an overall downgrade, reflects "the additional uncertainty caused by the absence of Dr. Melani while Highmark is in the midst of three major issues currently facing the company." Those issues are the resolution of its contract with the University of Pittsburgh Medical Center, the acquisition of West Penn Allegheny Health System and the investment required to turn WPAHS around if the acquisition receives regulatory approval.
Moody's indicated Highmark's credit ratings could be fully downgraded if any of the following events occurs: an unsuccessful renegotiation with UPMC; a significant after-tax loss; an annual membership loss exceeding 5 percent; an increase in adjusted financial leverage to 40 percent; or a spike in Medicare and Medicaid revenue to 25 percent of total earnings.
More Articles on Highmark:
Highmark CEO on Unpaid Leave; Faces Charges of Assault, Trespassing
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