SAN FRANCISCO - A recent announcement from Virginia Mason Medical Center that one of its contracts will end in 2016 has potential credit risk, but does not currently impact the Seattle hospital's credit rating, according to Standard & Poor's.
VMMC announced that it expects to end its contract with Group Health Cooperative of Puget Sound, a non-profit health care system also based in Seattle, at the end of January 2016.
The announcement comes following the news that GHC and Swedish Medical Center, part of Providence Health & Services, plan to enter an agreement that would make Swedish Medical Center the preferred provider for inpatient hospital services for GHC's Seattle members.
This is a position that Virginia Mason Medical Center has held since 1993.
Standard & Poor's said the anticipated contract expiration presents added credit risk for VMMC, because the GHC business represents a sizable portion of VMMC's total revenues.
Around 34% of VMMC's inpatient admissions and 17% of net patient revenues are derived from GHC patients, according to the credit ratings agency.
"However, at this time, this potential risk does not impact our BBB ratings and stable outlooks on VMMC's rated debt because we believe management has sufficient time to develop strategies to generate new revenue sources or lower costs to mitigate the effects of this hurdle," analysts said in a report released Sept. 5.
VMMC is a major provider of primary care and specialty services in the greater Seattle area and the Puget Sound region of Washington state. Its presence also expands to other states in the Northwest through outreach clinics.
The system includes a 256-staffed-bed acute-care facility, seven regional clinics, a 35-bed skilled nursing facility, and an employed multispecialty physician group with more than 450 physicians.
"In our view, the rating could be pressured in the future, though, if, in our assessment, mitigating strategies do not offset the potential void from the contract expiration," Standard & Poor's said. "In our subsequent reviews, we expect to learn more about management's initiatives to address this issue."
