TeamHealth downgraded to 'CCC+' due to UnitedHealth contract dispute, low ED volumes

Fitch Ratings downgraded the issuer default rating on hospital staffing firm TeamHealth to "CCC+," due in part to a contract dispute with UnitedHealth and low emergency department patient volumes across the country. TeamHealth's prior rating was "B-."

The credit rating agency's actions affect about $4 billion in debt as of June 30. 

Fitch said the downgrade was made for several reasons, including that pandemic-related business disruption has weighed on TeamHealth's revenue and cash flow this year.

In particular, TeamHealth generates about 60 percent of its revenue from EDs, which saw a substantial drop in patient volumes this spring due to stay-at-home orders. In addition, TeamHealth's margins were pressured because it needed to maintain ED staffing levels despite these lower volumes.

Fitch said it expects these pandemic-related disruptions to affect TeamHeath's finances and operations through the remainder of 2020. 

The downgrade also reflects that a contract dispute with insurer UnitedHealth "will weigh on TeamHealth's financial cushion during 2020-2021," Fitch said.

UnitedHealth last year moved to end high-reimbursement in-network contracts with TeamHealth. The changes took effect between Oct. 15, 2019, and July 1, and affected contracts across 18 states. Earlier that year, UnitedHealth reduced TeamHealth's reimbursements for certain out-of-network claims by about 50 percent, prompting TeamHealth to sue UnitedHealth in eight states. 

"This will leave the company with less flexibility to absorb other negative industry developments," Fitch said.

Additionally, the downgrade reflects TeamHealth's persistently high financial leverage due to the pandemic's effects. 

Read the full news release here.

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