Moody's Ratings has put Grand Blanc, Michigan-based McLaren Health Care Corporation's A1 revenue bond ratings under review for downgrade after Indiana's Family and Social Services Administration ended its Medicaid contract with McLaren's MDwise health plan.
Moody's also affirmed McLaren's P-1 commercial paper rating as part of the rating action on Friday.
"Our review will assess the financial implications of the contract termination on McLaren's overall business operations," Moody's said in the rating report. "This includes evaluating the potential revenue loss and cost adjustments required in the absence of the MDwise contract as well as any negative liquidity implications. We will also examine McLaren's strategic plans to mitigate these impacts."
"MDwise accounts for over 50% of the membership lives in McLaren's insurance business," said Moody's, warning that "disruptions to that business could have substantial impacts on McLaren's consolidated financial performance and operational stability."
"MDwise consistently was our highest cost and lowest quality (managed care entity)," FSSA Deputy Chief of Staff Marcus J. Barlow said by email.
He said there are no plans to replace the MDwise contract with a different contract. Under federal rules, Indiana must have at least three plans available. The agency has contracts with Anthem, CareSource and Managed Health Services.
"We believe the impact (of this decision) will be higher quality care for the Hoosiers currently being served by MDwise," Barlow said.
McLaren had $1.67 billion of debt outstanding as of Sept. 30, 2024, which includes 10 series of bonds issued through the Michigan Finance Authority from 2010 to 2022, according to the nonprofit health system's most recent
The Series 2018A taxable bonds, with a balloon payment of $300,000 in 2048 and a 4.38% interest rate, were issued to fund the acquisition of MDwise. Another series of taxable bonds issued in 2020 has a balloon payment of $100,000 and 4.38% interest.
In
FSSA will cut off the Medicaid contract on Dec. 31. A recording at the MDwise contact number said Hoosiers have until Dec. 15 to choose from the three other providers that have contracts with FSSA, after which point if they do not choose, they will be assigned to a different plan by the agency.
The termination of the three-year contract, inked in 2023, has sparked a lawsuit from MDwise, the
MDwise did not respond to a request for comment by press time.
A Moody's spokesperson did not respond to requests for comment, nor did the lead analyst on the McLaren credit.
