Health Net Sues Rating Service for Libel Over Sub-Par Grade : HMOs: Weiss Ratings cited the Woodland Hills firm’s heavy indebtedness as the reason for issuing a ‘D’ mark.
Health Net has sued a Florida insurance rating service for libel and slander after it published a study that says the health maintenance organization was financially weak and gives it a report card-like grade of “D.”
Woodland Hills-based Health Net has asked a federal judge to block publication of the unfavorable rating by Weiss Ratings Inc., of Palm Gardens, Fla. The rating was published earlier this month in a report, titled “How Safe Are the Largest Health Maintenance Organizations?,” which ranked Health Net as the least financially sound of 13 similarly sized HMOs.
The lawsuit comes as a growing number of government and industry groups have begun compiling consumer “report cards” that attempt to measure the quality of health plans. The Weiss report, the first published by a professional rating service on the HMO industry, looks only at the financial health of insurers. But financial status is an issue that many consumer advocates say should be considered in helping to determine the quality of an HMO’s services and its reliability for providing those services.
A Health Net spokesman was sharply critical of the Weiss report, asserting that the rating service’s methodology was flawed. The HMO is “very, very sound financially,” said David Olson, director of investor relations for Health Systems International, the parent firm of Health Net.
Weiss spokesman Sue Ann Bailey said the company used the same financial yardsticks for Health Net as it did for the other HMOs, which received higher marks. “It’s their financial numbers that caused us to rate them low,” she said.
The Weiss report cites Health Net’s heavy indebtedness as one reason for its low rating. The HMO had 36 cents in long-term debt per dollar of assets, more than nine times the group average for the 13 HMOs. It also cites Health Net’s low net worth--$55.30 per member contrasted with an average of $199.01 for the HMO group.
Bailey stressed that the D grade doesn’t mean that Health Net is in any danger of financial failure. “It’s an indication of financial difficulties and that something needs to be done,” she said.
But Olson contended that Weiss’ methods are flawed and that the rating service used outdated financial information when it gave Health Net an initial grade of “D-.” When Health Net officials protested, Weiss raised it to a “D.”
Health Net, maintaining that even the revised rating was unfair, then sued the Florida firm last month in Los Angeles Superior Court. “Frankly, we think they took a cheap shot at us,” Olson said.
Olson concedes that Health Net’s long-term debt, in relation to the firm’s total assets, is fairly high for the HMO industry. But he notes that all of Health Net’s long-term debt, about $160 million, is owed to the charitable foundation that Health Net created when it converted from nonprofit to for-profit status in 1992.
The California Wellness Foundation owns 52% of Health Net’s stock and thus has a stake in the financial health of Health Net. “The way the debt is structured, it will never place an undue burden on our members,” Olson said.
Weiss also rated several other large California health insurers. CaliforniaCare, the HMO program for Blue Cross of California, received an “A” grade, and PacifiCare Health Systems was rated an “A-.” Blue Shield of California, FHP International and Kaiser Foundation Health Plan all received “B+” ratings. The 13 health plans rated by Weiss all had assets exceeding $250 million.
