BOSTON (AP) — Harvard Pilgrim got initial approval last week for a $147 million bond deal to help the region’s largest nonprofit HMO improve its troubled finances. The Massachusetts Health & Educational Facilities Authority, an independent state agency, voted 6-0 to authorize the bonds. Three members abstained.
Harvard Pilgrim President and CEO Charles Baker said the bond deal is critical to the company’s effort to get out of the red. Harvard Pilgrim had $54 million in losses last year and was expected to lose $100 million this year.
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“It’s very important to us that we provide a certain amount of confidence to our members and to our providers that we’re doing everything we can to get maximum value out of our balance sheet,” Baker said.
Under the plan, Harvard Pilgrim would sell eight of its properties to a subsidiary of HEFA, and lease back the space. The subsidiary, Civic Investments Inc., would issue tax-exempt bonds to investors to cover the cost of the purchase.
Baker stressed that no taxpayer money was at stake in the deal. The company, however, saves on taxes by selling the bonds through a tax-exempt entity.
Baker, formerly secretary of Administration and Finance for Gov. Paul Cellucci, said the bond deal will improve the company’s balance sheet by $60 million.
Meanwhile, operations at the facilities, occupied by Harvard Vanguard, an affiliate of Harvard Pilgrim, would continue as usual.
Cellucci said he planned on signing off on the deal, which he said was critical to protecting the 1.1 million Bay Staters covered by Harvard Pilgrim.
The transactions are expected to be completed by year’s end.
News of the deal, however, has generated some controversy here and in Rhode Island, where the HMO recently announced it would pull out.
Sen. Guy Glodis, D-Worcester, said public examination and oversight of the “hastily proposed backroom deal” was essential.
“What prohibits Harvard Pilgrim from abandoning Massachusetts in the same way it has abandoned Rhode Island?”
News of the state-assisted help in Massachusetts prompted Rhode Island Secretary of State James R. Langevin to call for the Harvard Pilgrim Health Care deal to contain some protections for Rhode Island.
Harvard Pilgrim recently cut ties with its Rhode Island affiliate, which is now in receivership.
Harvard Pilgrim officials said they are expecting that cutting their ties with R.I. will help them stem losses.
About 10 percent of its membership was in Rhode Island, but it accounted for nearly 40 percent of the company’s operating losses, according to Baker.
