Moody’s Hits Hospitals

Moody’s Investors Service has downgraded its rating on North Memorial Health Care and Maple Grove Hospital to Baa1 from A3 and warned of further action by assigning a negative outlook due to the system’s fiscal struggles in fiscal 2010 and uncertainty over whether improvements can be achieved in fiscal 2011.

The downgrade of North Memorial affects $52.8 million of debt.

“The downgrade is a result of the material erosion in financial performance for fiscal year 2010 and unexpected changes in senior leadership at NMHC,” analysts wrote. “The negative outlook is being maintained due to our uncertainty that NMHC will be able to return operations to profitability or break-even performance in fiscal year 2011.”

Maple Grove’s $143 million of debt was downgraded due to its ties to North Memorial. The hospital is a joint-venture between North Memorial, which has a 75% share, and Fairview Health System with a 25% share.

North Memorial suffered a third consecutive year of operating losses in fiscal 2010. The system unexpectedly lost its chief executive officer but the position has been filled with the long-term chairman of the system’s board, Moody’s said.

Inpatient admissions fell by 7.3% in fiscal 2009 and by another 10% in fiscal 2010. However, when admissions are counted from the Maple Grove facility, which opened in December 2009, the overall system saw an increase of 9.7%.

The system’s strengths include its leading and growing market share in its service area, the successful opening of the Maple Grove facility, and its broad clinical offerings. North Memorial had total operating revenues of $653.9 million in fiscal 2010.

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