CHICAGO -- Moody's Investors Service has downgraded the Detroit-area provider Henry Ford Health System one notch to A3, citing deteriorating operating performance and struggles tied to implementation of a new electronic medical records system.
Moody's warned in May it may downgrade the system, putting its A2 rating on review for possible downgrade.
The outlook remains negative.
"The rating downgrade to A3 from A2 is attributable to a marked downturn in operating performance in fiscal year 2013 with continued operating losses in the first quarter of fiscal year 2014 due largely to the system-wide implementation of the Epic electronic medical record system," the ratings firm said in a press release.
The system paid for the new record system with a $75 million bank loan that increased overall annual debt service and reduced debt coverage below historical levels, analysts said.
"The negative outlook is attributable to near-term challenges to improve fundamental operating and balance sheet weaknesses, including growth in operating cash flow and liquidity, given the highly competitive market and sluggish economy," Moody's said.
Analysts said they may downgrade Henry Ford again if it does not improve its operating performance or liquidity in 2014.
On the bright side, analysts consider the system to be well integrated with a national reputation, a strong management team, modest debt load, and a history of successful fund-raising efforts.
Henry Ford has $831 million of outstanding debt, issued by the Michigan State Hospital Finance Authority.
The system has four acute-care hospitals among other facilities and a large medical group and health insurance business.
