Fairview Health Services got hit with a downgrade from Moody’s Investors Service and a warning of further negative action due to fiscal 2011 operating losses and potential fallout from the state attorney general’s probe into its bill collection practices.

Moody’s lowered the rating to A3 from A2 and assigned a negative outlook on $836 million of debt. The system suffered a significant downturn in its financial performance in fiscal 2011.

The system also is struggling with unexpected senior management turnover and faces “potential reputational risks” following the negative headlines from Minnesota Attorney General Lori Swanson’s probe of Chicago-based Accretive Health.

Swanson’s accused the company of overly aggressive collection practices at Fairview facilities in an April report. The system contracted with Accretive for a two-year period.

Fairview said in a statement that the downgrade was disappointing but not unexpected given the system’s financial challenges in 2011 and current events within the organization.

The system’s cash balances declined to $857 million in fiscal 2011 from $893 million a year earlier and it reported just $15.3 million in operating income in fiscal 2011.

The weaker performance was due to funding the installation of a new information technology system and opening of the new children’s hospital.

The current chief executive officer’s contract expires next month and is not being renewed.

Factors in the system’s favor include a good market position, favorable demographics in its service area, and stabilization of operating performance through the first quarter of fiscal 2012. The system operates seven hospitals in Minnesota.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.