Standard & Poor’s revised its outlook to negative from stable on debt issued for Memorial Health System in South Bend.

The St. Joseph County Hospital Authority issued the debt. The rating remains AA-minus.

The negative outlook comes as Memorial faces increasing competition in northern Indiana and in light of the state’s plan to scale back its share of Medicaid funding.

“In our opinion, MHS overall financial profile is weaker than average at the current rating level; therefore, any negative changes to MHS financial profile will likely trigger downward rating action,” said analyst Antionette Maxwell.

“Although MHS has been proactive in preparing for a reduction in disproportionate share moneys, we expect that its profitability levels will be challenged — and possibly intensified — by the flat demographics, which could constrain overall growth,” she added.

The hospital has also faced problems tied to its debt. Last year its cash reserves declined due to investment losses and $43 million it had to spend to buy back debt issued in 2007.

But cash levels are beginning to improve, and as of July 31 cash and investments totaled 195 days cash on hand compared to 153 days cash on hand on Dec. 31, 2008.

Memorial’s management team has said it would cut costs in order to address the decline in Medicaid funding.

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