Moody's Investors Service changed its outlook on Albert Einstein Healthcare Network to negative from stable on Oct 27.

It affirmed its Baa2 rating on the debt of the Philadelphia-based network.

The changed outlook affects $115 million in debt.

Moody's senior vice president Lisa Martin and vice president Beth Wexler said margins are weak with average operating cash flow under 6% for the last three fiscal years. The margins were significantly below budget for the last two fiscal years.

There have been multi-year admission declines at the main hospital, principally due to a shift to observation cases, an industry-wide tilt to outpatient treatment, and a severe winter in 2013-2014.

The system also suffers from what the analysts say is a high Moody's adjusted debt-to-cash-flow of 7.1 times and weak 2.2 times adjusted maximum annual debt service coverage, based on fiscal year 2014.

The system gets a high 32% share of its total system gross revenue from Medicaid.

For strengths, the analysts note that Einstein has a good reputation and the new Einstein Medical Center Montgomery is located in a growing service area with a favorable payer mix.

They also note that the network's investment allocation is conservative.

"We expect operating challenges will continue from volume declines, higher pension expense and the completion of an electronic medical record installation, which is being completed in the last physician company in fiscal year 2015," they said.

"The report noted several strengths including Einstein's substantial size and scope of services and the organization's continued efforts to diversify our footprint in growing and economically strong service areas," David Ertel, the network's chief financial officer, said in a statement. "Moody's report also revised Einstein's rating outlook to negative, noting weak operating margins and a decline in liquidity. Einstein will continue with its market and growth strategies, which were mentioned as strengths by Moody's. These efforts will enhance financial performance moving forward."

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