Rating agencies split on Fairview’s outlook

Sept. 12--Moody's Investors Service has revised to negative its outlook for Fairview Health Services, saying the Minneapolis-based nonprofit is facing greater expense for its affiliation with the University of Minnesota and financial headwinds from its merger last year with HealthEast.

But the revision by Moody's late last week came as S&P Global issued a report saying the outlook at Fairview is stable, with analysts forecasting better financial performance as the health system achieves "synergies" with HealthEast.

Fairview officials said in a statement the split decision "matches the different outlooks that rating agencies have on the nonprofit health care marketplace in general."

Meanwhile, S&P Global on Tuesday lowered the rating on debt at Duluth-based Essentia Health due in part to the health system's plan to invest about $675 million on a replacement hospital in Duluth.

Traci Morris, the chief financial officer at Essentia Health, said in a statement: "This was anticipated given the significant size of the Vision Northland project. It will have no impact on the financing, planning and completion of the medical campus."

With more than $5 billion in revenue last year, Fairview Health Services is one of the state's largest health systems. The nonprofit runs 11 hospitals, including the University of Minnesota Medical Center in Minneapolis, plus more than 100 clinics, more than 40 pharmacies, several long-term care facilities and a health insurer called PreferredOne.

Nonprofit health systems, in general, are under financial stress due to rising labor costs and the need to invest in technology, Moody's said in a report in the spring. In addition, nonprofit health systems are struggling on the revenue side as more patients have coverage through government insurance programs that typically pay less than health plans for commercial customers.

In a report released Monday, Moody's said that a proposed new affiliation agreement with the University of Minnesota and a related physicians group "will help distinguish Fairview as an essential provider in the competitive Twin Cities metro area."

But it comes with a cost, Moody's noted. The proposal calls for an increase in Fairview support for the medical school and research, from $22 million this year to at least $35 million by 2022.

Fairview said the merger with HealthEast is "on track and generating the expected outcomes."

Moody's also said the expansion in Minnesota's health insurance market of for-profit health insurers Aetna and UnitedHealthcare will create a challenge for the health system.

But Fairview said: "We do not expect a short-term impact."

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