Fairview's credit outlook weakens on CEO exit, billing controversy

Fairview Health Services saw its credit rating from Moody's Investors Service drop one notch, and analysts said the outlook for the system is negative, in part because of the exit of its chief executive officer and turmoil over the health system's contracts with Accretive Health.

Moody's lowered Fairview's credit to an A3, a relatively strong rating, from A2. The Minneapolis-based system, which includes seven hospitals, saw its operating margin for 2011 (0.5%) squeezed by a new children's hospital and information technology installation, the rating agency said. Cash reserves declined last year. And its debt portfolio includes swaps that have strained finances across the sector since the credit crisis.

But analysts also included recent upheaval at Fairview, including the announced retirement of its CEO, as reason for lowering the system's outlook along with its rating. Moody's said the outlook for Fairview is now negative. It was stable. Without a permanent CEO, Fairview may stumble as it seeks to reach targets for quality and cost savings under its Medicare accountable-care contract, Moody's said.

Fairview announced in May it would not renew the contract for its CEO Mark Eustis, which expires in July. The news followed an inquiry by Minnesota's attorney general into work at Fairview by billing and collection contractor Accretive Health. Fairview cancelled its contract with Accretive, which has rejected findings by the attorney general that suggest the company violated emergency room access, privacy and consumer protection laws.

Media coverage of the Accretive investigation, though Fairview does not face an inquiry, “could pose reputational risks for Fairview and is reflected in our negative outlook,” Moody's said.

Ryan Davenport, a spokesman for Fairview, called the rating action disappointing but not unexpected in light of recent events and the system's financial challenges, including the flat economy and reimbursement challenges.

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