Healthcare Business News

Henry Ford Health System faces credit rating downgrade

By Beth Kutscher
Posted: May 9, 2014 - 6:15 pm ET

Henry Ford Health System is being reviewed for a credit rating downgrade because of a drop in its financial performance and a pending merger that's heating up competition in the Detroit market.

The five hospital system generated lower cash flow in its 2013 fiscal year while modestly increasing its borrowing—leading to lower debt coverage, Moody's Investors Service said in a release Friday.

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In addition, competition is likely to increase in southeast Michigan after three systems there revealed plans in March to combine forces and create a $3.8 billion organization under a single umbrella and balance sheet.

The deal would bring together the eight hospitals of Beaumont Health System in Royal Oak, Botsford Health Care in Farmington Hills and Oakwood Healthcare in Dearborn. Beaumont and Henry Ford last year held their own merger talks, but were unable to reach a deal after six months of discussions.

The latest three-way merger proposal comes as the local economy continues to struggle and overall admissions are declining, Moody's said.

In its fiscal 2013, ended Dec. 31, Henry Ford admitted 5% fewer patients (PDF) than it did in 2012 while outpatient visits increased less than 1%.

The system reported a surplus of $480,000 (PDF) on revenue of $4.5 billion, down from its $34.4 million surplus also on $4.5 billion in revenue during fiscal 2012.

Revenue coming from self-pay patients increased 4 percentage points to 19%, while uncompensated-care costs increased 34.7%, according to an annual report filed for bondholders April 30.

Expenses also increased year over year, particularly salaries and benefits, healthcare provider expenses and supplies.

The system did not respond to a request for comment.

Henry Ford's A2 rating could be downgraded if its operating performance continues to decline, Moody's said.

Follow Beth Kutscher on Twitter: @MHbkutscher

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