Moody's has downgraded its rating on Fairview Health Services' debt, forecasting weaker margins for the nonprofit amid higher labor costs and already reduced patient volumes at many of the health system's hospitals and clinics.
The change does not take into account Minneapolis-based Fairview's proposed merger with South Dakota-based Sanford Health, or a proposal by the University of Minnesota to reacquire its teaching hospital from Fairview, the rating agency said.
The trouble with labor expense and volume trends compound existing challenges with inflation and the regular transfer in funding from Fairview to the U, according to the Jan. 18 report from Moody's Investors Service.
Moody's evaluates the creditworthiness of borrowers, issuing reports that are used by potential lenders and investors.
"The downgrade ... reflects Moody's expectation that weak operating performance, which began prior to the pandemic but worsened in 2022, will be difficult to reverse," the report states.
In a statement, Fairview said the report "reflects the ongoing challenges we face and the urgency with which we must address them."
"Joining forces with Sanford is a proactive, bold change that will drive innovative solutions and ensure we can continue to provide care to Minnesotans well into the future," the health system said. "Together, we can strengthen our financial footing and improve the experience for both patients and providers in a way that neither Fairview nor Sanford can do alone."
When the merger was first announced, Fairview chief executive James Hereford pushed back in an interview against the idea that the combination was required to solve its financial problems. Through the first nine months of the year, Fairview reported an operating loss of $248.5 million.