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November 19, 2013

UCMC faces threat of downgrade

The credit rating for the University of Chicago Medical Center (UCMC) is at risk of being downgraded by rating agency Moody’s Investors Service by the end of the fiscal year next June.

While the hospital currently maintains an Aa3 rating, the fourth-highest rating, the Medical Center’s financial standing has been flagged as at risk. The Aa3 grade denotes high quality and very low credit risk for long-term investments, while the level below, Aa1, indicates upper-medium grade and low credit risk.

UCMC weathered a 2.9 percent decrease in cash flow in the last fiscal year, according to Moody’s, and risks downgrade if operating margins do not improve in the coming months. In the case of a lowered credit rating, the Medical Center would have to pay higher interest rates on future loans.

The negative outlook on the Center’s $737 million debt stems largely from an increase in monetary transfers from the UCMC to the Biological Sciences Division, a trend that is expected to continue in the coming year. The UCMC considers the financial interdependence between the two institutions a part of its broader mission to fund research and teaching.

Moody’s is the only credit rating agency that considers such transfers as an operating expense, not an investment cost. Moody’s is also the only agency that is considering downgrading UCMC at the moment.

The launch of the UCMC’s Center for Care and Discovery, a $700 million institution that opened last February, has also added financial strain.  In a statement, the UCMC stated that lower operating and cash flow margins were expected in FY 2013 as a result of the new facility.

The UCMC added more debt than was originally expected with the proposed construction of a $75 million parking garage, according to a 2012 Moody’s report.

Last year the Center was also pressured by external factors, including Medicaid and Medicare cutbacks from state and federal governments. The budget sequestration—automatic federal spending cuts that came into effect in 2013—has also led to decreased reimbursements for the hospital.

The UCMC was unable to provide estimates of losses that resulted because of the cutbacks. But the Medical Center’s high number of patients on Medicaid, which represented 23 percent of gross revenues in FY 2011, has increased the impact of the shock.

“We have been gaining market share over the last couple of years, which is positive. We are doing better than some of our peers,” said UCMC spokesperson Michael Mchugh.

In June, Becker’s Hospital Review ranked the UCMC the 38th top-grossing hospital in the country, with revenues at $3.82 billion.

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