Standard & Poor's last week revised the rating outlook on Northwestern Memorial Hospital's AA-rated debt to negative from stable, saying that the hospital's "current sound market position and financial performance will be tested shortly due to increasing managed care penetration" in Chicago.

The outlook revision was issued in conjunction with a $148 million bond issue sold last week through the Illinois Health Facilities Authority. Part of the bond issue will be used to finance construction of a replacement hospital and new ambulatory care facility. Including the bond issue, the revision affects $280 million of debt rated AA.

Ken Rogers, a director at Standard & Poor's, said, "If it were not for the fact that [the hospital is] doing this project, which is tripling their debt and using a substantial portion of their resources, their outlook would have remained stable."

In revising Northwestern Memorial's outlook, Standard & Poor's said the hospital "could become at risk due to its reduced financial flexibility" and the "expenditure of a substantial portion of its own resources" for the construction project.

In addition, the rating agency noted that "the hospital's market position could be jeopardized by lack of substantial progress toward development of a fully integrated health care delivery network."

A spokesman for Northwestern Memorial said the hospital has anticipated changes in the health care environment in its financial projections.

"We are confident in our ability to adapt and change as needed," the spokesman said, noting that the hospital has a long history of responding well to changes in the health care industry.

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