Moody's reevaluates Michigan hospitals, says economy to blame for downgrades.

CHICAGO - Moody's Investors Service reevaluated Michigan's hospital industry this month, prompted by increased downgrades of hospital revenue bonds throughout the state.

In its reevaluation, the rating agency notes the continued deterioration of Michigan hospitals' credit quality and the contrast between hospital ratings in the state and hospital ratings nationwide. Currently, 21% of Michigan hospital ratings are below investment grade, compared with the national percentage of 5%.

A weakening of the state's economy is a leading cause of the deterioration in Michigan, the Moody's report says, adding that the state is experiencing its worst financial downturn in a decade.

Moody's assigned five downgrades to hospitals in May and one upgrade in September 1990.

John Goetz, manager and vice president of health-care ratings at Moody's, said the first review of Michigan in May 1990 had resulted in three upgrades and five downgrades. He added that the rating agency aims to reevaluate hospitals on a state-by-state basis every two to three years.

"There had been a lot of rating activity in Michigan and a lot of interest in the state, so we were anxious to get the second cycle going," Mr. Goetz said.

Mr. Goetz said the recently announced restructuring of General Motors Corp., which is expected to eliminate 10,000 employees from Michigan plants, will add to the hospital industry's woes.

Moody's review also recaps the downgrades from May, including Lansing General Hospital and Port Huron Hospital downgrades to Baa from Baal. In addition, Hurley Medical Center was downgraded to Baal from A. Garden City Hospital was downgraded to Ba from Baa. Detroit Osteopathic Hospital Corporation was downgraded to Ba from Bal. Bay Medical Center was upgraded in September 1990 to Baal from Baa.

Over all, Moody's rates more than $1 billion of hospital debt in Michigan. Since the first hospital revenue bond review, $173 million of the debt has been downgraded.

Mr. Goetz said small rural and inner-city hospitals, with their acute financial problems, have been hardest hit.

Rural hospitals often have difficulty recruiting staff and are based in areas with weak agricultural economies, he explained. And inner-city hospitals have more patients without insurance or patients with Medicaid coverage, which pays less than commercial insurance, Mr. Goetz said.

He added that Detroit hospitals also are struggling with an oversupply of patient beds because of city residents' continued migration to the suburbs.

Tom Letavis, deputy executive director of the Michigan State Finance Authority, said many hospitals are doing well in spite of the gloomy outlook in the state.

"Several of our larger systems are performing very well. Smaller systems are struggling to compete with the larger system," Mr. Letavis said.

Mr. Goetz said that weakening economic conditions in Michigan, however, probably will lead to further deterioration in the state's hospital industry.

"We don't foresee anything on the horizon that will show a reversal of the trend. At best, there will be a stabilization," he said.

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