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Union Links Resurrection Rating Downgrades to Poor Management

Moody's, Standard and Poor's and Fitch Ratings all take action; outlook negative

CHICAGO, May 30 /PRNewswire-USNewswire/ -- On May 27 and May 28, two major bond rating agencies, Fitch Ratings and Standard and Poor's, respectively, downgraded the debt of Resurrection Health Care citing declining patient census, consistently poor operating performance and management/governance shortcomings.

Fitch Ratings downgraded from 'A' to 'A-' the ratings on Resurrection Health Care's $643.5 million of outstanding bonds and reaffirmed its negative outlook for the company. Fitch cited the weak management/governance practices of the company as a factor in the downgrading.

"Resurrection Health Care's continued decline in the bond market is indicative of a managerial failure to develop a positive vision and program for the system's future," said Henry Bayer, executive director of the American Federation of State, County and Municipal Employees (AFSCME) Council 31. AFSCME is working with Resurrection employees who are seeking to form a union.

"One of the most glaring examples of Resurrection's insular management style is its uncompromising refusal to engage in any form of dialogue with its employees who are seeking a greater voice in the decisions affecting their working lives," Bayer said.

Standard and Poor's said its downgrade "reflects continued sizeable operating losses at Westlake and West Suburban hospitals, which began in 2007, and overall system volume declines -- both of which have resulted in significant system losses, including excess losses, that are much greater than budget through the first nine months of interim 2008."

On April 1, 2008 Moody's Investors Service placed Resurrection on its Watchlist for possible downgrade. Moody's stated that RHC "is reporting declining utilization measures across inpatient and outpatient services at each of its acute care facilities."

Fitch Ratings also cited the decline of inpatient admissions and outpatient visits as a factor in its decision.

Bayer said that declining quality of care is harming utilization at Resurrection hospitals. "Over the past five years public health authorities have cited over 780 deficiencies at Resurrection hospitals," he pointed out. "And eight of the system's hospitals were placed on monitoring by the state for failing to meet the minimum standards for participation in the Medicare program. Time and again, Resurrection has refused to heed employees who seek to improve the quality of care."

"If Resurrection wants to improve utilization it must focus on ensuring the best possible care by involving employees in improving quality," Bayer added.

The recent downgrades followed an earlier downgrade by Moody's in April 2007 in which Moody's cited RHC's refusal to resolve disputes with its employees over unionization as an issue "which continues to distract [RHC] management's attention and consume financial resources."

Moody's cited ending the labor dispute as a critical step toward improving the hospital chain's financial and operating performance.

"Improving employee morale by reducing labor tensions would certainly help to enhance Resurrection's prospects for greater fiscal health," Bayer said.

"The employees at these hospitals very much want Resurrection to be successful," Bayer continued, "but the company can't succeed without the input of its employees. Resurrection's employees need to have their voices heard and their services valued if management is to fulfill its mission."

Resurrection Health Care, with a network of eight hospitals, as well as long-term care facilities and outpatient clinics, is the second largest healthcare system and the largest Catholic-affiliated system in the greater Chicago area with 31% market share.

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