Moody's Investors Service has downgraded the debt of Fairview Health Services, citing its struggling financial performance, management turnover and risks associated with the Minnesota attorney general's investigation of the health system's bill-collection practices.

The downgrade Thursday affects a total of $836 million of outstanding bonds issued through the city of Minneapolis. Moody's downgraded the bond rating from A2 to A3, and the rating outlook was switched from negative to stable.

A downgrade will make it more expensive for the health system to borrow money. In fiscal 2011, Minneapolis-based Fairview reported $15.3 million in operating income on $6 billion in revenue.

In April, Attorney General Lori Swanson released a report detailing alleged high-pressure debt-collection practices used on patients by Fairview's Chicago-based consulting firm, Accretive Health. Moody's said the fallout from the controversy poses a "reputational risk" to Fairview.

On the positive side, the New York-based ratings agency said Fairview has a good market position "in an area of the country with favorable demographics" and the stabilization of operating performance through the first quarter of fiscal 2012.

Fairview spokesman Ryan Davenport said in a statement, "The report is disappointing but it's not unexpected, given the financial challenges we faced in 2011 and current events within the organization."

Davenport noted there are mitigating factors. Most of Fairview's debt is fixed-rate, which would not be affected by any interest rate increases. He also said Fairview had no plans to borrow in the bond market this year.

"Despite the downgrade, an A3 rating is still a good one for a health-care provider organization," he said.

Janet Moore • 612-673-7752