Hospital system's annual revenues could jump past $5B with purchase of nonprofit

Vanguard Health Systems Inc. has signed a letter of intent to buy nonprofit Detroit Medical Center (DMC) in a deal that could push the Nashville, Tenn.-based hospital chain's annual revenues past $5 billion, as well as moving Vanguard into a brand-new market. The DMC purchase would bring eight Michigan hospitals (1,734 licensed beds) into the Vanguard fold, which already includes 15 acute-care hospitals (4,135 licensed beds) in Arizona, Illinois, Massachusetts and Texas. DMC would also significantly boost Vanguard's revenue stream. The nonprofit reported 2008 revenue of $2 billion; Vanguard reported revenue of $3.2 billion in fiscal year 2009 ended June 30.

The DMC acquisition would complement Vanguard's stated strategy "to develop locally branded, comprehensive healthcare delivery networks in urban markets." However, the purchase of a regional nonprofit system by a for-profit company has already drawn fire for its potential to compromise access to charity care.

"Michigan has a strong foundation of 144 nonprofit hospitals that serve the interests of local communities and local people--particularly access to healthcare for the underinsured," says Daniel Loepp, president and CEO of Blue Cross Blue Shield of Michigan. "Ownership of the state's largest charitable care provider by a for-profit health system has the potential to permanently alter this safety net. We encourage careful consideration and review of this transaction by stakeholders and regulators."

Vanguard is trying to address such concerns head-on. According to the nonbinding letter of intent, Vanguard has made a 10-year commitment to keep all DMC hospitals open and to maintain the system's charity-care policy. Vanguard will establish a subsidiary, VHS Michigan, to own and operate DMS. VHS Michigan will create a regional advisory board with four Vanguard-appointed members and three DMC-appointed members to oversee the Michigan hospitals. However, the existing DMC board will continue to administer DMC's $140 million in charitable funds, and will have the legal right to enforce Vanguard's commitments.

Details, including the final purchase price, are still to be worked out, say Vanguard officials. However, the letter of intent specifies that Vanguard will spend approximately $417 million to retire all outstanding DMC bonds and other long-term indebtedness and assume all DMC liabilities. Vanguard also will make $850 million in capital investments in DMC over the next five years: $500 million toward a specific project list accepted by the DMC board, including emergency department and operating room upgrades, and $350 million for routine maintenance and capital and equipment needs.

Vanguard and DMC have until June 1 to complete a binding definitive agreement for the sale.

To learn more about Vanguard's plans:
- read the Nashville Business Journal article
- check out the Detroit Medical Center press release
- here's the Blue Cross Blue Shield statement