Privately held Vanguard Health plans to buy nonprofit, 8-hospital Detroit Medical Center

Vanguard Health plans to buy Mich. hospital system

DETROIT — Detroit Medical Center officials said Friday that plans for the nonprofit hospital system to be purchased by the privately held Vanguard Health Systems Inc. will allow it to maintain its commitment to charitable care and boost investment in its future.

The eight-hospital system and Nashville, Tenn.-based Vanguard signed a letter of intent that opens the door for the sale. Terms include Vanguard making $850 million in capital improvements during the next five years, as well as paying $417 million to retire outstanding DMC bonds and other long-term debts.

Mike Duggan, the DMC’s president and chief executive, said the deal will allow the state’s largest provider of charitable care to continue in that role and invest in facilities. Despite six years of profitability, the DMC was unable to get investment from the Wall Street bond market as a nonprofit, he said.

“The nonprofit hospital model is killing health care in the city of Detroit,” Duggan said at a news conference at Children’s Hospital of Michigan.

Vanguard has agreed to $500 million in specific projects, including $170 million for a new Children’s Hospital tower, $75 million for a new cardiovascular institute and outpatient building, and improvements to several other facilities. The other $350 million will be for ongoing repairs and capital and equipment needs.

“DMC at its core is a place that takes care of people who have no place else to go,” Duggan said. “That’s who we are, that’s who we’re always going to be.”

Vanguard committed to keep all DMC hospitals open for 10 years and maintain the system’s charity care policy during that time. The hospitals will be owned by a Vanguard subsidiary known as VHS Michigan and will continue to operate under the Detroit Medical Center name. The final purchase price has not been disclosed.

Trip Pilgrim, Vanguard’s chief development officer and senior vice president, said the company was impressed by the DMC’s profitability, given the difficult economic climate in the Detroit area. Pilgrim also said the work of DMC’s management team, which will remain in place after the sale, was key.

“We know that this industry is challenged,” he said. “We want to find ways to be successful.”

While Vanguard stressed a commitment to charitable care, the announcement that a for-profit company planned to take over DMC drew some concern.

Daniel J. Loepp, president and CEO of Blue Cross Blue Shield of Michigan — the state’s largest health insurer — said he hoped the nonprofit mission continues.

“Michigan has a strong foundation of 144 nonprofit hospitals that serve the interests of local communities and local people — particularly access to health care for the underinsured,” Loepp said in a statement. The deal “has the potential to permanently alter this safety net.”

Gov. Jennifer Granholm, who in 2003 backed a $50 million bailout for two of the DMC’s key institutions, said she expects the DMC’s mission to remain unchanged.

“The proposed acquisition … has the potential to stabilize the hospital’s future in Detroit and could help strengthen the economic resurgence in the city and the surrounding area through investment and job-creation,” she said in a statement.

Mayor Dave Bing, who was among those at the news conference, said the investment in Detroit was encouraging. “I think it will send a message around the country that we as a city are open for business,” he said.

The Michigan Health & Hospital Association said the deal illustrates how the state is underfunding health care. “Community hospitals cannot survive on current levels of Medicaid reimbursement, and patient access to care must be protected,” association President Spencer Johnson said in a statement.

The DMC is affiliated with the Wayne State University School of Medicine, the nation’s largest single-campus medical school, and the Barbara Ann Karmanos Cancer Institute.

Its facilities in Detroit include the Children’s Hospital, Detroit Receiving Hospital, Sinai-Grace Hospital, Harper University Hospital & Hutzel Women’s Hospital, Kresge Eye Institute and Rehabilitation Institute of Michigan. Locations outside Detroit include Huron Valley-Sinai Hospital in Oakland County’s Commerce Township and Surgery Hospital in Madison Heights.

Vanguard operates 15 hospitals in Illinois, Arizona, Texas and Massachusetts. The DMC’s relationship with Wayne State will continue under the deal.

The letter of intent is contingent upon the approval of a low-tax or tax-free “renaissance zone” approved by the city, county and state for DMC’s central campus. The value of the 15-year tax abatement deal is unclear, officials said, because the DMC as a nonprofit currently is off the tax rolls.

The agreement also must be approved by the two health systems’ boards and the state attorney general.

Associated Press writers Jeff Karoub and Corey Williams contributed to this report.

On the Net:

Detroit Medical Center: www.dmc.org

Vanguard Health Systems Inc.: www.vanguardhealth.com