Thursday, May 20, 2010

qotd: Non-profit Detroit Medical Center selling out to for-profit Vanguard

May 20, 2010
Can Health Care Save Detroit?
By Noah Ovshinsky

A few weeks ago, officials with the Detroit Medical Center, the city's largest health system, made an announcement that was as startling as it was welcome: that they intended to sell the nonprofit to an investor-owned company. As part of the deal, Nashville-based Vanguard Health Systems promised to spend $850 million on much-needed capital improvements.

The Detroit Medical Center, or the DMC as it's called locally, is the city's primary safety net, providing more uncompensated care than any other health system in the state. That commitment comes at a cost. While the DMC has turned a profit for six years in a row, officials say the health system's payer mix makes raising money on Wall Street all but impossible. As a result, the facilities are showing their age.

Without selling hospitals, turning away needy patients or cutting services, experts say they don't see how Vanguard will get a good return on its investment.


Vanguard Health Systems
March 19, 2010
Vanguard, DMC Announce Letter of Intent 

The Detroit Medical Center (DMC) Board of Trustees and Vanguard Health Systems Inc. announced today that they have signed a letter of intent for DMC to become part of the Vanguard system and for Vanguard to invest $850 million in capital improvements to DMC's eight-hospital system.

Charles N. Martin, chairman and chief executive officer of Vanguard Health Systems, said... "We are very excited about entering the Detroit market and look forward to working with the DMC management team, who has an outstanding record of delivering care and managing financial challenges." 

(Do not rely on any forward-looking statements as such statements are subject to numerous factors, risks and uncertainties that could cause Vanguard's actual outcomes, results, performance or achievements to be materially different from those projected. These factors, risks and uncertainties include, among others, Vanguard's ability to negotiate a definitive agreement for the acquisition of the DMC System and to successfully consummate the acquisition and integrate its operations; Vanguard's high degree of leverage and interest rate risk; Vanguard's ability to incur substantially more debt; operating and financial restrictions in Vanguard's debt agreements; Vanguard's ability to generate cash to service its debt; potential liability related to disclosures of relationships between physicians and Vanguard's hospitals; Vanguard's ability to grow its business and successfully implement its business strategies; Vanguard's ability to successfully integrate any future acquisitions; the potential that acquisitions could be costly, unsuccessful or subject Vanguard to unexpected liabilities; post-payment claims reviews by governmental agencies that could result in additional costs to Vanguard; conflicts of interest that may arise as a result of Vanguard's control by a small number of stockholders; the highly competitive nature of the healthcare business; governmental regulation of the industry including Medicare and Medicaid reimbursement levels; changes in Federal, state or local regulation affecting the healthcare industry; the possible enactment of Federal or state healthcare reform; pressures to contain costs by managed care organizations and other insurers and Vanguard's ability to negotiate acceptable terms with these third party payers; the ability to attract and retain qualified management and personnel, including physicians and nurses; claims and legal actions relating to professional liabilities or other matters; the impacts of weakened economic conditions and volatile capital markets on Vanguard's results of operations, financial position and cash flows; Vanguard's failure to adequately enhance its facilities with technologically advanced equipment could adversely affect its revenues and market position; Vanguard's exposure to the increased amounts of and collection risks associated with uninsured accounts and the co-pay and deductible portions of insured accounts; Vanguard's ability to maintain or increase patient membership and control costs of its managed healthcare plans; the geographic concentration of Vanguard's operations; the technological and pharmaceutical improvements that increase the cost of providing healthcare services or reduce the demand for such services; the timeliness of reimbursement payments received under government programs; the potential adverse impact of known and unknown government investigations; and those factors, risks and uncertainties detailed in Vanguard's filings from time to time with the Securities and Exchange Commission, including, among others, Vanguard's Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q.)

Comment:  Non-profit Detroit Medical Center (DMC) is the city's primary safety net, providing more uncompensated care than any other health system in Michigan. In spite of difficult economic conditions, DMC has been profitable for the past six years. Even Vanguard's chairman states that the DMC management "has an outstanding record of delivering care and managing financial challenges." So why is DMC selling to an out-of-state, for-profit hospital chain?

The reason given is that highly-leveraged (i.e., debt laden) Vanguard intends to infuse funds for capital improvements. But why should DMC relinquish its tax-favored status that helps to ensure that retained profits can be moved to the capital budgets, as with other non-profits? With Vanguard ownership, not only will they lose revenue in taxes, they also will have to divert more revenue to servicing Vanguard's massive debt.

This says nothing about the fundamental business differences between non-profit hospitals with a sole mission to provide patient care and for-profit hospitals with an SEC-mandated mission to enhance investor value.

Nobody reads the fine print of the "forward-looking statements" disclaimers, but they are customized to provide the type of transparency that we clamor for today. If you think that transferring a major non-profit center that is successfully providing much needed safety-net services to a highly-leveraged, for-profit, out-of-state hospital chain is a good deal, then you should read the fine print of the "forward looking statements" above.

Congressman John Conyers' Medicare for All bill, H.R. 676, calls for conversion of the for-profit, investor-owned components of our health care system into non-profits. It would be sad indeed if this important center in his own home city of Detroit were to undergo the opposite conversion, placing the demands of rich investors ahead of the needs of low-income patients.

No comments:

Post a Comment