A New Partnership For Detroit

An eight-person team from within the Attorney General’s office carefully and objectively examined the proposed transaction, and independent experts were retained to assist in the financial and operational analysis. As a condition of his approval, the Attorney General requires DMC and Vanguard to agree to additional measures to protect the public interest.

The proposed sale follows years of financial struggles for DMC. While its financial situation has improved since a 2003 budget crisis, DMC continues to lack access to capital. As a result, DMC cannot perform necessary renovations, improvements, and expansion of its aging structures and equipment while meeting debt and pension obligations. In his review, the Attorney General found that DMC is not likely to remain viable as an independent system for many additional years without a major capital infusion to cover immediate cash requirements and to fund capital improvements.

“After a comprehensive review by my staff and independent experts, I am pleased to offer my approval for the proposed sale of the Detroit Medical Center to Vanguard Health Systems,” said Cox. “This deal offers hope that the Detroit area will continue to be served well by the Detroit Medical Center for a long time to come.”

Read the Attorney General's Report, or view the Complete Exhibits of the Report.

Artist's illustration of the planned DMC Children's Hospital of Michigan Specialty Center.

DMC Chairman Steve D’Arcy said that government officials have been working diligently, but the complexity and size of the transaction have taken more time than expected.

“Everyone involved is committed to getting this done quickly,” said D’Arcy. “We are absolutely confident this will be completed by the end of the year.”

As an example of their commitment to the City of Detroit and to each other, Vanguard and DMC have formed a joint venture to move forward with one of the cornerstone projects of the Vanguard investment: a new, five-floor 105,550-square-foot Children’s Specialty Center. A groundbreaking event at the site – 3950 Beaubien Boulevard – is scheduled for 11 a.m. Monday, November 1^st.

“The Children’s Specialty Center is critical to this community,” said Mike Duggan, DMC President and CEO. “It is scheduled to open in January of 2012, but if we don’t break ground before winter, completion will be delayed for months.”

DMC and Vanguard have agreed to fund the first $1 million of the project on a 50/50 basis and awarded the construction contract to a joint venture of Brinker/Barton Malow, allowing site clearance and utility relocation to be completed before the ground freezes.

Children’s Hospital of Michigan President Herman Gray, MD said the new specialty center will improve service to families who use many of the outpatient specialties currently located within the hospital.

“The new specialty center will improve the overall experience for families who require frequent outpatient visits at Children’s because they will not have to navigate a large multi-story parking deck just to see the doctor,” said Dr. Gray. “This new facility will provide convenient, ample, surface-level parking, and will improve access and convenience for patients using the specialty center, while enabling us to de-compress and expand care for high-volume specialty services such as heart, cancer treatment and neurological services that will remain in the hospital.”

Each year, the Children’s Hospital of Michigan sees 189,000 outpatient and emergency department visits from patients throughout the state and beyond. The new center will feature a variety of pediatric medical specialty clinics including adolescent medicine, endocrinology and nephrology and include services such as physical medicine and rehabilitation and pharmacy.

Vanguard Health Systems, based in Nashville, Tennessee, is an investor-owned hospital company with 15 facilities in four large urban markets in the country. Founded in 1998, we provide capital access, thought leadership and the benefits of national scale to health care delivery systems. Health care is personal and local and therefore Vanguard's regional systems carry local brands and reflect the heritage and culture of their local markets.

The company's mission is to help people in the communities we serve achieve health for life. This mission means our company is focused far beyond just the care we provide in our hospitals; rather we are active in identifying and delivering solutions for the overall health needs of community. At Vanguard, we believe in the mission of providing health care to everyone and we act on that belief. We provide funding to local charitable foundations and activities, and our hospitals address important issues affecting surrounding neighborhoods. Our ultimate goal is to develop systems that offer comprehensive health services for the communities we serve and to be a visible corporate leader in those communities.

Leadership
Charles N. Martin, Jr., Chairman and Chief Executive Officer
Charlie has served as Vanguard's Chairman and CEO since the company's inception in 1997. Prior to forming Vanguard, he served as Chairman, President and Chief Executive Officer of OrNda HealthCorp. Under his leadership, OrNda grew from revenue of $450 million to $3 billion in four years to become the nation's third largest investor-owned hospital management company. His career includes serving as President, Director and Chief Operating Officer of HealthTrust Inc., as well as Executive Vice President and Director of Hospital Corporation of America, and Chief Operating Officer and Director of General Care Corp.

Kent H. Wallace, President and Chief Operating Officer
Kent has served as Vanguard's President and Chief Operating Officer since 2005. Prior to being named as Vanguard's President and Chief Operating Officer, he served for three years as Market President for Vanguard's Texas Region, 'the Baptist Health System', a leading provider of health care in San Antonio and South Texas comprised of five acute-care hospitals and other related health care services. Prior to Vanguard, he was Group President for Province Healthcare, Columbia/HCA and HealthTrust. He has over twenty-five years of healthcare operations experience.

Keith B. Pitts, Vice Chairman Keith has served as Vice Chairman, Vanguard Health Systems since 1999. Prior to joining Vanguard, Keith was the Chairman and CEO of Mariner Post-Acute Network and its predecessor, Paragon Health Network. His career includes serving as OrNda HealthCorp's Executive Vice President and Chief Financial Officer as well as over 15 years as a consultant to health care organizations, most recently as a Partner in Ernst & Young's Healthcare Consulting practice.

Dr. Herman Williams, Vice President, Medical Affairs Herman holds the position of Vice President for Medical Affairs, where his primary role in this newly created position is to design innovative strategies to maximize Physician-Hospital Integration. Previously, he served as Chief Medical Officer (CMO) for the five-hospital Baptist Health System in San Antonio, Texas. With an M.D. from Boston University and an M.P.H. from Harvard University, Herman began his career in administrative medicine in 1993 with Anderson Consulting. He subsequently had positions with the Greeley Company and Christus Health before joining Vanguard as Baptist Health Systems' CMO.

Bradley A. Perkins, MD, Chief Transformation Officer/ EVP Strategy and Innovation Brad joined Vanguard in 2009 as Executive Vice President of Strategy and Innovation and Chief Transformation Officer. In this capacity, he will accelerate Vanguard's transformation to compete more successfully in the rapidly changing health and healthcare delivery environment. Brad oversees the company's business strategy and innovation efforts including clinical safety and quality programs, clinical service line improvement and development and information systems/medical informatics. He is also leading efforts to develop an enterprise-wide culture that embraces new ideas for improving health of communities and patient outcomes in ways that drive margin & efficiencies. He brings more than 20 years leadership from the widely respected Centers for Disease Control and Prevention, including his role as the Chief of Strategy & Innovation.

Mark R. Montoney, M.D., Executive Vice President/Chief Medical Officer Mark joined Vanguard in 2009 as Executive Vice President and Chief Medical Officer. Dr. Montoney is responsible for leading system-wide clinical quality improvement and advancing patient safety across the organization. His additional responsibilities include driving value-based outcomes with effective clinical resource management, while establishing a model of clinical integration. Prior to joining Vanguard, Dr. Montoney most recently served as System Vice President and Chief Medical Officer for OhioHealth where he led clinical quality and patient safety initiatives across the system.

Phillip W. Roe, Chief Financial Officer and Treasurer Phil began serving as Executive Vice President, Chief Financial Officer and Treasurer for Vanguard in November 2007. He previously served as Vanguard's Controller and Chief Accounting Officer since the company's founding in July 1997. Prior to joining Vanguard, he served as Senior Vice President, Controller and Chief Accounting Officer of OrNda HealthCorp. Prior to joining OrNda, Phil was associated with Ernst & Young for ten years supervising healthcare and insurance industry audits as Senior Manager.

Joseph D. Moore, Executive Vice President Joe serves as Vanguard's Executive Vice President with responsibility over risk management, capital related expenditures and assets, facilities development and real estate. He previously served in the position of Chief Financial Officer and Treasurer. He has been with Vanguard since the company's inception in 1997. Joe's experience in the hospital industry has spanned the breadth of management responsibilities - from financial functions to development and acquisitions. He was formerly Senior Vice President - Development at Columbia/HCA. He has more than 25 years of experience with Hospital Corporation of America, including 11 years in hospital operations and most recently as Senior Vice President - Finance and Development.

Ronald P. Soltman, Executive Vice President, General Counsel and Director Ron has served as Vanguard's Executive Vice President, General Counsel and Director since the company's inception in 1997. Prior to joining Vanguard, Ron was Senior Vice President and General Counsel of OrNda HealthCorp. Prior to that, he was Vice President and Assistant General Counsel for Hospital Corporation of America, and Assistant General Counsel with Hospital Affiliates International. Ron has extensive experience in health care law and sophisticated health care transactions.

Trip Pilgrim, Chief Development Officer and Senior Vice President Trip Pilgrim is Senior Vice President and Chief Development Officer of Vanguard Health Systems, Nashville, TN, where he has held that title since July 2009. Prior to his current position, Trip was President & CEO of Vanguard's Baptist Health System, San Antonio, TX. Trip has served as the Chair of the Council on Policy Development for the Texas Hospital Association, is past Chair of the Greater San Antonio Hospital and Health Care Council and is active in the Federation of American Hospital Systems. Mr. Pilgrim earned a BA degree from Vanderbilt University and received his MBA degree from the Owen School of Management at Vanderbilt University.

Go Top

• Nashville, Tennessee based healthcare management company founded in 1997
• 15 Hospitals and complementary services located in and around the four largest cities in the U.S
• Medicaid & Medicare health plans in Arizona with approximately 200,000 members and growing
• $3.2 billion annual revenue
• Approximately $100M in charity care and over $300M in total uncompensated care
• Strong balance sheet and flexible access to capital on a consistent basis

• With over 20,000 employees, our people are our most valuable asset, and we measure their engagement utilizing the Gallup organization. As a company, Vanguard has increased our employee satisfaction grand mean score from 3.97 in 2008 to 4.14 in 2009, which places the company in the 66th percentile of Gallup's healthcare database.
• In 2009, three of our facilities were ranked as 'Best Places to Work' in their communities.
• In 2009, we launched the Vanguard Leadership Academy for physicians, nurses and operational leaders ' a three-phase process to develop future leaders from administration to the front line.
• Vanguard recently received the Gallup Great Workplace Award, one of 25 winners out of 500+ Gallup clients.

• Vanguard was recognized by the Advisory Board Nurse Executive Center in 2009 as a 'best practice' in the treatment of pressure ulcers.
• Vanguard Hospitals have reached a low of 0.5 Ventilator Associated Pneumonia (VAP) cases per 1,000 ventilator days in the most recent reporting month. This places us among the top 10% of all teaching hospitals per the National Healthcare Safety Network Report issued in November 2008.
• Many of our hospitals have been recognized for their quality achievements including:
  • Arrowhead Hospital, Arizona, recently chosen as a winner of the 2009 Reuters 100 Top Hospitals: Cardiovascular Benchmarks Award
  • Saint Vincent Hospital, Massachusetts which recently received the Harvard Pilgrim Quality Award and the Data Advantage Best in Value Award
  • The five hospital Baptist Health System achieved Stroke Center Accreditation from The Joint Commission for all five facilities and was the first hospital system in San Antonio to do so

• In Phoenix, through our School Based Health Centers, we provide free medical and dental care to more than 5,000 children (K-high school) each year. The program, which is celebrating its 12th anniversary, reaches 50 schools in the Phoenix area to provide health care to underprivileged children.
• Vanguard recently opened the Faith Family Clinic a fully-staffed primary care center providing a medical home for San Antonio's working uninsured population.
• In addition to hundreds of community health fairs hosted by our hospitals, our employees commit their own time and own money to many organizations including the United Way, American Heart Association, American Diabetes Association and Susan G. Komen.
• We have partnered with federally qualified health clinics in many of our communities.

1. Agreement to Operate Hospitals. For 10 years from closing date, unless otherwise agreed to by DMC Board, will maintain operation of the following hospitals, including maintaining an agreed-upon set of core services:
   

   Children's
   Detroit Receiving
   Harper/Hutzel/Cardiovascular Institute/Surgery Hospital
   RIM
   Sinai-Grace
   Huron Valley-Sinai
   

2. Agreement Not to Sell Hospitals. Will not sell any of these hospitals to an unrelated party for up to 10 years from the date of closing without the consent of the DMC Board.
3. Commitment to Provide Indigent Care. For 10 years from the date of closing, will provide charity care at the listed hospitals according to the historic policies at those hospitals.
4. Commitment to Education Mission. Commits to supporting fully DMC's historic education mission for undergraduate and graduate medical education, nursing education, and allied health services education. Will honor DMC's contracts with Wayne State University, Michigan State University, and other existing educational programs.
5. Commitment to Research Mission. Commits to supporting fully DMC's historic research mission and will honor DMC's contract with the National Institute of Health for the Perinatal Research Branch operation.
6. Commitment to Karmanos Partnership. Commits to supporting DMC's historic partnership with the Karmanos Cancer Center and will honor DMC's contract with Karmanos.
7. Commitment to Quality, Wellness, and Prevention Programs. Pledges to enhance DMC's health and wellness initiatives, community outreach and prevention programs, and quality improvement programs.
8. Supplier Diversity Program. Fully support DMC's Supplier Diversity Program to provide opportunities for minority-owned, women-owned, and Detroit-based businesses.
9. Project Genesis. Continue to support Project Genesis summer employment/internship program for Detroit Public High School students
10. Commitment to Detroit-based System. Will operate DMC as a Detroit-based system and will maintain its regional headquarters in the City of Detroit.
11. Commitment to Consider Detroit for Future Service Centers. In the event company is looking to establish national centers for system support services, the City of Detroit will be given a full opportunity to present proposals for basing such centers in Detroit prior to a siting decision being made.

As Detroit has seen all too well, non-profit hospital systems today are very much bottom-line driven. 14 hospitals have been closed in Detroit over the last 20 years, all by non-profits, many of whom built new hospitals in the suburbs.

Non-profits have some financial advantages, such as not paying taxes.

The biggest disadvantage of a non-profit is that it has no investors. To raise money for modern facilities, a nonprofit has only two choices: get donations or borrow. With what happened on Wall Street in 2008, DMC has no ability to borrow. Donors in Detroit are overburdened. If DMC remained non-profit, we had no ability to modernize our hospitals for years to come.

By becoming investor-owned for profit, we can partner with an investor who believes in DMC, the City of Detroit, and our future. Vanguard is willing to invest $850 million into our hospitals because they believe we can create a medical system that rivals the Cleveland Clinic right here in Detroit. If they are right, new patients and new jobs will return to the DMC campus in record numbers. At a time when other investors are leaving Detroit, Vanguard has chosen to bet heavily on DMC's future success. With our track record the last six years, we think they are making a good bet.

Vanguard is unique in that it is a national investor-owned system whose strategy has been to acquire hospital systems in urban areas and to treat everyone, regardless of ability to pay. Vanguard currently operates hospitals in San Antonio with higher rates of uninsured patients than DMC. They've been successful while embracing this mission.

• To continue operating our hospitals for a minimum of 10 years
Not to sell any hospital for a minimum of 10 years.
• To provide charity care under DMC's historic policies for a minimum of 10 years.
• To support fully DMC's education mission and to honor all educational contracts, including those with WSU and MSU.
• To support DMC's research mission and to honor the NIH Perinatal Research Branch contract.
• To support the DMC's partner Karmanos Cancer Center and to honor all contracts with Karmanos.
• To fully support DMC's Supplier Diversity Program to provide opportunities for minority-owned, women-owned and Detroit-based businesses.
• To operate DMC as a Detroit based system and to maintain its regional headquarters in the City of Detroit.
• To honor all historic donor naming agreements for facilities or programs.