Detroit Medical Center, Vanguard sign letter of intent

Vanguard Health System, Nashville, said it has agreed in a letter of intent to pay $417 million to buy all of the assets of Detroit Medical Center, a six-hospital system, and invest $850 million in the system within five years of purchasing it. The deal is contingent on establishing a special economic zone that must be approved by state, county and city officials.

In a joint news release, the two systems said the letter is nonbinding and extends through June 1, at which time both systems are required to complete a binding definitive agreement. If Vanguard and Detroit Medical Center do not reach an agreement by then, the letter of intent will end, unless both systems agree to extend it.

“DMC is operating in the black for the seventh straight year, but each year it has been a struggle,” Mike Duggan, CEO of the Detroit Medical Center, said in the release. “We've had to sit by and watch while West Bloomfield and Novi and Ann Arbor make huge investments in new modern hospitals and we've been frustrated we can't do the same in Detroit.”

A day before the two systems made their announcement, Detroit Medical Center said it would make three changes to its leadership team.

Vanguard and the Detroit Medical Center said the letter of intent includes the following six provisions: Vanguard will acquire all of the Detroit Medical Center's system's assets—other than donor-restricted assets—for about $417 million to retire all of Detroit Medical Center's outstanding bonds and other debt and assume all of its liabilities; the Detroit Medical Center will be owned and operated by a Vanguard subsidiary known as VHS Michigan, which will establish a regional advisory board to oversee the Detroit hospitals, which in turn will continue to operate under the Detroit Medical Center brand; Vanguard has made a commitment to support the Detroit Medical Center's safety-net mission, which includes a 10-year commitment to keep all hospitals open and to maintain Detroit Medical Center's charity-care policy; Vanguard will spend $850 million in capital investment in the Detroit Medical Center for the next five years, of which $500 million will go toward a specific project list agreed to by the Detroit Medical Center board and $350 million for ongoing repairs and equipment needs; the existing board of the Detroit Medical Center will remain in place and administer the $140 million in charitable funds given to the Detroit system over the years and the Detroit board will have the legal right to enforce Vanguard's commitments under the purchase agreement; and the agreement is conditioned on the approval of “Renaissance Zone” sponsored by Wayne County, Mich., which will require state, city and county approvals.

Vanguard owns and operates acute-care hospitals in Arizona, Illinois, Massachusetts and Texas. For the fiscal year ended June 30, 2009, the system reported total revenue of $3.19 billion, according to a filing with the Securities and Exchange Commission. The not-for-profit Detroit Medical Center operates Children's Hospital of Michigan, Detroit Receiving Hospital, Harper University Hospital, Huron Valley-Sinai Hospital, Hutzel Women's Hospital, Rehabilitation Institute of Michigan, Sinai-Grace Hospital and DMC Surgery Hospital. The system reported revenue of just under $2 billion for its last reported fiscal year of Dec. 31, 2008, according to the news release.

What do you think? Post a comment on this article and share your opinion with other readers. Submit your comments to Modern Healthcare Online at [email protected]. Please be sure to include your hometown and state, along with your organization and title.