Vanguard sees Detroit deal as setting precedent

Vanguard Health Systems, Nashville, said its proposed acquisition of six-hospital Detroit Medical Center may set some precedents for other big-city systems looking to join a larger system.

While discussing results for the quarter ended March 31, Charles Martin Jr., Vanguard's chairman and CEO, said local tax breaks under Michigan's Renaissance Zone law are vital to funding the $850 million capital commitment that Vanguard agreed to in its acquisition. That investment also is affordable because the price paid—$417 million upfront—is a much smaller fraction of DMC's revenue—$2.09 billion in 2009—than the prices paid on most acquisitions, Martin said. “I think this sets an interesting precedent as we look at other similarly situated hospitals,” Martin added, describing those as well-run but in need of capital and the scale of a national system.

For its fiscal 2010 third quarter, Vanguard recorded a net loss of $32.8 million, compared with profits of $15.8 million a year ago. Revenue increased 0.4%, to $861.2 million. The company's refinancing in January led to a $45.4 million after-tax loss. Revenue was hit by a significant loss of commercial managed-care patients and accounting changes related to uninsured discounts, the company said.