Van­guard/DMC deal de­layed

Providers await ap­proval from state and feds

Modern Healthcare - - The Week In Healthcare - Jes­sica Zig­mond

U.S. health­care providers who have closely fol­lowed the agree­ment for in­vestor-owned Van­guard Health Sys­tems to pur­chase tax-ex­empt Detroit Med­i­cal Cen­ter must wait a lit­tle longer to learn the out­come of the $1.27 bil­lion deal.

The two health sys­tems said last week they had ex­tended their pur­chase agree­ment to Dec. 31—two months later than the ex­pected com­ple­tion date—be­cause the state and fed­eral ap­proval pro­cesses for the deal are not fin­ished. An­nounced in March, the deal has been touted as the largest pri­vate in­vest­ment in Detroit’s his­tory, with a pur­chase price of $417 mil­lion and $850 mil­lion in cap­i­tal in­vest­ments. Van­guard also will fund a $184 mil­lion pen­sion short­fall over seven years.

“This is the largest hos­pi­tal deal in the United States in 10 years, and the first time Michi­gan has ever had to re­view a sale to a for-profit,” DMC CEO Mike Dug­gan wrote in a let­ter to em­ploy­ees. (The Michi­gan at­tor­ney gen­eral in 1996 blocked a pro­posed joint ven­ture be­tween the for­mer Columbia/HCA Health­care Corp. and a not-for-profit sys­tem in Lans­ing.). In his let­ter, Dug­gan said the biggest con­cern is the de­lay could hin­der plans to build a chil­dren’s spe­cialty cen­ter, sched­uled to open in Jan­uary 2012. For this rea­son, DMC and Nashville­based Van­guard es­tab­lished a joint ven­ture ex­pected at dead­line to al­low con­struc­tion to be­gin, as planned, Nov. 1.

In Septem­ber, the Fed­eral Trade Com­mis­sion said it would not block the sale of six-hos­pi­tal Detroit Med­i­cal Cen­ter. But Michi­gan At­tor­ney Gen­eral Mike Cox’s of­fice has de­voted con­sid­er­able time to its re­view, hir­ing fi­nan­cial con­sult­ing firms AlixPart­ners and Fo­cus Man­age­ment Group to as­sist, said Joy Yearout, a spokes­woman in Cox’s of­fice.

“The goal of our re­view is to de­ter­mine if the char­i­ta­ble as­sets were prop­erly val­ued and then if it’s in the best in­ter­est of the peo­ple of Michi­gan,” Yearout said in an in­ter­view, adding that she could not of­fer more spe­cific de­tails be­cause the re­view is on­go­ing.

Those char­i­ta­ble as­sets in­clude about $140 mil­lion in gifts from donors for re­stricted pur­poses, such as can­cer-pre­ven­tion pro­grams and toys to chil­dren’s hos­pi­tals, Dug­gan said in an in­ter­view. Those as­sets will not be acquired by Van­guard in the deal. Rather, the not-for-profit, 501(c)(3) cor­po­ra­tion that is DMC will stew­ard and man­age those phil­an­thropic gifts and en­sure the con­tract be­tween DMC and Van­guard is fol­lowed, ac­cord­ing to David Katz, DMC’s se­nior vice pres­i­dent for devel­op­ment. This foun­da­tion is sep­a­rate from the cor­po­ra­tion that will be formed in the Van­guard-DMC deal, which will make DMC the Michi­gan sub­sidiary of Van­guard. There has been talk of chang­ing DMC’s name, but that has not yet been de­cided, Katz said.

Detroit Med­i­cal Cen­ter’s chil­dren’s spe­cialty cen­ter was to be­gin con­struc­tion Nov. 1, de­spite a de­lay in the sale of DMC to Van­guard Health Sys­tems.

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