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Cox Announces Approval for Sale of Detroit Medical Center to Vanguard

Contact: John Sellek or Joy Yearout 517-373-8060

November 13,  2010

            LANSING -  Attorney General Mike Cox today announced his conditional approval of the proposed sale of eight hospitals owned and operated by the Detroit Medical Center, a Michigan nonprofit health-care system, to Vanguard Health Systems, Inc. The Attorney General's approval is a condition to the closing of the sale because Michigan law provides the Attorney General with broad authority to act on behalf of the People of Michigan to protect charitable assets.  

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."

The Attorney General's review team directed the work of experts from AlixPartners LLP and Focus Management Group, who were engaged at no cost to taxpayers.    

The main goals of the Attorney General's review were:

·     To analyze the terms of the Purchase and Sale Agreement, including specifically Vanguard's commitments: to provide care to the indigent; to maintain essential hospital core services; keep hospitals open for at least 10 years; and to invest $850 million in special capital projects and routine improvements;

·     To examine Vanguard's financial resources to determine whether it can carry out its long-term commitments;

·     To conduct an independent valuation of the DMC's assets to determine whether the transaction is for fair market value;

·     To examine the decision-making process of DMC's Board of Trustees and management team in order to determine whether DMC diligently and prudently considered all reasonable alternatives before deciding to sell to a for-profit company;

·     To ensure that restricted charitable funds will be protected for charitable purposes consistent with donors' intentions.

In the report, the Attorney General concludes that DMC and Vanguard have satisfied these concerns.  While there are no guarantees that the DMC hospitals will continue to operate indefinitely, the Attorney General finds that the DMC Board of Trustees and management team "pursued a deliberate thoughtful process to solve DMC's long-term operational and capital needs" and that, "[a]bsent this or a similar transaction, DMC would be forced to divest major assets, close facilities, and/or discontinue significant services." (p.46)

 "DMC exercised due diligence and sound judgment each step in the decision-making process, mindful of protecting DMC's historic mission to provide quality health care to all regardless of ability to pay," said Cox.

However, the Attorney General also found that certain additional safeguards are necessary to protect the public interest going forward:

·    "Legacy" DMC will remain active as a Michigan nonprofit to monitor Vanguard's performance of its commitments.  The DMC Board will be restructured in order to best serve Legacy DMC's obligation to monitor and enforce Vanguard's commitments;

·     Vanguard must adhere to the more generous of DMC's and Vanguard's own charity care policies at DMC for the next 10 years;

·     Legacy DMC's 20-member Board will include members of the DMC Board, new Trustees, and appointees by the Mayor of Detroit, the Wayne County Executive, and the Attorney General;

·    Vanguard must provide Legacy DMC with detailed periodic reports and other requested information regarding its hospital operations for no less than 10 years;

·     Legacy DMC must actively monitor Vanguard's actions;

·     The Attorney General may enforce Vanguard's commitments to provide charity care, continue essential core services, and make specified capital investments, if Legacy DMC fails to do so;

·     Legacy DMC must properly and prudently administer all charitable funds under its control and remain subject to and in compliance with all charity laws administered by the Attorney General.

    Copies of the report can be obtained at www.michigan.gov/ag.

-30-

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