On Friday a for-profit hospital holding company (Vanguard Health Systems) agreed to purchase the Detroit Medical Center for $500 million and a promise of an $850 million capital infusion to the system’s eight hospitals.
I think this is significant for a number of reasons:
- If not the largest, it has to be one of the largest non-profit hospital systems ever to be sold to a for-profit body. DMC has been profitable for the past seven years–the system’s board of directors must have had limited options for raising capital dollars.
- DMC’s role in Detroit’s safety net for the un/underinsured is unmatched. Vanguard’s pledge to keep that role in tact is important–but rightly questioned given traditional views and past conduct of (some/many) for-profit hospitals.
- National hospital systems (both for-profit and non-profit) have been developing for the last twenty years; in order to compete and negotiate that trend will continue. As insurance companies and competing hospitals grow larger it will likely speed-up. Economies of scale are important.
- Investors are taking an optimistic outlook of health reform and its effect on hospitals.
Maybe most importantly, it could be the beginning of a trend toward more for-profit hospital care. The eight hospitals of DMC are few among the many, to predict a trend using one data point would be foolish. But it’s important to remember, especially during this difficult economic period, that many hospitals are not in a financial position that allows them the ability to raise capital responsibly. Selling to a corporation opens new avenues to raising badly needed dollars. In DMC’s case (it could be unique to Detroit; however I doubt it) that capital will be used for projects that update facilities the system’s board deems necessary to compete with other providers (not to mention a much-needed investment in urban Detroit).
There’s a reason hospitals have been granted non-profit status; that said, few hospitals are able to remain open if not run like today’s (responsible) corporation. Selling to a for-profit organization may be necessary; however, it surely raises concerns over the provision of much-needed unprofitable hospital service lines. And for that reason, some feel a cause for concern.
