What the sale of DMC might mean

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

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