DMC-Vanguard deal brings jobs and investment to Midtown Detroit

The passage of President Obama's healthcare reform legislation in 2010 spawned more than a modest amount of controversy among political elites, as change is always difficult and major change, well, even more difficult! While the national debate on healthcare reform raged at a fever pitch during 2010 and culminated in major electoral changes to the power majorities in the U.S. Congress, major changes have been occurring in metro Detroit and southeast Michigan with far less fanfare and controversy, and have been greatly anticipated as well.

At the end of 2010, the Detroit Medical Center ("DMC"), the City of Detroit's largest private employer, and one of the 10 largest employers in Wayne County with more than 11,000 employees, was acquired by the for-profit, investor-owned Vanguard Health Systems Inc. The deal represents a unique change and major occurrence in a healthcare market once dominated by large non-profit healthcare systems, which also represent many of metro Detroit's largest employers, and whose employees easily number in the tens of thousands.

To understand the deal's true significance to metro Detroit's future employment growth, one need only review a recent listing of metro Detroit's 25 largest employers in the 2011 edition of Crain's Detroit Business Book of Lists, which included no less than eight major healthcare systems among the top employers. While manufacturing employment is much ballyhooed as metro Detroit's yardstick for economic health, it is healthcare employment opportunities that are ever expanding and expected to grow in the future.

The DMC Vanguard deal balances the acute financial needs of the DMC with its social responsibilities and significance as the metro area's largest provider of indigent health care. Today, the DMC runs four of the six "safety net" hospitals in Detroit. It is a deal that may not have been possible without the substantial and seamless cooperation provided among the City of Detroit, Wayne County, Detroit Economic Growth Corporation and the State of Michigan and the use of the State's little known Renaissance Zone Act, being Act 376 of 1996.

The Renaissance Zone Act provides on a competitive basis certain tax incentives to expanding businesses, including exemptions, credits and deductions against various state and local taxes for a specified period of time in designated geographic areas of the state. Such an incentive allowed investor owned Vanguard to be treated much like its non-profit healthcare system counterparts, paving the way for the deal.

Wayne County Executive Robert Ficano acknowledged he was "proud to say Wayne County was instrumental in developing a Renaissance Zone, giving the DMC the opportunity to attract high-level investors, and resulting in growth and jobs for the region."

The DMC Vanguard deal is expected to both preserve and create thousands of jobs in Detroit's ever-expanding Midtown neighborhood, and will result in $850 million of capital improvements to the DMC and its related hospitals and other facilities, including a much needed 175,000-square-foot major addition to Children's Hospital of Michigan and resultant improvements to metro Detroit pediatric care.  Such significant construction will truly transform DMC's Central Campus and is expected to spur additional redevelopment in Detroit's Midtown neighborhood, including recent discussion of 15,000 new residents and businesses in Midtown by 2015.

As part of the overall project, Vanguard also committed to invest an additional $77 million in Sinai Grace Hospital in northwest Detroit. As a result, Sinai Grace, another member of the DMC family of hospitals which was ineligible for inclusion in the Renaissance Zone by virtue of its location, will receive substantial new investment and immediately become a taxable entity, having moved from non profit to for profit status as a result of such investment.

In addition, the deal will clear the DMC's balance sheet of well over $400 million of preexisting bonded indebtedness and other obligations and greatly improve its access to the capital markets. In recent years and despite balanced operations, the DMC had been shut out of the hospital bond market due to the vagaries of the local economy and the economic crisis engulfing the State. While non-profit healthcare systems rely primarily upon the hospital bond market to raise much needed capital, investor-owned systems have expanded access and means to the capital markets including bonds, preferred stock and stock equity shares.

Geographic Renaissance Zones will be a thing of the past by the end of 2011. Any new geographic zone created within Wayne County before then will be considered for all projects of a similar magnitude and scope as the DMC Vanguard investment.

The DMC Vanguard deal is a shining example of the benefits change can reap for a community, when born of cooperation.  For more information about the DMC Vanguard deal, visit http://www.dmc.org/NewPartnership