Metro Detroit’s large, nonprofit hospitals get an infusion of private sector competition
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Detroit-area hospitals got notice that a tough new player was coming to town last March when Michael Duggan, president and CEO of the Detroit Medical Center, carefully explained why a $1.3-billion deal to sell the eight-hospital system to the for-profit Vanguard Health Systems in Nashville, Tenn., was the only option for the cash-strapped hospital network.
It’s the “largest investment in the history of the city of Detroit,” Duggan said at the time. And it was the only thing that would give the DMC access to the capital it needed to compete with other better-financed health sysems. As part of the pact signed in early June, Vanguard agreed to pour $850 million into the DMC to upgrade its hospitals, add facilities, and outfit the system with the latest medical equipment and technology.
The agreement is expected to be a game-changer for the nonprofit DMC. A scant seven years ago, the system was on the razor’s edge of insolvency. A state bailout kept the system afloat, enabling it to continue servicing a patient population that includes some of the nation’s poorest. Duggan came on board in January 2004 and quickly streamlined patient services while aggressively marketing the system’s nationally ranked programs in cardiac care, neurology, and pediatric services. But the turnaround left little room to invest in the types of facilities that attract paying patients to the Midtown campus.
The deal with Vanguard — expected to be finalized soon — would change that, Duggan says. Vanguard’s history, he says, “is building in urban areas. They have the opposite strategy of most for-profits.”
In turn, analysts contend the move is ramping up competition in the region, as other hospital systems undertake bold new expansions to retain market share and prepare for national health care reform. Across the area, hospital management companies believe the upgrades will boost efficiency, lower costs, and translate into better outcomes for patients.
DMC’s improvements include a $170-million patient tower at Children’s Hospital, a $33-million pediatric specialty center, and a $136.4-million overhaul of Harper-Hutzel Hospital, including a new $75.1-million Cardiovascular Institute.
Among metro Detroit hospitals, there are no small plans; eight large health care systems have started or will soon begin work on a combined $2.5-billion expansion portfolio. “It’s a catfight out there,” says Jeff Lutz, a principal in the Detroit office of Deloitte Consulting. “The amount of capital investment in (metro) Detroit for a shrinking market is incredible.”
Among the improvements:
•Henry Ford Health System in Detroit is planning a $500-million expansion to its flagship hospital at the Lodge Freeway and W. Grand Boulevard. In turn, investments would be poured into the surrounding neighborhood, including a potential medical research park in partnership with Wayne State University. Nancy Schlichting, president and CEO of Henry Ford, says that, over time, the total investment could top $1 billion. The plan comes on the heels of a recent $300-million renovation and the opening of Henry Ford’s $360-million medical center and hospital in West Bloomfield Township.
•Warren-based St. John Providence Health System recently opened Providence Park Hospital in Novi at a cost of $224 million, and invested an additional $300 million in upgrades to its east-side Detroit hospital at Mack and Moross. In addition, a technology and neurosciences center was added in Novi.
•In 2007, Royal Oak-based Beaumont Hospitals bought Grosse Pointe-based Bon Secours Hospital. Next year, Beaumont will open a new medical school with Oakland University in Rochester Hills, and it is finishing up a $230-million expansion of its Troy hospital. The improvements include the addition of an emergency center, a critical care tower, and an outpatient services tower that’s attached to the hospital via an elevated walkway.
•Dearborn-based Oakwood Healthcare System recently dusted off plans to build on a 144-acre plot at Beck Road and Michigan Avenue in Canton. System spokesperson Paula Rivera-Kerr says the four-hospital system is looking at all options during a two-month planning process, including a hospital.
“We’re exploring all options,” she says. “If the site does eventually require beds, then we will be prepared for that.”