Vanguard Health Systems

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THE DMC/ VANGUARD ACQUISITION

By
Steven Malik Shelton

The Blackstone Group is a private equity firm that acquired a majority equity stake in Vanguard Health Systems with a $1.75 billion dollar investment in 2004.

According to Josh Kosman, business reporter for the New York Post, private equity firms purchase businesses through leveraged buy-outs in which the majority of the money for the acquisition comes from loading the purchased company down with debt. Kosman states that Vanguard actually borrowed the money to fund its buyout by the Blackstone Group, and “for the year ending June 30, 2008, Vanguard spent 122 million on debt payments which contribute to a 4 million dollar loss from continuing operations. If something doesn’t change, Vanguard may not be able to pay its interest and certainly won’t be able to pay its principle, which is due in September of 2011.” 1 But according to a recent article in The New York Times, (October 28, 2010) Blackstone is improving its investment portfolio by aggressively refinancing the debt of companies under its management. “More than 50 percent of the debt carried by Blackstone companies has either been refinanced at a lower cost or modified with better terms.” 2 (“Debt Fuels Private Equity Revival,” by Peter Lattman and Michael J. de la Merced. Accessible online at www.nytimes.com/2010/10/29/business/29blackstone.html)

According to a study that appeared in the Canadian Medical Association Journal, investor-owned hospitals have almost 20% higher charges than non-profit hospitals. The researchers although based in Canada, conducted their study based on data from hospitals located throughout the United States. Dr. Steffie Woolhandler, says that for-profit hospitals show a tendency to charge higher prices for inferior care, and to skimp on nurses while spending lavishly on executives and paper-pushers. Dr. Woolhander went on to say that studies show a pattern that for-profit dialysis clinics have higher death rates, that for-profit hospital have lower quality nursing care and that they perform hundreds of unnecessary heart operations. And Harvard Professor, Dr. David Himmelstein who is a staunch advocate against for-profit hospitals said that there is 2 percent higher death rate in for-profit hospitals compared to non-profit hospitals.

A press release issued by the American Federation of State, County and Municipal Employees assert that Vanguard’s controlling equity firm (the Blackstone Group) has substantial holdings that have been negatively affected by the current economic downturn. The press release goes on to say, “In Phoenix, Vanguard acquired and then closed a community hospital serving a low-income area while expanding in an upper-income suburban area. In California the system spun-off three hospitals to another for-profit after several years of financial losses, keeping only the more profitable surgical centers and profits from the sale of the medical building on the hospital campus.” 3

Reporter Josh Kosman claims to have visited Vanguard hospitals in Chicago (Louis A. Weis Memorial and McNeil) and reported them to be wanting. And the Joint Commission which works on raising the level of care at hospitals surmised that in certain types of treatment when heart attack patients have to have their arteries opened, seven of eleven Vanguard hospitals inspected in 2008 performed below average. “With so many pressures on the U.S. health-care system, including nursing shortages, high costs for malpractice insurance, and the need to provide care for millions of indigent and uninsured patients, the financial problems of hospitals cannot be blamed primarily on private-equity owners,” said Kosman. “Many of the hospitals that private-equity firms acquired have been available for acquisition precisely because they were having...
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