Vanguard Health Systems wants to lead the way to better health care. The company operates 25 acute care and three specialty hospitals located in urban and suburban markets in Arizona, Illinois, Massachusetts, Michigan, and Texas. Combined, the hospitals have about 7,100 licensed beds. Vanguard's medical facilities provide a continuum of care and generally include outpatient centers and medical office buildings that form regional health care networks. It also runs four managed health care plans that serve some 234,500 members in Arizona, Illinois, and Texas. The Blackstone Group owns a significant stake in Vanguard, which completed an IPO in 2011.
Vanguard raised some $400 million through the public offering. Proceeds are being used to pay down debt, which the company primarily incurred through acquisitions.
Patient services at Vanguard's hospitals account for 85% of its revenue. Vanguard's remaining operations include Phoenix Health Plan, a Medicaid managed care plan serving more than 130,000 members in the Phoenix area, and MacNeal Health Providers, an organization affiliated with the company's Chicago-area facility MacNeal Hospital. Its third health plan, Abrazo Advantage, provides Medicare Advantage and prescription drug plans to Phoenix-area Medicare members who are also eligible for Medicaid. Valley Baptist Insurance provides government HMOs in Texas.
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Vanguard enjoys a fairly diverse payer mix. The biggest single source of income comes from managed care plans (about 35%), while Medicare and Medicaid account for 25% and 7%, respectively. The remainder is made up of commercial payers and self-pay patients.
Vanguard plans to continue to build up its presence in targeted regions, both by expanding its integrated care networks in existing core markets and by establishing operations in new areas that present attractive growth opportunities. Vanguard Health typically acquires facilities that fit its preferred profile: struggling not-for-profits located in fast-growing urban and suburban areas. It has historically established operations in regions that present attractive demographics and payer mixes, promising competitive conditions, and opportunities for further expansion.
Like most hospital operators, the company hopes to attract customers by providing high quality care, recruiting good doctors, and expanding its services. It particularly looks to add high-margin services in areas such as cardiology and orthopedics and to increase its hospitals' ability to offer private rooms. Vanguard Health has also been expanding its hospitalist programs, which help coordinate care between specialist physicians and the nursing staff.
Mergers & Acquisitions
Vanguard's IPO came on the heels of a veritable hospital shopping spree in 2010. The company bumped up its acute care holdings in Chicago with the purchases of the 235-bed West Suburban Medical Center and the 225-bed Westlake Hospital in suburban Chicago from Resurrection Health Care for about $45 million. Vanguard also added to its Arizona-based Abrazo Health Care business by snapping up the Arizona Heart Institute, an outpatient physicians group that had filed for bankruptcy protection. At the same time, the company paid $31.5 million to acquire the Arizona Heart Hospital from MedCath.
Vanguard added a fifth market to its roster at the dawn of 2011 when it paid $365 million in cash (plus $420 million in debt) to acquire Detroit Medical Center (DMC), an eight-hospital system located in and around... where else? Detroit. As part of the deal, Vanguard agreed to make about $850 million in capital improvements to DMC's hospitals, which combined have more than 1,700 beds.
In mid-2011 the company formed a joint venture with the Valley Baptist Health System (VBHS) in south Texas. By forming the venture, Vanguard gained 51% ownership of VBHS's assets and took over day-to-day operations of the system, which includes two hospitals. The purchase is a shift in strategies for Vanguard, as it represents smaller urban markets than Vanguard's usual activities. As a follow-on to the deal, Vanguard purchased full ownership of Valley Baptist Insurance Company (VBIC), neatly extending its health plan business into Texas.
Following Vanguard's 2011 IPO, Blackstone's stake in the company was reduced from about 66% to some 36%. Another investor, Morgan Stanley, reduced its stake from 17% to 10%. – less