DMC failing to maintain hospitals, keep commitments, watchdog board says

Karen Bouffard
The Detroit News
The board overseeing Detroit Medical Center's for-profit transition is sharply critical of its commitments to research and education, and its upkeep of hospitals.

The Detroit Medical Center is failing to adequately maintain its hospitals, according to a board appointed as a watchdog for the DMC's transition to a for-profit health system.

A final report from the Legacy DMC Board on Friday concluded that although the DMC fulfilled its commitment to invest $500 million in capital projects to improve its hospitals, it's failing to invest enough to adequately maintain the facilities.

Vanguard Health Systems, the first for-profit hospital system to purchase the DMC in 2011, promised to invest $70 million annually in routine maintenance during the first five years of a 10-year purchase agreement with the DMC, according to Legacy DMC Board President Joe Walsh.

All covenants of the initial purchase agreement fell to Dallas-based Tenet Healthcare when it purchased Vanguard in 2013. 

After the five-year term of the maintenance portion of the purchase agreement expired in 2015, annual spending on routine maintenance at DMC hospitals dropped from $70 million to an average of $50 million over the last five years, according to the report. 

"We've leaned on the fact that during a negotiation by an intelligent buyer and a knowledgeable seller, $70 million was easily agreed for a five-year period — that says something," Walsh said in a Friday interview with The Detroit News. "We're comfortable that $50 million would be a bare minimum, and they've fallen below that for I think the last three years." 

The Detroit Medical Center did not respond to an email asking for comment on the report. 

The Legacy DMC Board was appointed in 2011 to oversee covenants made with the Detroit community by Vanguard and then passed on to Tenet. The board will cease to exist at the end of this year when the agreement's 10-year clock runs out on Dec. 31. 

The board's report also pointed to what it said was evidence of a declining commitment to education: the loss of accreditation of a prestigious DMC training program for neurosurgeons and the reversal of a DMC announcement last year that it would hire an additional 79 resident physicians.

The Accreditation Council of Graduate Medical Education withdrew the training program's accreditation following a site visit on Sept. 18, and the program was terminated this month. 

The report noted the DMC's decision in May to ban Wayne State University faculty from working at DMC Children's Hospital of Michigan, a development that university officials said threatens patient care during the coronavirus pandemic. 

The ouster affects about 25 pediatricians who remained on the Wayne State faculty after University Pediatricians, the group practice representing about 220 Children's Hospital pediatricians, moved last year to align with Central Michigan University's medical school. The new affiliation was formalized in January. 

"The loss of the accreditation for their neurosurgery program really harms the education they provide," Walsh said. "We were impressed last year with their commitment to increase their resident positions. Those were positive developments — and then without really saying anything about it that, they went back on that."

The report released Friday was formatted differently than previous annual reports as a result of negotiations that arose from a dispute over Legacy's 2018 annual report, which was released last June. 

In the previous report, the board expressed concern about a "perceived deterioration in the quality of patient care," as well as declining commitment to education and research by the health system.

The DMC pushed the Legacy DMC Board to withdraw last year's findings and challenged the scope of the board's monitoring and reporting authority by initiating a dispute resolution process provided in the health system's purchase agreement, Walsh said.

According to Walsh, the DMC argued the Legacy Board is charged with overseeing just seven of the 20 covenants contained in the 2011 purchase agreement with Vanguard, which was assumed by Tenet Healthcare, the DMC's current for-profit owner. 

Those seven key covenants included an initial $850 million for the capital projects and routine facilities maintenance; continuation of indigent and low-income care; a promise to keep the hospitals open and continue their core services; a commitment not to sell any of the hospitals; agreements to base the health system in Detroit; to allow the city to participate should the health system decide to establish a national service center; and to provide information necessary for the board to evaluate fulfillment of the covenants. 

In the report released Friday, the board found that the eight-hospital health system has met all of those commitments, with the exception of its promise to provide information the board needs to evaluate the health system's fulfillment of the covenants. 

The DMC objected to the board's practice, in previous reports, of weighing in on the health system's performance in areas, such as research and education, that it has no responsibility to oversee. So in its final report, the board agreed to include a separate section for its comments regarding commitments outside of its legal purview. 

In this final section of the report, the Legacy DMC Board noted the DMC has kept its promise to continue its historic commitment to care for Detroit indigent and low-income residents.

"However," the report states, "Legacy DMC remains concerned about the impact on the indigent of (the DMC's) continuing staff reductions, diminished investment levels, and questions about its support of education and research ...  including and especially its recent decision to bar certain WSU physicians from seeing patients at CHM (Children's Hospital of Michigan)."

Though the board noted that DMC has kept its commitment not to sell off hospitals during the 10-year agreement, the Legacy Board expressed concern in its report about Dallas-based Tenet Healthcare's commitment to Detroit "in light of Tenet's recent sales of urban hospital systems."

Minneapolis-based hospital analyst Allen Baumgarten noted that Tenet has sold off hospitals in Chicago, Dallas and Houston.

"In general, (Tenet has) taken the position that if we can't be the number one, two or three player in the market, then maybe we should pull out and devote our capital and our attention to those markets where we are in fact a significant market force," Baumgarten said.

According to Baumgarten's own analysis, the DMC ranks fourth for revenues among area health systems, behind Beaumont Health, Henry Ford Health System and Ascension Michigan, respectively. 

Whether to sell will depend in part on the prospects of attracting a buyer to the Detroit hospital market, he noted.

"The question is whether (perspective buyers) think that investing in the Detroit area is a good idea," Baumgarten said. 

"Hospital systems might look at the Detroit market and say, 'Well, this is not going to be an easy market to be financially successful in,' whereas other parts of the country where the population is growing, where volume of hospital care is growing, those may be more appealing to a hospital system that's looking to expand through acquisitions," he said.

"It's not just about Tenet, it's about Detroit as well."

Twitter: @kbouffardDN