CEO First Round

Herman Gray, M.D.

How Children’s Will Benefit
The acquisition wasn’t something our hospital Board sought. After the shock wore off, we realized it is a good move for Children’s Hospital of Michigan, the city of Detroit, the state of Michigan and the region.

Historically, Children’s had provided significant monies to the corporate entity each year. We had been actively involved in planning a new tower to accommodate our expansion, but the medical center was unable to access the capital needed.

The acquisition is actually a great opportunity for Children’s Hospital of Michigan. Of the $500 million to buy the health system, almost half will go to Children’s. The groundbreaking for our new ambulatory center and construction planning for a new patient tower will happen immediately after we sign the letter of intent. We will now have tangible assets and routine capital for updating an aging facility. This is a game changer for us and continues our mission to improve the health of children in our community.

“No Kid Has Ever Asked About Our Tax Status”
We have not seen any drop-off of our philanthropy so far even though we were expecting it. We had a foundation that was underutilized. We are now are asking our major donors to use the foundation for their donations. We will transfer our development and other staff to the foundation — advocacy, child protection, injury prevention, etc. We will be sure that any dollars donated will benefit the children the hospital has historically served. 

The Current Landscape
We have a compelling story. The philanthropic mission of Detroit Medical Center has been to serve as the safety net for the city for the last 50 years. Is it better to have an institution teetering on the brink or have Vanguard come in with capital and who can also start paying taxes?  The sale was approved very quickly by the various governmental entities, which doesn’t happen often in this town.

We are not seeing a trend in Michigan; there is no wholesale run on not-for-profits converting into investor-owned entities nor are for-profits buying children’s hospitals in general. We are a pretty healthy group (children’s hospitals).

I don’t think investor-owned hospitals are any smarter than the rest of us in terms of the implications of reform and being positioned as integrated delivery systems. Indeed, part of their reason for acquiring the DMC and the Children’s Hospital of Michigan is the tremendous talent and intellectual capital that exists there.

Profit vs. Quality Argument
Vanguard gets good quality reports and high patient satisfaction marks in every one of their markets and they’ve embraced physician groups. I don’t know about NICUs or pediatrics specifically. They have good relationships with physician groups and are cultivating community physician relationships. From a quality point of view, they have more indicators on their scorecard, and it is very similar to ours on some of the measures. The language we hear from them is that their significant focus is quality. It makes great business sense to run your hospital with a high quality focus and to recruit high quality physicians.

Children’s Hospital of Michigan has been one of seven or eight children’s hospitals achieving recognition by the Leapfrog Group  as well as being recognized as one of the top 25 children’s hospitals in the country. We are committed to quality. Our folks have had lots of conversations with Vanguard about the level of care of children who walk through our doors. Vanguard is enthusiastic about this—they want every reason to give people to come to our hospital. There is nothing in the literature to prove that for-profits don’t focus on quality; in fact, in some markets the for-profits may have better quality. I haven’t seen any evidence that their behavior toward quality is any different than non-profits. We have been looking at the objective numbers and are not seeing any significant differences.

I would argue that my obligation to run an efficient organization has been always top of mind. We have precious resources to manage as wisely as we can and demonstrate that programs are really efficient.

Continuing our Research Initiatives
Our Wayne State University School of Medicine pediatric faculty is based here and is ranked in the top 20 of NIH funding. We have a close partnership with the medical school and are commited to research through the Children’s Research Center of Michigan, which is a hospital entity funded through philanthropy and operating funds. We must continue our efforts in research. It separates good children’s hospitals from great children’s hospitals. We will continue our research goals and increase our resources in this area. It is important as a business strategy.