##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-71934
 
 
 VANGUARD HEALTH SYSTEMS, INC.
  Delaware
    
    62-1698183(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 20 Burton Hills Boulevard, Suite 100
Nashville, TN 37215
 (615) 665-6000
 
 o Yes þ No
 þ Yes * o No
 o Yes þ No *
 *
    
    (Note: The registrant was required to file all reports under Section 13 or 15(d) of the
Securities and Exchange Act of 1934 from April 1, 2010 through June 30, 2010, but as of July 1,
2010, the registrant is a voluntary filer not subject to these filing requirements. However, the
registrant filed all required reports under Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months, which would be required to be filed if the registrant were
required to file such reports.) o
Yes
 o No
 Form 10-K. þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o Yes þ No




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##### 



VANGUARD HEALTH SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    41Item 1B. Unresolved Staff Comments
    
    
    64Item 2. Properties
    
    
    64Item 3. Legal Proceedings
    
    
    64Item 4. (Removed and Reserved)
    
    
    66PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    67Item 6. Selected Financial Data
    
    
    68Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    71Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    95Item 8. Financial Statements and Supplementary Data
    
    
    96Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    142Item 9A. Controls and Procedures
    
    
    142Item 9B. Other Information
    
    
    144PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    145Item 11. Executive Compensation
    
    
    151Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    171Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    173Item 14. Principal Accounting Fees and Services
    
    
    177PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    178SIGNATURES
    
    
    179Exhibit 10.28Exhibit 10.29Exhibit 12.1Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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VANGUARD HEALTH SYSTEMS, INC.
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   
    
    Our high degree of leverage and interest rate risk
 
    
    Our ability to incur substantially more debt
 
    
    Operating and financial restrictions in our debt agreements
 
    
    Our ability to generate cash necessary to service our debt
 
    
    Weakened economic conditions and volatile capital markets
 
    
    Potential liability related to disclosures of relationships between physicians and our
hospitals
 
    
    Post-payment claims reviews by governmental agencies could result in additional costs to
us
 
    
    Our ability to successfully implement our business strategies
 
    
    Our ability to grow our business and successfully integrate our recent acquisition in
Chicago, our pending acquisition of the Detroit Medical Center and other future
acquisitions
 
    
    Potential acquisitions could be costly, unsuccessful or subject us to unexpected
liabilities
 
    
    Conflicts of interest that may arise as a result of our control by a small number of
stockholders
 
    
    The highly competitive nature of the healthcare industry
 
    
    Governmental regulation of the industry, including Medicare and Medicaid reimbursement
level
 
    
    Pressures to contain costs by managed care organizations and other insurers and our
ability to negotiate acceptable terms with these third party payers
 
    
    Our ability to attract and retain qualified management and healthcare professionals,
including physicians and nurses
 
    
    The currently unknown effect on us of the major federal healthcare reforms enacted by
Congress in March 2010 or other potential additional federal or state healthcare reforms
 
    
    Future governmental investigations
 
    
    Our failure to adequately enhance our facilities with technologically advanced equipment
could adversely affect our revenues and market position
 
    
    Potential lawsuits or other claims asserted against us
 
    
    The availability of capital to fund our corporate growth strategy
 
    
    Our ability to maintain or increase patient membership and control costs of our managed
healthcare plans
 
    
    Our exposure to the increased amounts of and collection risks associated with uninsured
accounts and the co-pay and deductible portions of insured accounts
 
    
    Dependence on our senior management team and local management personnel
 
    
    Volatility of professional and general liability insurance for us and the physicians who
practice at our hospitals and increases in the quantity and severity of professional
liability claims
 
    
    Our ability to maintain and increase patient volumes and control the costs of providing
services, including salaries and benefits, supplies and bad debts
 
    
    Increased costs from further government regulation of healthcare and our failure to
comply, or allegations of our failure to comply, with applicable laws and regulations
  3




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
    
    The geographic concentration of our operations
 
    
    Technological and pharmaceutical improvements that increase the cost of providing, or
reduce the demand for, healthcare services and shift demand for inpatient services to
outpatient settings
 
    
    A failure of our information systems would adversely impact our ability to manage our
operations
 
    
    Material non-cash charges to earnings from impairment of goodwill associated with
declines in the fair market values of our reporting units
 
    
    Volatility of materials and labor costs for, or state efforts to regulate, potential
construction projects that may be necessary for future growth
  
 PART I
 
 Item 1. Business.
 Company Overview
  
    
    San Antonio, Texas
 
    
    Metropolitan Phoenix, Arizona
 
    
    Metropolitan Chicago, Illinois
 
    
    Massachusetts
   www.vanguardhealth.com
 Industry Overview
   4




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
    
    the federal government, primarily under the Medicare program
 
    
    state Medicaid programs;
 
    
    health maintenance organizations, preferred provider organizations, managed Medicare
providers, managed Medicaid providers and other private insurers; and
 
    
    individual patients.
   Recent Acquisition Activity
    5




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The Merger
   Our Mission and Business Strategies
  
    
    Delivery of an ideal patient-centered experience  we expect each of our facilities to
create a highly reliable environment of care, and we have focused particularly on our
company-wide patient safety model, our comprehensive patient satisfaction program, opening
lines of communication between our nurses and physicians and implementing clinical quality
best practices across our hospitals to provide the most timely, coordinated and
compassionate care to our patients.
  6




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
    
    Nurse leadership initiatives  we realize that our nursing workforce is our most
valuable tool in improving the health of our patients and have developed and partially
implemented our nursing professional practice model, which incorporates leadership,
clinical practice, professional development and interdisciplinary collaboration to foster
nursing practice that is evidence-based, innovative and patient-focused.
 
    
    Physician collaboration and alignment  we have implemented an employed hospitalist
program, physician leadership councils, information technology upgrades and medical officer
leadership initiatives to foster our clinical integration roadmap that seeks to align the
goals of the physicians who practice in our hospitals to the goals set forth in our nursing
professional practice model while respecting physician care decisions and methods of
practice.
 
    
    Promoting care efficiencies  we continue to identify better ways to deliver services
that are in demand in the communities we serve and have launched multiple initiatives
including electronic intensive care units and company-wide standardization projects for our
emergency and operating room departments in order to ensure that the appropriate levels of
care are available for our patients and are provided in the most efficient manner.
 
    
    Strengthening our financial operations to fund continuing community investment  we
expect to combine a population health strategy with a complex clinical program strategy to
transform our care delivery processes and adapt to upcoming changes in reimbursement from a
fee for service basis to a fee for episode basis in order to produce financial returns that
will enable us to continue to upgrade services and facilities that are vital to the
communities we serve.
 The Markets We Serve
 San Antonio, Texas
     Metropolitan Phoenix, Arizona
   7




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Metropolitan Chicago, Illinois
   Massachusetts
     8




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Our Facilities
  LicensedHospital
    
    City
    
    Beds
    
    
    Date AcquiredTexasBaptist Medical Center
    
    San Antonio
    
    
    636
    
    
    January 1, 2003Northeast Baptist Hospital
    
    San Antonio
    
    
    367
    
    
    January 1, 2003North Central Baptist Hospital
    
    San Antonio
    
    
    268
    
    
    January 1, 2003Southeast Baptist Hospital
    
    San Antonio
    
    
    175
    
    
    January 1, 2003St. Lukes Baptist Hospital
    
    San Antonio
    
    
    295
    
    
    January 1, 2003ArizonaMaryvale Hospital
    
    Phoenix
    
    
    232
    
    
    June 1, 1998Arrowhead Hospital
    
    Glendale
    
    
    220
    
    
    June 1, 2000Phoenix Baptist Hospital
    
    Phoenix
    
    
    236
    
    
    June 1, 2000Paradise Valley Hospital
    
    Phoenix
    
    
    136
    
    
    November 1, 2001West Valley Hospital (1)
    
    Goodyear
    
    
    164
    
    
    September 4, 2003IllinoisMacNeal Hospital
    
    Berwyn
    
    
    427
    
    
    February 1, 2000Louis A. Weiss Memorial Hospital (2)
    
    Chicago
    
    
    339
    
    
    June 1, 2002MassachusettsMetroWest Medical Center  Leonard Morse Hospital
    
    Natick
    
    
    141
    
    
    December 31, 2004MetroWest Medical Center  Framingham Union Hospital
    
    Framingham
    
    
    178
    
    
    December 31, 2004Saint Vincent Hopsital at Worcester Medical Center
    
    Worcester
    
    
    321
    
    
    December 31, 2004Total Licensed Beds
    
    
    
    
    4,135
 
 (1)
    
    This hospital was constructed, not acquired.(2)
    
    This hospital is operated by us in a consolidated joint venture
corporation in which we own 80.1% of the equity interests and
the University of Chicago Hospitals owns 19.9% of the equity
interests.  Our Hospital Operations
 Acute Care Services
   9




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Management and Oversight
    Attracting Patients
     Outpatient Services
   10




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Operating Statistics
  Year ended June 30,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Number of hospitals at end of period (a)
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Number of licensed beds at end of period (a)
    
    
    3,937
    
    
    
    4,143
    
    
    
    4,181
    
    
    
    4,135
    
    
    
    4,135Discharges (a)
    
    
    162,446
    
    
    
    166,873
    
    
    
    169,668
    
    
    
    167,880
    
    
    
    168,370Adjusted discharges (a)
    
    
    274,451
    
    
    
    277,231
    
    
    
    283,250
    
    
    
    288,807
    
    
    
    295,702Net revenue per adjusted discharge (a)(b)
    
    $
    7,230
    
    
    $
    7,674
    
    
    $
    8,047
    
    
    $
    8,503
    
    
    $
    8,408Average length of stay (days) (a)
    
    
    4.32
    
    
    
    4.33
    
    
    
    4.33
    
    
    
    4.23
    
    
    
    4.17Total surgeries (a)
    
    
    113,043
    
    
    
    113,833
    
    
    
    110,877
    
    
    
    114,348
    
    
    
    113,289Emergency room visits (a)
    
    
    554,250
    
    
    
    572,946
    
    
    
    588,246
    
    
    
    605,729
    
    
    
    626,237Member lives (a)
    
    
    146,200
    
    
    
    145,600
    
    
    
    149,600
    
    
    
    218,700
    
    
    
    241,200
 
 (a)
    
    The definitions for these operating statistics are set forth in Item 6  Selected Financial Data included elsewhere in this Report.(b)
    
    Net revenue per adjusted discharge for the year ended June 30, 2010 would have been $8,764 absent the policy changes for uninsured
discounts and Medicaid pending in our Illinois hospitals on April 1, 2009 and our Phoenix and San Antonio hospitals on July 1, 2009.
Net revenue per adjusted discharge was substantially the same for the year ended June 30, 2009 absent the policy changes for uninsured
discounts. Our Health Plan Operations
 Phoenix Health Plan
      11




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Abrazo Advantage Health Plan
  MacNeal Health Providers
  Competition
     12




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Employees and Medical Staff
   nd
    13




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Compliance Program
   Our Information Systems
  
    
    patient accounting, including billing and collection of revenues;
 
    
    accounting, financial reporting and payroll;
 
    
    coding and compliance;
 
    
    laboratory, radiology and pharmacy systems;
 
    
    medical records and document storage;
 
    
    remote physician access to patient data;
 
    
    quality indicators;
 
    
    materials and asset management; and
 
    
    negotiating, pricing and administering our managed care contracts.
    14




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Professional and General Liability Insurance
   Sources of Revenues
   
    
    the federal government, primarily under the Medicare program;
 
    
    state Medicaid programs;
 
    
    health maintenance organizations, preferred provider organizations, managed Medicare
providers, managed Medicaid providers and other private insurers; and
 
    
    individual patients.
  Year ended June 30,2008
    
    
    2009
    
    
    2010Medicare
    
    
    26.2
    %
    
    
    25.3
    %
    
    
    25.5
    %Medicaid
    
    
    7.6
    %
    
    
    7.9
    %
    
    
    7.4
    %Managed Medicare
    
    
    14.0
    %
    
    
    14.1
    %
    
    
    14.8
    %Managed Medicaid
    
    
    7.5
    %
    
    
    8.8
    %
    
    
    9.5
    %Managed care
    
    
    35.0
    %
    
    
    34.7
    %
    
    
    34.9
    %Self pay
    
    
    8.6
    %
    
    
    8.3
    %
    
    
    6.8
    %Other
    
    
    1.1
    %
    
    
    0.9
    %
    
    
    1.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   15




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Traditional Medicare
  Medicare Inpatient Acute Care Reimbursement
 Medicare Severity-Adjusted Diagnosis-Related Group Payments
   Outlier Payments
  16




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Disproportionate Share Hospital Payments
 Direct Graduate and Indirect Medical Education
 Hospital acquired conditions and serious medical errors
 Medicare Outpatient Services Reimbursement
   17




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Rehabilitation Units
  Psychiatric Units
  Federal Fiscal Year 2010 and 2011 Payment Updates
  
    
    A market basket index increase of 2.1% for MS-DRG operating payments for hospitals who
reported the 43 patient quality care indicators from 2009 and 0.1% for those who did not
(this compares to 3.6% for 2009 and 3.3% for 2008, both of which are subject to a 2.0%
reduction for those hospitals who did not report the patient quality care indicators
applicable to those years).
 
    
    No across-the-board reduction to the to the MS-DRG base payment rate to offset the
effect of documentation and/or coding changes or the classification of discharges not
related to case mix changes (2009 and 2008 included reductions of 0.9% and 0.6%,
respectively). However, CMS will consider phasing in future adjustments over an extended
period beginning in fiscal 2011.
 
    
    Continuation of the capital indirect medical adjustment to payment rates for teaching
hospitals.
 
    
    Continuation of a provision of the Deficit Reduction Act of 2005 that precludes
hospitals from receiving additional payments to treat costs associated with 10 specifically
identified patient hospital-acquired conditions including infections (the same 10
identified conditions as for 2009, but compares to 8 identified conditions for 2008).
 
    
    An increase in the inpatient cost outlier threshold to $23,140 from $20,045 in 2009 and
$22,185 in 2008.
 
    
    An increase in the capital federal MS-DRG rate of 1.4% (compares to a 1.9% increase for
federal fiscal year 2009).
 
    
    A market basket increase of 2.5% for hospital rehabilitation unit payment rates (this
compares to 0% for both 2009 and 2008).
 
    
    An increase in the outpatient APC payment rate for calendar year 2010 by the full market
basket of 2.1%.
   18




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Impact of Health Reform Law on Medicare Reimbursement
 Inpatient Reimbursement.
    19




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##### Table of Contents



Outpatient Reimbursement.
 Rehabilitation Unit Reimbursement
 Psychiatric Unit Reimbursement.
 Contractor Reform
   20




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Recovery Audit Contractors
       Accountable Care Organizations and Pilot Projects
   21




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Managed Medicare
  Medicaid
  Disproportionate Share Payments
   22




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Impact of Health Reform Law on Medicaid Reimbursement
    Managed Medicaid
  Annual Cost Reports
    23




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Managed Care and Other Private Insurers
  Self-Pay Patients
      24




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Government Regulation and Other Factors
 Overview
  Licensing, Certification and Accreditation
   Certificates of Need
   25




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Utilization Review
  Federal Healthcare Program Statutes and Regulations
  Anti-Kickback Statute
     26




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##### Table of Contents




    
    payment of any incentive by the hospital when a physician refers a patient to the
hospital
 
    
    use of free or significantly discounted office space or equipment for physicians in
facilities usually located close to the hospital;
 
    
    provision of free or significantly discounted billing, nursing or other staff services;
 
    
    free training for a physicians office staff, including management and laboratory
techniques;
 
    
    guarantees that provide that, if the physicians income fails to reach a predetermined
level, the hospital will pay any portion of the remainder;
 
    
    low-interest or interest-free loans, or loans which may be forgiven if a physician
refers patients to the hospital;
 
    
    payment of the costs of a physicians travel and expenses for conferences or a
physicians continuing education courses;
 
    
    coverage on the hospitals group health insurance plans at an inappropriately low cost
to the physician;
 
    
    rental of space in physician offices, at other than fair market value terms, by persons
or entities to which physicians refer;
 
    
    payment of services which require few, if any, substantive duties by the physician, or
payment for services in excess of the fair market value of the services rendered; or
 
    
    gain sharing, the practice of giving physicians a share of any reduction in a
hospitals costs for patient care attributable in part to the physicians efforts.
    27




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Other Fraud and Abuse Provisions
     28




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The Stark Law
    Similar State Laws, etc.
  Certain Implications of these Fraud and Abuse Laws or New Laws
   29




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##### Table of Contents



The Federal False Claims Act and Similar Laws
 qui tam qui tam
  
    
    It will now be enough that the whistleblower has independent knowledge that materially
adds to publicly disclosed allegations.
 
    
    Furthermore, the Health Reform Law limits the type of activity that counts as a public
disclosure to disclosures made in a federal setting; disclosure in state reports or state
proceedings will no longer qualify.
 
    
    Even if all requirements are met to bar a whistleblowers suit, the Health Reform Act
permits the United States to waive application of the bar at its discretion so that the
whistleblower can proceed with his or her complaint.
      30




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Corporate Practice of Medicine and Fee Splitting
  The Health Insurance Portability and Accountability Act of 1996
     31




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Conversion Legislation
  The Emergency Medical Treatment and Active Labor Act
   32




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Antitrust Laws
  Healthcare Reform
  Expanded Coverage
  Medicaid Expansion.
      33




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Private Sector Expansion.
    Public Program Spending
   34




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Payments for Hospitals
 Inpatient Market Basket and Productivity Adjustment.
     Quality-Based Payment Adjustments and Reductions for Inpatient Services.
    35




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Outpatient Market Basket and Productivity Adjustment.
 Medicare and Medicaid Disproportionate Share Hospital Payments.
    Accountable Care Organizations.
  36




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Bundled Payment Pilot Programs.
 Medicare Managed Care (Medicare Advantage or MA).
 Specialty Hospital Limitations
  Program Integrity and Fraud and Abuse
  Impact of Health Reform Law on Us
   37




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
    
    how many previously uninsured individuals will obtain coverage as a result of the Health
Reform Law (while the CBO estimates 32 million, CMS estimates almost 34 million; both
agencies made a number of assumptions to derive that figure, including how many individuals
will ignore substantial subsidies and decide to pay the penalty rather than obtain health
insurance and what percentage of people in the future will meet the new Medicaid income
eligibility requirements);
 
    
    what percentage of the newly insured patients will be covered under the Medicaid program
and what percentage will be covered by private health insurers
 
    
    the extent to which states will enroll new Medicaid participants in managed care
programs;
 
    
    the pace at which insurance coverage expands, including the pace of different types of
coverage expansion;
 
    
    the change, if any, in the volume of inpatient and outpatient hospital services that are
sought by and provided to previously uninsured individuals;
 
    
    the rate paid to hospitals by private payers for newly covered individuals, including
those covered through the newly created Exchanges and those who might be covered under the
Medicaid program under contracts with the state;
 
    
    the rate paid by state governments under the Medicaid program for newly covered
individuals;
 
    
    how the value-based purchasing and other quality programs will be implemented;
 
    
    the percentage of individuals in the Exchanges who select the high deductible plans,
since health insurers offering those kinds of products have traditionally sought to pay
lower rates to hospitals;
 
    
    the extent to which the net effect of the Health Reform Law, including the prohibition
on excluding individuals based on pre-existing conditions, the requirement to keep medical
costs lower than a specified percentage of premium revenue, other health insurance reforms
and the annual fee applied to all health insurers, will put pressure on the profitability
of health insurers, which in turn might cause them to seek to reduce payments to hospitals
with respect to both newly insured individuals and their existing business; and
 
    
    the possibility that implementation of provisions expanding health insurance coverage
will be delayed or even blocked due to court challenges or revised or eliminated as a
result of efforts to repeal or amend the new law.
  
    
    the amount of overall revenues we will generate from Medicare and Medicaid business when
the reductions are implemented;
 
    
    whether reductions required by the Health Reform Law will be changed by statute prior to
becoming effective;
 
    
    the size of the Health Reform Laws annual productivity adjustment to the market basket
beginning in 2012 payment years;
 
    
    the amount of the Medicare DSH reductions that will be made, commencing in federal
fiscal year 2014;
 
    
    the allocation to our hospitals of the Medicaid DSH reductions, commencing in federal
fiscal year 2014;
 
    
    what the losses in revenues will be, if any, from the Health Reform Laws quality
initiatives;
 
    
    how successful ACOs, in which we participate, will be at coordinating care and reducing
costs;
 
    
    the scope and nature of potential changes to Medicare reimbursement methods, such as an
emphasis on bundling payments or coordination of care programs;
 
    
    whether our revenues from UPL programs will be adversely affected, because there may be
fewer indigent, non-Medicaid patients for whom we provide services pursuant to UPL
programs; and
 
    
    reductions to Medicare payments CMS may impose for excessive readmissions.
   38




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Healthcare Industry Investigations
  qui tam
   Health Plan Regulatory Matters
   39




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
    
    waivers by health maintenance organizations of Medicare and Medicaid beneficiaries
obligations to pay cost-sharing amounts or to provide other incentives in order to attract
Medicare and Medicaid enrollees;
 
    
    certain discounts offered to prepaid health plans by contracting providers;
 
    
    certain price reductions offered to eligible managed care organizations; and
 
    
    certain price reductions offered by contractors with substantial financial risk to
managed care providers.
  Environmental Matters
  
    
    the proper handling and disposal of hazardous and low level medical radioactive waste;
 
    
    ownership or historical use of underground and above-ground storage tanks;
 
    
    management of impacts from leaks of hydraulic fluid or oil associated with elevators,
chiller units or incinerators;
 
    
    appropriate management of asbestos-containing materials present or likely to be present
at some locations; and
 
    
    the potential acquisition of, or maintenance of air emission permits for, boilers or
other equipment.
  General Economic and Demographic Factors
    40




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Item 1A. Risk Factors.
 If any of the following events discussed in the following risks were to occur, our business,
results of operations, financial condition, cash flows or prospects could be materially adversely
affected. Additional risks and uncertainties not presently known, or currently deemed immaterial
by us, may also constrain our business and operations.
 Risks Related to Our Capital Structure
 Our high level of debt and significant leverage may adversely affect our operations and our ability
to grow and otherwise execute our business strategy.
    
    
    our high level of indebtedness could make it more difficult for us to satisfy our
obligations with respect to the 8.0% Notes, including any repurchase obligations that may
arise thereunder;
 
    
    limit our ability to obtain additional financing to fund future capital expenditures,
working capital, acquisitions or other needs;
 
    
    increase our vulnerability to general adverse economic, market and industry conditions
and limit our flexibility in planning for, or reacting to, these conditions;
 
    
    make us vulnerable to increases in interest rates since all of our borrowings under our
New Credit Facilities are, and additional borrowings may be, at variable interest rates;
 
    
    our flexibility to adjust to changing market conditions and ability to withstand
competitive pressures could be limited, and we may be more vulnerable to a downturn in
general economic or industry conditions or be unable to carry out capital spending that is
necessary or important to our growth strategy and our efforts to improve operating margins;
 
    
    limit our ability to use operating cash in other areas of our business because we must
use a substantial portion of these funds to make principal and interest payments; and
 
    
    limit our ability to compete with others who are not as highly-leveraged.
   41




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Despite our current leverage, we may still be able to incur substantially more debt. This could
further exacerbate the risks that we and our subsidiaries face.
  Operating and financial restrictions in our debt agreements limit our operational and financial
flexibility.
  
    
    incur additional indebtedness or issue preferred stock;
 
    
    pay dividends on or make other distributions or repurchase our capital stock or make
other restricted payments;
 
    
    make investments;
 
    
    enter into certain transactions with affiliates;
 
    
    limit dividends or other payments by restricted subsidiaries to our restricted
subsidiaries;
 
    
    create liens without securing the 8.0% Notes;
 
    
    designate our subsidiaries as unrestricted subsidiaries; and
 
    
    sell certain assets or merge with or into other companies or otherwise dispose of all or
substantially all of our assets.
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An increase in interest rates would increase the cost of servicing our debt and could reduce our
profitability.
  We may not be able to generate sufficient cash to service all of our indebtedness and may be forced
to take other actions to satisfy our obligations under our indebtedness, which may not be
successful.
   We are controlled by a small number of stockholders and they may have conflicts of interest with us
in the future.
  Risks Related to Our Business
 The current challenging economic environment, along with difficult and volatile conditions in the
capital and credit markets, could materially adversely affect our financial position, results of
operations or cash flows, and we are unsure whether these conditions will improve in the near
future.
  
    
    Our concentration of operations in a small number of regions, and the impact of economic
downturns in those communities. To the extent the communities in and around San Antonio,
Texas; Phoenix, Arizona; Chicago, Illinois or certain communities in Massachusetts
experience a greater degree of economic weakness than average, the adverse impact on our
operations could be magnified.
  43




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
    
    Our revenues may decline if federal or state programs reduce our Medicare or Medicaid
payments or managed care companies (including managed Medicare and managed Medicaid payers)
reduce our reimbursement. Current economic conditions have accelerated and increased the
budget deficits for most states, including those in which we operate. These budgetary
pressures may result in healthcare payment reductions under state Medicaid plans or reduced
benefits to participants in those plans. Also, governmental, managed Medicare or managed
Medicaid payers may defer payments to us to conserve cash. Managed care companies may also
seek to reduce payment rates or limit payment rate increases to hospitals in response to
reductions in enrolled participants.
 
    
    Our hospitals face a growth in uncompensated care as the result of the inability of
uninsured patients to pay for healthcare services and difficulties in collecting patient
portions of insured accounts. Higher unemployment, Medicaid benefit reductions and employer
efforts to reduce employee healthcare costs may increase our exposure to uncollectible
accounts for uninsured patients or those patients with higher co-pay and deductible limits.
 
    
    Under extreme market conditions, there can be no assurance that funds necessary to run
our business will be available to us on favorable terms or at all. Most of our cash and
borrowing capacity under our New Credit Facilities will be held with a limited number of
financial institutions, which could increase our liquidity risk if one or more of those
institutions become financially strained or are no longer able to operate.
  We are unable to predict the impact of the Health Reform Law, which represents significant change
to the healthcare industry.
    
    
    how many previously uninsured individuals will obtain coverage as a result of the Health
Reform Law (while the Congressional Budget Office (CBO) estimates 32 million, the Centers
for Medicare & Medicaid Services (CMS) estimates almost 34 million; both agencies made a
number of assumptions to derive that figure, including how many individuals will ignore
substantial subsidies and decide to pay the penalty rather than obtain health insurance and
what percentage of people in the future will meet the new Medicaid income eligibility
requirements);
 
    
    what percentage of the newly insured patients will be covered under the Medicaid program
and what percentage will be covered by private health insurers;
 
    
    the extent to which states will enroll new Medicaid participants in managed care
programs;
 
    
    the pace at which insurance coverage expands, including the pace of different types of
coverage expansion;
 
    
    the change, if any, in the volume of inpatient and outpatient hospital services that are
sought by and provided to previously uninsured individuals;
 
    
    the rate paid by state governments under the Medicaid program for newly covered
individuals;
 
    
    how the value-based purchasing and other quality programs will be implemented;
  44




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
    
    the percentage of individuals in the Exchanges who select the high deductible plans,
since health insurers offering those kinds of products have traditionally sought to pay
lower rates to hospitals;
 
    
    the extent to which the net effect of the Health Reform Law, including the prohibition
on excluding individuals based on pre-existing conditions, the requirement to keep medical
costs lower than a specified percentage of premium revenue, other health insurance reforms
and the annual fee applied to all health insurers, will put pressure on the profitability
of health insurers, which in turn might cause them to seek to reduce payments to hospitals
with respect to both newly insured individuals and their existing business; and
 
    
    the possibility that implementation of provisions expanding health insurance coverage
will be delayed or even blocked due to court challenges or revised or eliminated as a
result of efforts to repeal or amend the new law.
  
    
    the amount of overall revenues we will generate from Medicare and Medicaid business when
the reductions are implemented;
 
    
    whether reductions required by the Health Reform Law will be changed by statute prior to
becoming effective;
 
    
    the size of the Health Reform Laws annual productivity adjustment to the market basket
beginning in 2012 payment years;
 
    
    the amount of the Medicare DSH reductions that will be made, commencing in federal
fiscal year 2014;
 
    
    the allocation to our hospitals of the Medicaid DSH reductions, commencing in federal
fiscal year 2014;
 
    
    what the losses in revenues will be, if any, from the Health Reform Laws quality
initiatives;
 
    
    how successful ACOs, in which we participate, will be at coordinating care and reducing
costs
 
    
    the scope and nature of potential changes to Medicare reimbursement methods, such as an
emphasis on bundling payments or coordination of care programs;
 
    
    whether our revenues from upper payment limit (UPL) programs will be adversely
affected, because there may be fewer indigent, non-Medicaid patients for whom we provides
service pursuant to UPL programs in which we participate; and
 
    
    reductions to Medicare payments CMS may impose for excessive readmissions.
  If we are unable to enter into favorable contracts with managed care plans, our operating revenues
may be reduced.
   45




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Our revenues may decline if federal or state programs reduce our Medicare or Medicaid payments.
      46




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We conduct business in a heavily regulated industry, and changes in regulations or violations of
regulations may result in increased costs or sanctions that could reduce our revenues and
profitability.
    47




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qui tam
   48




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49




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Some of our hospitals will be required to submit to CMS information on their relationships with
physicians and this submission could subject such hospitals and us to liability.
     Providers in the healthcare industry have been the subject of federal and state investigations,
whistleblower lawsuits and class action litigation, and we may become subject to investigations,
whistleblower lawsuits or class action litigation in the future.
  
    
    cost reporting and billing practices;
 
    
    laboratory and home healthcare services;
 
    
    physician ownership of, and joint ventures with, hospitals;
 
    
    physician recruitment activities; and
 
    
    other financial arrangements with referral sources.
   50




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qui tam qui tam
      51




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Competition from other hospitals or healthcare providers (especially specialty hospitals) may
reduce our patient volumes and profitability.
     52




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We may be subject to liabilities from claims brought against our facilities.
     Our hospitals face a growth in uncompensated care as the result of the inability of uninsured
patients to pay for healthcare services and difficulties in collecting patient portions of insured
accounts.
    53




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Our performance depends on our ability to recruit and retain quality physicians.
  
    
    the number and quality of the physicians on the medical staffs of our hospitals;
 
    
    the admitting practices of those physicians; and
 
    
    the maintenance of good relations with those physicians.
   We may be unable to achieve our acquisition and growth strategies and we may have difficulty
acquiring not-for-profit hospitals due to regulatory scrutiny.
     54




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The consummation of the acquisition of DMC is subject to a number of closing conditions that could
prevent us from consummating the transaction in accordance with our current expectations, if at
all.
   If the DMC acquisition is consummated, we may not be able to successfully integrate our acquisition
of DMC or realize the potential benefits of the acquisition, which could cause our business to
suffer.
  Future acquisitions or joint ventures may use significant resources, may be unsuccessful and could
expose us to unforeseen liabilities.
  
    
    difficulty and expense of integrating acquired personnel into our business;
 
    
    diversion of managements time from existing operations;
 
    
    potential loss of key employees or customers of acquired companies; and
 
    
    assumption of the liabilities and exposure to unforeseen liabilities of acquired
companies, including liabilities for failure to comply with healthcare regulations.
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The cost of our malpractice insurance and the malpractice insurance of physicians who practice at
our facilities remains volatile. Successful malpractice or tort claims asserted against us, our
physicians or our employees could materially adversely affect our financial condition and
profitability.
    Our facilities are concentrated in a small number of regions. If any one of the regions in which we
operate experiences a regulatory change, economic downturn or other material change, our overall
business results may suffer.
   Year ended June 30,2008
    
    
    2009
    
    
    2010San Antonio
    
    
    32.1
    %
    
    
    29.6
    %
    
    
    26.8
    %Phoenix Health Plan and Abrazo Advantage Health Plan
    
    
    14.1
    %
    
    
    19.3
    %
    
    
    23.1
    %Massachusetts
    
    
    19.7
    %
    
    
    18.3
    %
    
    
    18.2
    %Metropolitan
Phoenix, excluding Phoenix Health Plan and Abrazo Advantage Health Plan
    
    
    18.8
    %
    
    
    17.9
    %
    
    
    17.5
    %Metropolitan Chicago (1)
    
    
    14.9
    %
    
    
    14.6
    %
    
    
    14.1
    %Other
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    0.3
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Includes MacNeal Health Providers
   56




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If we are unable to control our healthcare costs at Phoenix Health Plan and Abrazo Advantage Health
Plan, if the health plans should lose their governmental contracts or if budgetary cuts reduce the
scope of Medicaid or dual-eligibility coverage, our profitability may be adversely affected.
  
    
    our ability to contract with cost-effective healthcare providers
 
    
    the increased cost of individual healthcare services;
 
    
    the type and number of individual healthcare services delivered; and
 
    
    the occurrence of catastrophes, epidemics or other unforeseen occurrences.
   We are dependent on our senior management team and local management personnel, and the loss of the
services of one or more of our senior management team or key local management personnel could have
a material adverse effect on our business.
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Controls designed to reduce inpatient services may reduce our revenues.
  The industry trend towards value-based purchasing may negatively impact our revenues.
     Our facilities are subject to extensive federal and state laws and regulations relating to the
privacy of individually identifiable information.
    58




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As a result of increased post-payment reviews of claims we submit to Medicare for our services, we
may incur additional costs and may be required to repay amounts already paid to us.
    If we fail to continually enhance our hospitals with the most recent technological advances in
diagnostic and surgical equipment, our ability to maintain and expand our markets will be adversely
affected.
  Our hospitals face competition for staffing especially as a result of the national shortage of
nurses and the increased imposition on us of nurse-staffing ratios, which has in the past and may
in the future increase our labor costs and materially reduce our profitability.
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Compliance with Section 404 of the Sarbanes-Oxley Act may negatively impact our results of
operations and failure to comply may subject us to regulatory scrutiny and a loss of investors
confidence in our internal control over financial reporting.
  A failure of our information systems would adversely affect our ability to properly manage our
operations.
  
    
    patient accounting, including billing and collection of patient service revenues;
 
    
    financial, accounting, reporting and payroll;
 
    
    coding and compliance;
 
    
    laboratory, radiology and pharmacy systems;
  60




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
    
    remote physician access to patient data;
 
    
    negotiating, pricing and administering managed care contracts; and
 
    
    monitoring quality of care.
  If we fail to effectively and timely implement electronic health record systems, our operations
could be adversely affected.
  Difficulties with current construction projects or new construction projects such as additional
hospitals or major expansion projects may involve significant capital expenditures that could have
an adverse impact on our liquidity.
  
    
    our ability to control construction costs;
 
    
    the failure of general contractors or subcontractors to perform under their contracts;
 
    
    adverse weather conditions;
 
    
    shortages of labor or materials;
 
    
    our ability to obtain necessary licensing and other required governmental
authorizations; and
 
    
    other unforeseen problems and delays.
  If the costs for construction materials and labor continue to rise, such increased costs could have
an adverse impact on the return on investment relating to our expansion projects.
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State efforts to regulate the construction or expansion of hospitals could impair our ability to
operate and expand our operations.
  
    
    the purchase, construction or expansion of healthcare facilities;
 
    
    capital expenditures exceeding a prescribed amount; or
 
    
    changes in services or bed capacity.
  If the fair value of our reporting units declines, a material non-cash charge to earnings from
impairment of our goodwill could result.
  Our hospitals are subject to potential responsibilities and costs under environmental laws that
could lead to material expenditures or liability.
    62




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Additional Risk Factors
  Available Information
 www.vanguardhealth.com
  63




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##### Table of Contents



Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
    
 Item 3. Legal Proceedings.
   Sherman Act Antitrust Class Action Litigation  Maderazo, et al v. VHS San Antonio Partners, L.P.
d/b/a Baptist Health Systems, et. al., Case No. 5:06cv00535 (United States District Court, Western
District of Texas, San Antonio Division, filed June 20, 2006 and amended August 29, 2006)
   64




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Self-Disclosure of Employment of Excluded Persons
  Claims in the ordinary course of business
   65




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Item 4. (Removed and Reserved).
  66




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
      67




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Item 6. Selected Financial Data.
  Year ended June 30,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Statement of Operations Data (millions):Total revenues
    
    $
    2,400.2
    
    
    $
    2,563.9
    
    
    $
    2,775.6
    
    
    $
    3,185.4
    
    
    $
    3,376.9Costs and expenses:Salaries and benefits (includes stock
compensation of $1.7, $1.2, $2.5,
$4.4 and $4.2, respectively)
    
    
    985.0
    
    
    
    1,061.4
    
    
    
    1,146.2
    
    
    
    1,233.8
    
    
    
    1,296.2Health plan claims expense
    
    
    270.3
    
    
    
    297.0
    
    
    
    328.2
    
    
    
    525.6
    
    
    
    665.8Supplies
    
    
    392.9
    
    
    
    420.8
    
    
    
    433.7
    
    
    
    455.5
    
    
    
    456.1Provision for doubtful accounts
    
    
    156.6
    
    
    
    174.8
    
    
    
    205.5
    
    
    
    210.3
    
    
    
    152.5Other operating expenses
    
    
    345.2
    
    
    
    367.6
    
    
    
    398.5
    
    
    
    461.9
    
    
    
    483.9Depreciation and amortization
    
    
    98.7
    
    
    
    117.0
    
    
    
    129.3
    
    
    
    128.9
    
    
    
    139.6Interest, net
    
    
    103.8
    
    
    
    123.8
    
    
    
    122.1
    
    
    
    111.6
    
    
    
    115.5Impairment loss
    
    
    
    
    
    
    123.8
    
    
    
    
    
    
    
    6.2
    
    
    
    43.1Debt extinguishment costs
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.5Other expenses
    
    
    6.5
    
    
    
    0.2
    
    
    
    6.5
    
    
    
    2.7
    
    
    
    9.1Subtotal
    
    
    2,359.1
    
    
    
    2,686.4
    
    
    
    2,770.0
    
    
    
    3,136.5
    
    
    
    3,435.3Income (loss) from continuing
operations before income taxes
    
    
    41.1
    
    
    
    (122.5
    )
    
    
    5.6
    
    
    
    48.9
    
    
    
    (58.4
    )Income tax benefit (expense)
    
    
    (16.2
    )
    
    
    11.6
    
    
    
    (2.2
    )
    
    
    (16.8
    )
    
    
    13.8Income (loss) from continuing operations
    
    
    24.9
    
    
    
    (110.9
    )
    
    
    3.4
    
    
    
    32.1
    
    
    
    (44.6
    )Loss from discontinued operations,
net of taxes
    
    
    (9.4
    )
    
    
    (19.2
    )
    
    
    (1.1
    )
    
    
    (0.3
    )
    
    
    (1.7
    )Net income (loss)
    
    
    15.5
    
    
    
    (130.1
    )
    
    
    2.3
    
    
    
    31.8
    
    
    
    (46.3
    )Less: Net income attributable to
non-controlling interests
    
    
    (2.6
    )
    
    
    (2.6
    )
    
    
    (3.0
    )
    
    
    (3.2
    )
    
    
    (2.9
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    12.9
    
    
    $
    (132.7
    )
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )Balance Sheet Data (millions):Cash and cash equivalents
    
    $
    123.6
    
    
    $
    120.1
    
    
    $
    141.6
    
    
    $
    308.2
    
    
    $
    257.6Assets
    
    
    2,650.5
    
    
    
    2,538.1
    
    
    
    2,582.3
    
    
    
    2,731.1
    
    
    
    2,729.6Long-term debt, including current portion
    
    
    1,519.2
    
    
    
    1,528.7
    
    
    
    1,537.5
    
    
    
    1,551.6
    
    
    
    1,752.0Working capital
    
    
    193.0
    
    
    
    156.4
    
    
    
    217.8
    
    
    
    251.6
    
    
    
    105.0Other Financial Data (millions):Adjusted EBITDA (a)
    
    $
    251.9
    
    
    $
    243.5
    
    
    $
    266.0
    
    
    $
    302.7
    
    
    $
    326.6Capital expenditures
    
    
    275.5
    
    
    
    164.3
    
    
    
    119.8
    
    
    
    132.0
    
    
    
    155.9Cash provided by operating activities
    
    
    152.4
    
    
    
    125.6
    
    
    
    176.3
    
    
    
    313.1
    
    
    
    315.2Cash used in investing activities
    
    
    (245.4
    )
    
    
    (118.5
    )
    
    
    (143.8
    )
    
    
    (133.6
    )
    
    
    (156.5
    )Cash provided by (used in) financing
activities
    
    
    137.4
    
    
    
    (10.6
    )
    
    
    (11.0
    )
    
    
    (12.9
    )
    
    
    (209.3
    )
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Year ended June 30,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Unaudited Operating Data -
continuing operations:Number of hospitals, end of period
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Number of licensed beds, end of period (b)
    
    
    3,937
    
    
    
    4,143
    
    
    
    4,181
    
    
    
    4,135
    
    
    
    4,135Discharges (c)
    
    
    162,446
    
    
    
    166,873
    
    
    
    169,668
    
    
    
    167,880
    
    
    
    168,370Adjusted discharges (d)
    
    
    274,451
    
    
    
    277,231
    
    
    
    283,250
    
    
    
    288,807
    
    
    
    295,702Adjusted discharges-hospitals (e)
    
    
    261,056
    
    
    
    264,698
    
    
    
    270,076
    
    
    
    274,767
    
    
    
    280,437Net revenue per adjusted discharge (f)
    
    $
    7,230
    
    
    $
    7,674
    
    
    $
    8,047
    
    
    $
    8,503
    
    
    $
    8,408Net revenue per adjusted discharge-hospitals (g)
    
    $
    7,319
    
    
    $
    7,766
    
    
    $
    8,110
    
    
    $
    8,623
    
    
    $
    8,516Patient days (h)
    
    
    701,307
    
    
    
    721,832
    
    
    
    734,838
    
    
    
    709,952
    
    
    
    701,265Average length of stay (i)
    
    
    4.32
    
    
    
    4.33
    
    
    
    4.33
    
    
    
    4.23
    
    
    
    4.17Inpatient surgeries (j)
    
    
    36,606
    
    
    
    37,227
    
    
    
    37,538
    
    
    
    37,970
    
    
    
    37,320Outpatient surgeries (k)
    
    
    76,437
    
    
    
    76,606
    
    
    
    73,339
    
    
    
    76,378
    
    
    
    75,969Emergency room visits (l)
    
    
    554,250
    
    
    
    572,946
    
    
    
    588,246
    
    
    
    605,729
    
    
    
    626,237Occupancy rate (m)
    
    
    49
    %
    
    
    48
    %
    
    
    48
    %
    
    
    47
    %
    
    
    46
    %Member lives (n)
    
    
    146,200
    
    
    
    145,600
    
    
    
    149,600
    
    
    
    218,700
    
    
    
    241,200
 
 (a)
    
    We define Adjusted EBITDA as income before interest expense
(net of interest income), income taxes, depreciation and
amortization, non-controlling interests, equity method income,
stock compensation, gain or loss on sale of assets, monitoring
fees and expenses, realized holding losses on investments,
impairment losses, debt extinguishment costs, acquisition
related expenses and discontinued operations, net of taxes.
Monitoring fees and expenses represent fees and reimbursed
expenses paid to affiliates of The Blackstone Group and
Metalmark Subadvisor LLC for advisory and oversight services.
Adjusted EBITDA should not be considered as a substitute for
net income (loss) attributable to Vanguard Health Systems, Inc.
stockholders, operating cash flows or other cash flow statement
data determined in accordance with accounting principles
generally accepted in the United States. Adjusted EBITDA, as
presented by us, may not be comparable to similarly titled
measures of other companies due to varying methods of
calculation. We believe that Adjusted EBITDA provides useful
information about our financial performance to investors,
lenders, financial analysts and rating agencies since these
groups have historically used EBITDA-related measures in the
healthcare industry, along with other measures, to estimate the
value of a company, to make informed investment decisions, to
evaluate a companys leverage capacity and its ability to meet
its debt service requirements. Adjusted EBITDA eliminates the
uneven effect of non-cash depreciation of tangible assets and
amortization of intangible assets, much of which results from
acquisitions accounted for under the purchase method of
accounting. Adjusted EBITDA also eliminates the effects of
changes in interest rates which management believes relate to
general trends in global capital markets, but are not
necessarily indicative of a companys operating performance.
Adjusted EBITDA is also used by us to measure individual
performance for incentive compensation purposes and as an
analytical indicator for purposes of allocating resources to
our operating businesses and assessing their performance, both
internally and relative to our peers, as well as to evaluate
the performance of our operating management teams. The
following table sets forth a reconciliation of Adjusted EBITDA
to net income (loss) attributable to Vanguard Health Systems,
Inc. stockholders for the respective periods presented (in
millions). Year ended June 30,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    12.9
    
    
    $
    (132.7
    )
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )Interest, net
    
    
    103.8
    
    
    
    123.8
    
    
    
    122.1
    
    
    
    111.6
    
    
    
    115.5Income tax expense (benefit)
    
    
    16.2
    
    
    
    (11.6
    )
    
    
    2.2
    
    
    
    16.8
    
    
    
    (13.8
    )Depreciation and amortization
    
    
    98.7
    
    
    
    117.0
    
    
    
    129.3
    
    
    
    128.9
    
    
    
    139.6Non-controlling interests
    
    
    2.6
    
    
    
    2.6
    
    
    
    3.0
    
    
    
    3.2
    
    
    
    2.9Equity method income
    
    
    (0.2
    )
    
    
    (1.0
    )
    
    
    (0.7
    )
    
    
    (0.8
    )
    
    
    (0.9
    )Stock compensation
    
    
    1.7
    
    
    
    1.2
    
    
    
    2.5
    
    
    
    4.4
    
    
    
    4.2Loss (gain) on disposal of assets
    
    
    1.5
    
    
    
    (4.0
    )
    
    
    0.8
    
    
    
    (2.3
    )
    
    
    1.8Realized holding losses on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    Monitoring fees and expenses
    
    
    5.2
    
    
    
    5.2
    
    
    
    6.4
    
    
    
    5.2
    
    
    
    5.1Impairment loss
    
    
    
    
    
    
    123.8
    
    
    
    
    
    
    
    6.2
    
    
    
    43.1Debt extinguishment costs
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.5Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1Loss from discontinued operations
net of taxes
    
    
    9.4
    
    
    
    19.2
    
    
    
    1.1
    
    
    
    0.3
    
    
    
    1.7Adjusted EBITDA
    
    $
    251.9
    
    
    $
    243.5
    
    
    $
    266.0
    
    
    $
    302.7
    
    
    $
    326.6
  69




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(b)
    
    Licensed beds are those beds for which a facility has been granted approval to operate from
the applicable state licensing agency.(c)
    
    Discharges represent the total number of patients discharged (in the facility for a period in
excess of 23 hours) from our hospitals and is used by management and certain investors as a general
measure of inpatient volumes.(d)
    
    Adjusted discharges is used by management and certain investors as a general measure of
consolidated inpatient and outpatient volumes. Adjusted discharges is computed by multiplying
discharges by the sum of gross inpatient revenues and gross outpatient revenues and then dividing
the result by gross inpatient revenues.(e)
    
    Adjusted discharges-hospitals is used by management and certain investors as a general
measure of combined hospital inpatient and outpatient volumes. Adjusted discharges-hospitals is
computed by multiplying discharges by the sum of gross hospital inpatient and gross hospital
outpatient revenues and then dividing the result by gross hospital inpatient revenues. This
computation enables management to assess hospital volumes by a combined measure of hospital
inpatient and outpatient utilization.(f)
    
    Net revenue per adjusted discharge is calculated by dividing net patient revenues by adjusted
discharges and measures the average net payment expected to be received for an episode of service
provided to a patient.(g)
    
    Net revenue per adjusted discharge-hospitals is calculated by dividing hospital net patient
revenues by adjusted discharges-hospitals and measures the average net payment expected to be
received for a patients stay in the hospital.(h)
    
    Patient days represent the number of days (calculated as overnight stays) our beds were
occupied by patients during the periods.(i)
    
    Average length of stay represents the average number of days an admitted patient stays in our
hospitals.(j)
    
    Inpatient surgeries represent the number of surgeries performed in our hospitals where
overnight stays are necessary.(k)
    
    Outpatient surgeries represent the number of surgeries performed at hospitals or ambulatory
surgery centers on an outpatient basis (patient overnight stay not necessary).(l)
    
    Emergency room visits represent the number of patient visits to a hospital or freestanding
emergency room where treatment is received, regardless of whether an overnight stay is subsequently
required.(m)
    
    Occupancy rate represents the percentage of hospital licensed beds occupied by patients.
Occupancy rate provides a measure of the utilization of inpatient rooms.(n)
    
    Member lives represent the total number of members in PHP, AAHP and MHP as of the end of the
respective period.  70




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 You should read the following discussion together with our historical financial statements and
related notes included elsewhere herein and the information set forth under Item 6  Selected
Financial Data. The discussion contains forward-looking statements that involve risks and
uncertainties. For additional information regarding some of the risks and uncertainties that affect
our business and the industry in which we operate, please read Item 1A  Risk Factors included
elsewhere in this Report. Our actual results may differ materially from those estimated or
projected in any of these forward-looking statements.
 Executive Overview
  MembershipHealth Plan
    
    Location
    
    
    2009
    
    
    2010Phoenix Health Plan (PHP)  managed Medicaid
    
    Arizona
    
    
    176,200
    
    
    
    201,400Abrazo Advantage Health Plan (AAHP)  managed Medicare and Dual Eligible
    
    Arizona
    
    
    2,800
    
    
    
    2,700MacNeal Health Providers (MHP)  capitated outpatient and physician services
    
    Illinois
    
    
    39,700
    
    
    
    37,100218,700
    
    
    
    241,200
   Recent Acquisition Activity
    71




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Operating Environment
  Payer Mix Shifts
  Health Reform Law
   72




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##### Table of Contents



Physician Alignment
  Cost pressures
 nd
 Implementation of our Clinical Quality Initiatives
  Sources of Revenues
   
    
    the federal government, primarily under the Medicare program;
 
    
    state Medicaid programs;
 
    
    health maintenance organizations, preferred provider organizations, managed Medicare
providers, managed Medicaid providers and other private insurers; and
 
    
    individual patients
  73




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Year ended June 30,2008
    
    
    2009
    
    
    2010Medicare
    
    
    26.2
    %
    
    
    25.3
    %
    
    
    25.5
    %Medicaid
    
    
    7.6
    %
    
    
    7.9
    %
    
    
    7.4
    %Managed Medicare
    
    
    14.0
    %
    
    
    14.1
    %
    
    
    14.8
    %Managed Medicaid
    
    
    7.5
    %
    
    
    8.8
    %
    
    
    9.5
    %Managed care
    
    
    35.0
    %
    
    
    34.7
    %
    
    
    34.9
    %Self pay
    
    
    8.6
    %
    
    
    8.3
    %
    
    
    6.8
    %Other
    
    
    1.1
    %
    
    
    0.9
    %
    
    
    1.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Volumes by Payer
  Year ended June 30,2008
    
    
    2009
    
    
    2010Medicare
    
    
    47,040
    
    
    
    27.7
    %
    
    
    45,516
    
    
    
    27.1
    %
    
    
    46,385
    
    
    
    27.5
    %Medicaid (a)
    
    
    20,195
    
    
    
    11.9
    %
    
    
    17,068
    
    
    
    10.2
    %
    
    
    14,867
    
    
    
    8.8
    %Managed Medicare
    
    
    26,040
    
    
    
    15.3
    %
    
    
    26,925
    
    
    
    16.0
    %
    
    
    27,393
    
    
    
    16.3
    %Managed Medicaid
    
    
    19,893
    
    
    
    11.7
    %
    
    
    23,185
    
    
    
    13.8
    %
    
    
    25,717
    
    
    
    15.3
    %Managed care
    
    
    50,040
    
    
    
    29.5
    %
    
    
    48,977
    
    
    
    29.2
    %
    
    
    45,152
    
    
    
    26.8
    %Self pay (a)
    
    
    5,854
    
    
    
    3.5
    %
    
    
    5,650
    
    
    
    3.4
    %
    
    
    8,168
    
    
    
    4.9
    %Other
    
    
    606
    
    
    
    0.4
    %
    
    
    559
    
    
    
    0.3
    %
    
    
    688
    
    
    
    0.4
    %Total
    
    
    169,668
    
    
    
    100.0
    %
    
    
    167,880
    
    
    
    100.0
    %
    
    
    168,370
    
    
    
    100.0
    %
 
 (a)
    
    Medicaid and self pay discharges were impacted by the change in
our Medicaid pending policy in our Illinois hospitals effective
April 1, 2009 and in our other hospitals effective July 1,
2009. Absent the impact of the Medicaid pending policy changes,
Medicaid discharges would have been 17,235 and 17,584 for the
years ended June 30, 2009 and 2010, respectively, while self
pay discharges would have been 5,483 and 5,451 for the years
ended June 30, 2009 and 2010, respectively. Payer Reimbursement Trends
   74




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Accounts Receivable Collection Risks Leading to Increased Bad Debts
  June 30, 2009
    
    0-90 days
    
    
    91-180 days
    
    
    Over 180 days
    
    
    TotalMedicare
    
    
    15.6
    %
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    16.2
    %Medicaid
    
    
    6.7
    %
    
    
    0.9
    %
    
    
    1.0
    %
    
    
    8.6
    %Managed Medicare
    
    
    10.0
    %
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    10.8
    %Managed Medicaid
    
    
    7.1
    %
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    8.1
    %Managed care
    
    
    25.1
    %
    
    
    2.3
    %
    
    
    1.5
    %
    
    
    28.9
    %Self pay(1)
    
    
    9.7
    %
    
    
    8.1
    %
    
    
    0.8
    %
    
    
    18.6
    %Self pay after primary(2)
    
    
    2.1
    %
    
    
    2.9
    %
    
    
    0.9
    %
    
    
    5.9
    %Other
    
    
    1.8
    %
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    2.9
    %Total
    
    
    78.1
    %
    
    
    16.1
    %
    
    
    5.8
    %
    
    
    100.0
    %
 June 30, 2010
    
    0-90 days
    
    
    91-180 days
    
    
    Over 180 days
    
    
    TotalMedicare
    
    
    17.7
    %
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    18.4
    %Medicaid
    
    
    5.6
    %
    
    
    0.6
    %
    
    
    0.9
    %
    
    
    7.1
    %Managed Medicare
    
    
    11.3
    %
    
    
    0.7
    %
    
    
    0.6
    %
    
    
    12.6
    %Managed Medicaid
    
    
    7.4
    %
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    8.1
    %Managed care
    
    
    27.1
    %
    
    
    1.9
    %
    
    
    1.1
    %
    
    
    30.1
    %Self pay(1)
    
    
    10.2
    %
    
    
    3.1
    %
    
    
    0.7
    %
    
    
    14.0
    %Self pay after primary(2)
    
    
    2.5
    %
    
    
    3.3
    %
    
    
    0.8
    %
    
    
    6.6
    %Other
    
    
    2.1
    %
    
    
    0.6
    %
    
    
    0.4
    %
    
    
    3.1
    %Total
    
    
    83.9
    %
    
    
    11.0
    %
    
    
    5.1
    %
    
    
    100.0
    %
 
 (1)
    
    Includes uninsured patient accounts only.(2)
    
    Includes patient co-insurance and deductible amounts after payment has been received from the primary payer.    75




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Governmental and Managed Care Payer Reimbursement
  Premium Revenues
   Critical Accounting Policies
   76




---



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Revenues and Revenue Deductions
       Year ended June 30,2008
    
    
    2009
    
    
    2010Total charity care deductions
    
    $
    86.1
    
    
    $
    91.8
    
    
    $
    87.7Border funding charity care deductions, net of payments received
    
    $
    29.6
    
    
    $
    34.9
    
    
    $
    29.8Payments received for border funding accounts
    
    $
    3.8
    
    
    $
    4.6
    
    
    $
    3.5
  77




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Allowance for Doubtful Accounts and Provision for Doubtful Accounts
     78




---



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Year ended June 30,2009
    
    
    2010Medicaid pending accounts receivable
    
    $
    15.8
    
    
    $
    23.5Medicaid pending successfully qualified
    
    $
    23.5
    
    
    $
    44.3Medicaid pending not qualified (uninsured)
    
    $
    29.6
    
    
    $
    63.5Medicaid pending not qualified (charity)
    
    $
    8.0
    
    
    $
    17.1Medicaid pending qualification success
percentage
    
    
    39
    %
    
    
    36
    %
  Insurance Reserves
     79




---



##### Table of Contents



ProfessionalEmployee
    
    
    and General
    
    
    WorkersHealth
    
    
    Liability
    
    
    CompensationReserve balance:June 30, 2007
    
    $
    1.2
    
    
    $
    64.6
    
    
    $
    18.5June 30, 2008
    
    $
    1.5
    
    
    $
    74.3
    
    
    $
    18.8June 30, 2009
    
    $
    13.4
    
    
    $
    92.9
    
    
    $
    18.2June 30, 2010
    
    $
    14.1
    
    
    $
    91.8
    
    
    $
    15.7Current year provision for claims losses:Year ended June 30, 2008
    
    $
    7.3
    
    
    $
    22.4
    
    
    $
    7.6Year ended June 30, 2009
    
    $
    93.2
    
    
    $
    22.2
    
    
    $
    7.8Year ended June 30, 2010
    
    $
    115.8
    
    
    $
    26.4
    
    
    $
    7.4Adjustments to prior year claims losses:Year ended June 30, 2008
    
    $
    
    
    
    $
    (0.6
    )
    
    $
    (2.3
    )Year ended June 30, 2009
    
    $
    (0.6
    )
    
    $
    13.4
    
    
    $
    (3.8
    )Year ended June 30, 2010
    
    $
    (1.5
    )
    
    $
    8.4
    
    
    $
    (5.1
    )Claims paid related to current year:Year ended June 30, 2008
    
    $
    5.8
    
    
    $
    0.1
    
    
    $
    1.0Year ended June 30, 2009
    
    $
    79.8
    
    
    $
    0.3
    
    
    $
    1.6Year ended June 30, 2010
    
    $
    101.7
    
    
    $
    1.1
    
    
    $
    1.1Claims paid related to prior year:Year ended June 30, 2008
    
    $
    1.2
    
    
    $
    12.0
    
    
    $
    4.0Year ended June 30, 2009
    
    $
    0.9
    
    
    $
    16.7
    
    
    $
    3.0Year ended June 30, 2010
    
    $
    11.9
    
    
    $
    34.8
    
    
    $
    3.7
    80




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##### Table of Contents



Professional and
    
    
    WorkersGeneral Liability
    
    
    CompensationReserve at June 30, 2009As reported
    
    $
    92.9
    
    
    $
    18.2With 75% confidence level
    
    $
    104.9
    
    
    $
    21.2With 90% confidence level
    
    $
    116.9
    
    
    $
    23.8Reserve at June 30, 2010As reported
    
    $
    91.8
    
    
    $
    15.7With 75% confidence level
    
    $
    105.7
    
    
    $
    19.4With 90% confidence level
    
    $
    119.7
    
    
    $
    22.8
  Health Plan Claims Reserves
  Year ended June 30,2008
    
    
    2009
    
    
    2010Health plan reserves and settlements, beginning of year
    
    $
    61.4
    
    
    $
    51.1
    
    
    $
    117.6Current year provision for health plan claims
    
    
    329.7
    
    
    
    525.5
    
    
    
    670.7Current year adjustments to prior year health plan
claims
    
    
    (1.5
    )
    
    
    0.1
    
    
    
    (4.9
    )Program settlement, capitation and other activity
    
    
    (24.2
    )
    
    
    19.3
    
    
    
    31.0Claims paid related to current year
    
    
    (268.4
    )
    
    
    (424.6
    )
    
    
    (571.7
    )Claims paid related to prior years
    
    
    (45.9
    )
    
    
    (53.8
    )
    
    
    (92.9
    )Health plan reserves and settlements, end of year
    
    $
    51.1
    
    
    $
    117.6
    
    
    $
    149.8
  Income Taxes
   81




---



##### Table of Contents




    
    Cumulative losses in recent years
 
    
    Income/losses expected in future years
 
    
    Availability, or lack thereof, of taxable income in prior carryback periods that would
limit realization of tax benefits
 
    
    Carryforward period associated with the deferred tax assets and liabilities
 
    
    Prudent and feasible tax planning strategies
  Balance at June 30, 2007
    
    $
    4.9Additions based on tax positions reltaed to the current year
    
    
    Additions for tax positions of prior years
    
    
    0.4Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance at June 30, 2008
    
    $
    5.3Additions based on tax positions reltaed to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    (0.3
    )Settlements
    
    
    Balance at June 30, 2009
    
    $
    5.0Additions based on tax positions reltaed to the current year
    
    
    0.8Additions for tax positions of prior years
    
    
    6.1Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance at June 30, 2010
    
    $
    11.9
   82




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Long-Lived Assets and Goodwill
     83




---



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Selected Operating Statistics
  Year ended June 30,2008
    
    
    2009
    
    
    2010Unaudited Operating Data -
continuing operations:Number of hospitals, end of period
    
    
    15
    
    
    
    15
    
    
    
    15Number of licensed beds, end of period
    
    
    4,181
    
    
    
    4,135
    
    
    
    4,135Discharges (a)
    
    
    169,668
    
    
    
    167,880
    
    
    
    168,370Adjusted discharges-hospitals (b)
    
    
    270,076
    
    
    
    274,767
    
    
    
    280,437Adjusted discharges (c)
    
    
    283,250
    
    
    
    288,807
    
    
    
    295,702Net revenue per adjusted discharge-hospitals (d)
    
    $
    8,110
    
    
    $
    8,623
    
    
    $
    8,516Net revenue per adjusted discharge (e)
    
    $
    8,047
    
    
    $
    8,503
    
    
    $
    8,408Patient days (f)
    
    
    734,838
    
    
    
    709,952
    
    
    
    701,265Average length of stay (g)
    
    
    4.33
    
    
    
    4.23
    
    
    
    4.17Inpatient surgeries (h)
    
    
    37,538
    
    
    
    37,970
    
    
    
    37,320Outpatient surgeries (i)
    
    
    73,339
    
    
    
    76,378
    
    
    
    75,969Emergency room visits (j)
    
    
    588,246
    
    
    
    605,729
    
    
    
    626,237Occupancy rate (k)
    
    
    48
    %
    
    
    47
    %
    
    
    46
    %Member lives (l)
    
    
    149,600
    
    
    
    218,700
    
    
    
    241,200Health plan claims expense percentage (m)
    
    
    72.9
    %
    
    
    77.5
    %
    
    
    79.3
    %
 
 (a)
    
    Discharges represent the total number of patients discharged (in the facility for a period in excess of 23 hours) from our
hospitals and is used by management and certain investors as a general measure of inpatient volumes.(b)
    
    Adjusted discharges-hospitals is used by management and certain investors as a general measure of combined hospital inpatient
and hospital outpatient volumes. Adjusted discharges-hospitals is computed by multiplying discharges by the sum of gross
hospital inpatient revenues and gross hospital outpatient revenues and then dividing the result by gross hospital inpatient
revenues.(c)
    
    Adjusted discharges is used by management and certain investors as a general measure of consolidated inpatient and outpatient
volumes. Adjusted discharges is computed by multiplying discharges by the sum of gross inpatient revenues and gross outpatient
revenues and then dividing the result by gross inpatient revenues.(d)
    
    Net revenue per adjusted discharge-hospitals is calculated by dividing net hospital patient revenues by adjusted
discharge-hospitals and measures the average net payment expected to be received for a patients stay in the hospital.(e)
    
    Net revenue per adjusted discharge is calculated by dividing net patient revenues by adjusted discharges and measures the
average net payment expected to be received for an episode of service provided to a patient.(f)
    
    Patient days represent the number of days (calculated as overnight stays) our beds were occupied by patients during the periods.(g)
    
    Average length of stay represents the average number of days an admitted patient stays in our hospitals.(h)
    
    Inpatient surgeries represent the number of surgeries performed in our hospitals where overnight stays are necessary.(i)
    
    Outpatient surgeries represent the number of surgeries performed at hospitals or ambulatory surgery centers on an outpatient
basis (patient overnight stay not necessary).(j)
    
    Emergency room visits represent the number of patient visits to a hospital emergency room where treatment is received,
regardless of whether an overnight stay is subsequently required.(k)
    
    Occupancy rate represents the percentage of hospital licensed beds occupied by patients. Occupancy rate provides a measure of
the utilization of inpatient beds.(l)
    
    Member lives represent the total number of members in PHP, AAHP and MHP as of the end of the respective period.(m)
    
    Health plan claims expense percentage is calculated by dividing health plan claims expense by premium revenues.  84




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Results of Operations
  Year ended June 30,2008
    
    
    2009
    
    
    2010(Dollars in millions)Patient service revenues
    
    $
    2,325.4
    
    
    
    83.8
    %
    
    $
    2,507.4
    
    
    
    78.7
    %
    
    $
    2,537.2
    
    
    
    75.1
    %Premium revenues
    
    
    450.2
    
    
    
    16.2
    %
    
    
    678.0
    
    
    
    21.3
    %
    
    
    839.7
    
    
    
    24.9
    %Total revenues
    
    
    2,775.6
    
    
    
    100.0
    %
    
    
    3,185.4
    
    
    
    100.0
    %
    
    
    3,376.9
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits (includes stock
of $2.5, $4.4 and 4.2, respectively)
    
    
    1,146.2
    
    
    
    41.3
    %
    
    
    1,233.8
    
    
    
    38.7
    %
    
    
    1,296.2
    
    
    
    38.4
    %Health plan claims expense
    
    
    328.2
    
    
    
    11.8
    %
    
    
    525.6
    
    
    
    16.5
    %
    
    
    665.8
    
    
    
    19.7
    %Supplies
    
    
    433.7
    
    
    
    15.6
    %
    
    
    455.5
    
    
    
    14.3
    %
    
    
    456.1
    
    
    
    13.5
    %Provision for doubtful accounts
    
    
    205.5
    
    
    
    7.4
    %
    
    
    210.3
    
    
    
    6.6
    %
    
    
    152.5
    
    
    
    4.5
    %Other operating expenses
    
    
    398.5
    
    
    
    14.4
    %
    
    
    461.9
    
    
    
    14.5
    %
    
    
    483.9
    
    
    
    14.3
    %Depreciation and amortization
    
    
    129.3
    
    
    
    4.7
    %
    
    
    128.9
    
    
    
    4.1
    %
    
    
    139.6
    
    
    
    4.1
    %Interest, net
    
    
    122.1
    
    
    
    4.4
    %
    
    
    111.6
    
    
    
    3.5
    %
    
    
    115.5
    
    
    
    3.4
    %Debt extinguishment costs
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    73.5
    
    
    
    2.2
    %Impairment loss
    
    
    
    
    
    
    0.0
    %
    
    
    6.2
    
    
    
    0.2
    %
    
    
    43.1
    
    
    
    1.3
    %Other
    
    
    6.5
    
    
    
    0.2
    %
    
    
    2.7
    
    
    
    0.1
    %
    
    
    9.1
    
    
    
    0.3
    %Income (loss) from continuing operations
before income taxes
    
    
    5.6
    
    
    
    0.2
    %
    
    
    48.9
    
    
    
    1.5
    %
    
    
    (58.4
    )
    
    
    (1.7
    )%Income tax benefit (expense)
    
    
    (2.2
    )
    
    
    (0.1
    )%
    
    
    (16.8
    )
    
    
    (0.5
    )%
    
    
    13.8
    
    
    
    0.4
    %Income (loss) from continuing operations
    
    
    3.4
    
    
    
    0.1
    %
    
    
    32.1
    
    
    
    1.0
    %
    
    
    (44.6
    )
    
    
    (1.2
    )%Loss from discontinued operations
net of taxes
    
    
    (1.1
    )
    
    
    (0.0
    )%
    
    
    (0.3
    )
    
    
    (0.0
    )%
    
    
    (1.7
    )
    
    
    (0.1
    )%Net income (loss)
    
    
    2.3
    
    
    
    0.1
    %
    
    
    31.8
    
    
    
    1.0
    %
    
    
    (46.3
    )
    
    
    (1.4
    )%Less: Net income attributable to
non-controlling interests
    
    
    (3.0
    )
    
    
    (0.1
    )%
    
    
    (3.2
    )
    
    
    (0.1
    )%
    
    
    (2.9
    )
    
    
    (0.1
    )%Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (0.7
    )
    
    
    0.1
    %
    
    $
    28.6
    
    
    
    1.0
    %
    
    $
    (49.2
    )
    
    
    (1.4
    )%
  85




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Year ended June 30, 2010 compared to Year ended June 30, 2009
 Revenues
   Costs and expenses
 
    
    Salaries and benefits. Salaries and benefits as a
percentage of total revenues was not significantly
different during the current year compared to the prior
year. This ratio continued to be positively impacted by
the significant increase in premium revenues, which
utilize a much lower percentage of salaries and
benefits than acute care services, during the current
year compared to the prior year. For the acute care
services operating segment, salaries and benefits as a
percentage of patient service revenues was 48.9% during
the current year compared to 47.3% during the prior
year. This increase was negatively impacted by the
adoption of our uninsured discount and Medicaid pending
policies, as previously discussed. We continue to
employ more physicians to support the communities our
hospitals serve and have made significant investments
in clinical quality initiatives that will require
additional human resources in the short-term. As of
June 30, 2010, we had approximately 20,100 full-time
and part-time employees compared to approximately
19,200 as of June 30, 2009. We have been successful in
limiting contract labor utilization as a result of our
investments in clinical quality and nurse leadership
initiatives. Our contract labor expense as a percentage
of patient service revenues continued its downward
trend to 1.2% for the year ended June 30, 2010 compared
to 2.6% for the prior year.
  86




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
    
    Health plan claims. Health plan claims expense as a
percentage of premium revenues increased to 79.3%
during the current year compared to 77.5% during the
prior year. As enrollment increases, this ratio becomes
especially sensitive to the mix of members, including
covered groups based upon age and gender and county of
residence. AHCCCS also implemented limits on
profitability for certain member groups during the
current contract year, which negatively impacted this
ratio. In addition, the increased PHP revenues diluted
the impact of the third party administrator revenues at
MHP that have no corresponding health plan claims
expense. Revenues and expenses between the health plans
and our hospitals and related outpatient service
providers of approximately $42.8 million, or 6.0% of
gross health plan claims expense, were eliminated in
consolidation during the current year.
    
    Supplies. Supplies as a percentage of acute care
services segment revenues decreased to 17.7% during the
current year compared to 17.9% during the prior year.
This ratio would have reflected a greater improvement
during the current year absent the impact to patient
service revenues of the changes to our uninsured
discount and Medicaid pending policies previously
discussed. We continued our focus on supply chain
efficiencies including reduction in physician commodity
variation and improved pharmacy formulary management
during the current year. Our ability to reduce this
ratio in future years may be limited because our growth
strategies include expansion of higher acuity services
and due to inflationary pressures on medical supplies
and pharmaceuticals.
    
    Provision for doubtful accounts. The provision for
doubtful accounts as a percentage of patient service
revenues decreased to 6.0% during the current year from
8.4% during the prior year. Most of this decrease
related to the uninsured discount policy and Medicaid
pending policy changes previously discussed. The net
impact of these policy changes resulted in the
recognition of a significant amount of uninsured
revenue deductions that would have otherwise been
reflected in the provision for doubtful accounts absent
these changes. On a combined basis, the provision for
doubtful accounts, charity care deductions and
uninsured discounts as a percentage of acute care
services segment revenues (prior to these revenue
deductions) was 11.9%, 11.9% and 15.8% for the for the
years ended June 30, 2008, 2009 and 2010, respectively.
The uninsured discount and Medicaid pending policy
changes resulted in an approximate 330 basis point
increase in this ratio during the current year. The
remainder of the increase related to price increases
implemented during the current year.
 Other operating expenses
 Other
 Income taxes
 Net income (loss) attributable to Vanguard Health Systems, Inc. stockholders
  87




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Year ended June 30, 2009 compared to Year ended June 30, 2008
 Revenues
  Costs and Expenses
 
    
    Salaries and benefits. Salaries and benefits as a
percentage of total revenues decreased to 38.7% during
the year ended June 30, 2009 from 41.3% during the
prior year. This ratio was positively impacted by the
significant increase in premium revenues, which utilize
a much lower rate of salaries and benefits than acute
care services, during the year ended June 30, 2009
compared to the prior year and by the increase in Texas
UPL and Illinois PTA revenues during the year ended
June 30, 2009 compared to the prior year. Salaries and
benefits as a percentage of acute care segment revenues
were 47.3% during the year ended June 30, 2009 compared
to 47.9% during the prior year, which improvement was
primarily attributable to the Texas UPL and Illinois
PTA revenues growth during the year ended June 30,
2009.


 These ratios were adversely impacted during the
year ended June 30, 2009 by our investments in
physician services and quality initiatives. We employed
more physicians to support the communities our
hospitals serve during 2009 and added significant
corporate resources to manage and oversee the physician
growth. Implementation of our quality initiatives also
resulted in additional labor costs associated with
training staff to utilize new clinical quality systems
and additional hospital and corporate resources to
monitor and manage quality indicators. As of June 30,
2009, we had approximately 19,200 full-time and
part-time employees compared to 18,500 as of June 30,
2008. Our contract labor expense as a percentage of
patient service revenues decreased to 2.6% for the year
ended June 30, 2009 compared to 3.5% for the prior
year.
    
    Health plan claims. Health plan claims expense as a
percentage of premium revenues increased to 77.5%
during 2009 compared to 72.9% during the prior year.
The new PHP contract resulted in a significant change
in the mix of our AHCCCS members with a significant
increase in members in geographic areas not previously
served by PHP. As a result of the bid process for these
new areas, the rates paid to providers in those six new
counties and capitated payment rates received from
AHCCCS for those counties were not necessarily the same
as those applicable to the three counties previously
served by PHP. Also, the additional PHP revenues
diluted the impact of the third party administrator
revenues at MHP that have no corresponding health plan
claims expense. During fiscal 2009, we accrued for the
estimated amount payable to AHCCCS for the risk
adjustment factor payment methodology that was
retroactively applied to October 1, 2008, which also
caused the health plan claims expense as a percentage
of premium revenues to increase during the year ended
June 30, 2009.Health plan claims expense represents
the amounts paid by the health plans for healthcare
services provided to their members, including an
estimate of incurred but not yet reported claims that
is determined based upon lag data and other actuarial
assumptions. Revenues and expenses between the health
plans and our hospitals and related outpatient service
providers of approximately $34.0 million, or 6.1% of
gross health plan claims expense, were eliminated in
consolidation during the year ended June 30, 2009.
  88




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
    
    Supplies. Supplies as a percentage of acute care
services segment revenues decreased to 17.9% during the
year ended June 30, 2009 compared to 18.4% during the
prior year. The increase in Texas UPL and Illinois PTA
revenues during 2009 accounted for approximately half
of this improvement. Although the acuity of our
services provided increased during 2009 compared to the
prior year, we were successful in limiting the ratio of
supplies to patient service revenues by further
implementing certain supply chain initiatives such as
increased use of our group purchasing contract and
pharmacy formulary management.
    
    Provision for doubtful accounts. The provision for
doubtful accounts as a percentage of patient service
revenues decreased to 8.4% during the year ended June
30, 2009 from 8.8% during the prior year. On a combined
basis, the provision for doubtful accounts, charity
care deductions and uninsured discounts as a percentage
of acute care services segment revenues (prior to these
revenue deductions) was 11.9% for both the years ended
June 30, 2008 and 2009.
 Other operating expenses
 Other
 Income taxes
 Net income (loss) attributable to Vanguard Health Systems, Inc. stockholders
 Liquidity and Capital Resources
 Operating Activities
  Investing Activities
   89




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Financing Activities
  The Refinancing
      90




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Debt Covenants
  Debt
    
    
    ActualCovenant Ratio
    
    
    RatioInterest coverage ratio requirement
    
    
    2.00x
    
    
    
    3.15xTotal leverage ratio limit
    
    
    6.25x
    
    
    
    4.39x
  Credit Ratings
  Standard & Poors
    
    MoodysCorporate credit rating
    
    B
    
    B28.0% Notes
    
    B-
    
    B32010 credit facilities
    
    BB-
    
    Ba2
  Capital Resources
    91




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
    
    Pending acquisition of DMC On June 10, 2010, we entered into a definitive agreement to
purchase DMC, which owns and operates eight hospitals in and around Detroit, Michigan with
1,734 licensed beds for an expected cash purchase price of approximately $417.0 million, as
previously discussed.
 
    
    Completed acquisition of Westlake Hospital and West
Suburban Medical Center On August
1, 2010, we acquired two acute care hospitals and associated outpatient facilities in
Illinois from Resurrection Health Care. Located in the western suburbs of Chicago, the
hospitals are 234-bed West Suburban Medical Center in Oak Park, Illinois and 225-bed
Westlake Hospital in Melrose Park, Illinois for a cash purchase price of approximately
$45.0 million.
 
    
    Pending acquisition of Arizona Heart Institute and Arizona Heart Hospital On August 2,
2010, we signed a definitive agreement to acquire Arizona Heart Institute (AHI), a leading
provider of cardiovascular care. The purchase of the AHI by Vanguard will occur through a
section 363 sale, as part of a Chapter 11 reorganization plan since AHI filed in early August 2010
under the federal bankruptcy laws for a Chapter 11 reorganization of its business. A section 363 sale,
so named because of the section of the Bankruptcy Code dealing with the procedure, allows the sale of all,
or substantially all, of the filing companys assets to the purchaser free and clear of any liens or encumbrances.
The sale is subject to the approval of
the court. On August 6, 2010, we signed a definitive agreement to acquire Arizona Heart
Hospital also located in Phoenix, Arizona.
  92




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Obligations and Commitments
  Payments due by periodWithin
    
    
    During
    
    
    During
    
    
    After1 year
    
    
    Years 2-3
    
    
    Years 4-5
    
    
    5 Years
    
    
    Total(In millions)Contractual Cash Obligations:Long-term debt (1)
    
    $
    111.1
    
    
    $
    296.3
    
    
    $
    293.6
    
    
    $
    2,041.7
    
    
    $
    2,742.7Operating leases (2)
    
    
    30.1
    
    
    
    47.4
    
    
    
    33.4
    
    
    
    30.7
    
    
    
    141.6Purchase obligations (2)
    
    
    20.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.9Health plan claims and settlements payable (3)
    
    
    149.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149.8Estimated self-insurance liabilities (4)
    
    
    38.1
    
    
    
    35.3
    
    
    
    23.0
    
    
    
    25.2
    
    
    
    121.6Subtotal
    
    $
    350.0
    
    
    $
    379.0
    
    
    $
    350.0
    
    
    $
    2,097.6
    
    
    $
    3,176.6
 Within
    
    
    During
    
    
    During
    
    
    After1 year
    
    
    Years 2-3
    
    
    Years 4-5
    
    
    5 Years
    
    
    Total(In millions)Other Commitments:Construction and capital improvements (5)
    
    $
    75.1
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    
    
    
    $
    75.4Guarantees of surety bonds (6)
    
    
    50.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50.0Letters of credit (7)
    
    
    
    
    
    
    
    
    
    
    30.2
    
    
    
    
    
    
    
    30.2Physician commitments (8)
    
    
    3.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.4Estimated liability for uncertain tax positions (9)
    
    
    11.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.9Subtotal
    
    $
    140.4
    
    
    $
    0.3
    
    
    $
    30.2
    
    
    $
    
    
    
    $
    170.9Total obligations and commitments
    
    $
    490.4
    
    
    $
    379.3
    
    
    $
    380.2
    
    
    $
    2,097.6
    
    
    $
    3,347.5
 
 (1)
    
    Includes both principal and interest payments. The interest portion of our debt
outstanding at June 30, 2010 assumes an average interest rate of 8.0%. The long-term debt
obligations, adjusted to reflect the principal and interest related to the $225.0 million
Add-on Notes (as previously discussed) would be increased by the following as of June 30,
2010: $18.0 million due within one year; $36.0 million due within two to three years;
$36.0 million due within four to five years and $279.0 million due after five years.(2)
    
    These obligations are not reflected in our consolidated balance sheets.(3)
    
    Represents health claims incurred by members of PHP, AAHP and MHP, including incurred but
not reported claims, and net amounts payable for program settlements to AHCCCS and CMS for
certain programs for which profitability is limited. Accrued health plan claims and
settlements is separately stated on our consolidated balance sheets.(4)
    
    Includes the current and long-term portions of our professional and general liability,
workers compensation and employee health reserves.(5)
    
    Represents our estimate of amounts we are committed to fund in future periods through
executed agreements to complete projects included as construction in progress on our
consolidated balance sheets. The construction and capital improvements obligations,
adjusted to reflect capital commitments under the executed DMC Purchase Agreement (as
previously discussed) would be increased by the following as of June 30, 2010: $150.0
million committed within one year; $300.0 million committed within two to three years and
$400.0 million committed within four to five years.(6)
    
    Represents performance bonds we have purchased related to health claims liabilities of PHP.(7)
    
    Amounts relate primarily to instances in which we have letters of credit outstanding with
the third party administrator of our self-insured workers compensation program. The
outstanding balance was reduced to $28.3 million subsequent to June 30, 2010.(8)
    
    Includes physician guarantee liabilities recognized in our consolidated balance sheets
under the guidance of accounting for guarantees and liabilities for other fixed expenses
under physician relocation agreements not yet paid.(9)
    
    Represents expected future tax liabilities recognized in our consolidated balance sheets
determined under the guidance of accounting for income taxes.  93




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Guarantees and Off Balance Sheet Arrangements
  Effects of Inflation and Changing Prices
   94




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
        95




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Item 8. Financial Statements and Supplementary Data.
 INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
 PageVANGUARD HEALTH SYSTEMS, INC.Audited Consolidated Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    97Consolidated Balance Sheets as of June 30, 2009 and 2010
    
    
    98Consolidated Statements of Operations for the years ended June 30, 2008, 2009 and 2010
    
    
    99Consolidated Statements of Equity for the years ended June 30, 2008, 2009 and 2010
    
    
    100Consolidated Statements of Cash Flows for the years ended June 30, 2008, 2009 and 2010
    
    
    101Notes to Consolidated Financial Statements
    
    
    103
  96




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  97




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 Item 1. Financial Statements.
 VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30, 2009
    
    
    June 30, 2010(In millions, except share andper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    308.2
    
    
    $
    257.6Restricted cash
    
    
    1.9
    
    
    
    2.3Accounts receivable, net of allowance for doubtful accounts of approximately
$121.5 and $75.6, respectively
    
    
    275.3
    
    
    
    270.4Inventories
    
    
    48.3
    
    
    
    49.6Deferred tax assets
    
    
    29.6
    
    
    
    21.9Prepaid expenses and other current assets
    
    
    68.4
    
    
    
    119.2Total current assets
    
    
    731.7
    
    
    
    721.0Property, plant and equipment, net of accumulated depreciation
    
    
    1,174.1
    
    
    
    1,203.8Goodwill
    
    
    692.1
    
    
    
    649.1Intangible assets, net of accumulated amortization
    
    
    54.6
    
    
    
    66.0Deferred tax assets, noncurrent
    
    
    38.0
    
    
    
    50.0Investments in auction rate securities
    
    
    21.6
    
    
    
    19.8Other assets
    
    
    19.0
    
    
    
    19.9Total assets
    
    $
    2,731.1
    
    
    $
    2,729.6LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    127.9
    
    
    $
    194.8Accrued salaries and benefits
    
    
    133.9
    
    
    
    144.9Accrued health plan claims and settlements
    
    
    117.6
    
    
    
    149.8Accrued interest
    
    
    13.2
    
    
    
    41.4Other accrued expenses and current liabilities
    
    
    79.5
    
    
    
    76.9Current maturities of long-term debt
    
    
    8.0
    
    
    
    8.2Total current liabilities
    
    
    480.1
    
    
    
    616.0Professional and general liability and workers compensation reserves
    
    
    76.7
    
    
    
    83.6Other liabilities
    
    
    34.9
    
    
    
    31.6Long-term debt, less current maturities
    
    
    1,543.6
    
    
    
    1,743.8Commitments and contingenciesEquity:Vanguard Health Systems, Inc. stockholders equity:Common Stock of $.01 par value; 1,000,000 shares authorized; 749,550 and
749,104 issued and outstanding, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    651.3
    
    
    
    354.9Accumulated other comprehensive loss
    
    
    (6.8
    )
    
    
    (2.5
    )Retained deficit
    
    
    (56.7
    )
    
    
    (105.9
    )Total Vanguard Health Systems, Inc. stockholders equity
    
    
    587.8
    
    
    
    246.5Non-controlling interests
    
    
    8.0
    
    
    
    8.1Total equity
    
    
    595.8
    
    
    
    254.6Total liabilities and equity
    
    $
    2,731.1
    
    
    $
    2,729.6
   98




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VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended June 30,2008
    
    
    2009
    
    
    2010(In millions)Patient service revenues
    
    $
    2,325.4
    
    
    $
    2,507.4
    
    
    $
    2,537.2Premium revenues
    
    
    450.2
    
    
    
    678.0
    
    
    
    839.7Total revenues
    
    
    2,775.6
    
    
    
    3,185.4
    
    
    
    3,376.9Costs and Expenses:Salaries and benefits (includes stock compensation
of $2.5, $4.4 and $4.2, respectively)
    
    
    1,146.2
    
    
    
    1,233.8
    
    
    
    1,296.2Health plan claims expense
    
    
    328.2
    
    
    
    525.6
    
    
    
    665.8Supplies
    
    
    433.7
    
    
    
    455.5
    
    
    
    456.1Provision for doubtful accounts
    
    
    205.5
    
    
    
    210.3
    
    
    
    152.5Purchased services
    
    
    145.6
    
    
    
    163.8
    
    
    
    179.5Non-income taxes
    
    
    28.2
    
    
    
    52.2
    
    
    
    52.9Rents and leases
    
    
    41.0
    
    
    
    42.6
    
    
    
    43.8Other operating expenses
    
    
    183.7
    
    
    
    203.3
    
    
    
    207.7Depreciation and amortization
    
    
    129.3
    
    
    
    128.9
    
    
    
    139.6Interest, net
    
    
    122.1
    
    
    
    111.6
    
    
    
    115.5Impairment loss
    
    
    
    
    
    
    6.2
    
    
    
    43.1Debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    73.5Other
    
    
    6.5
    
    
    
    2.7
    
    
    
    9.1Income (loss) from continuing operations before income taxes
    
    
    5.6
    
    
    
    48.9
    
    
    
    (58.4
    )Income tax benefit (expense)
    
    
    (2.2
    )
    
    
    (16.8
    )
    
    
    13.8Income (loss) from continuing operations
    
    
    3.4
    
    
    
    32.1
    
    
    
    (44.6
    )Loss from discontinued operations, net of taxes
    
    
    (1.1
    )
    
    
    (0.3
    )
    
    
    (1.7
    )Net income (loss)
    
    
    2.3
    
    
    
    31.8
    
    
    
    (46.3
    )Less: Net income attributable to non-controlling interests
    
    
    (3.0
    )
    
    
    (3.2
    )
    
    
    (2.9
    )Net income (loss) attributable to Vanguard Health Systems,
Inc. stockholders
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )Amounts attributable to Vanguard Health Systems, Inc.
stockholders:Income (loss) from continuing operations, net of taxes
    
    $
    0.4
    
    
    $
    28.9
    
    
    $
    (47.5
    )Loss from discontinued operations, net of taxes
    
    
    (1.1
    )
    
    
    (0.3
    )
    
    
    (1.7
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )
   99




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF EQUITY
 Vanguard Health Systems, Inc. StockholdersAccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    Non-Common Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    Controlling
    
    
    TotalShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    Interests
    
    
    Equity(In millions, except share amounts)Balance at June 30, 2007
    
    
    749,550
    
    
    $
    
    
    
    $
    644.6
    
    
    $
    
    
    
    $
    (87.2
    )
    
    $
    9.3
    
    
    $
    566.7Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    (3.2
    )Issuance of common stock
    
    
    168
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Repurchase of common stock
    
    
    (168
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Cumulative effect of adoption
of accounting for uncertain tax
positions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    2.6Comprehensive income (loss):Change in fair value of interest
rate swap (net of
tax effect)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    2.8Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    3.0
    
    
    
    2.3Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    (0.7
    )
    
    
    3.0
    
    
    
    5.1Balance at June 30, 2008
    
    
    749,550
    
    
    
    
    
    
    
    647.1
    
    
    
    2.8
    
    
    
    (85.3
    )
    
    
    9.1
    
    
    
    573.7Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.4Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.3
    )
    
    
    (4.3
    )Repurchase of equity
incentive units
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Comprehensive income (loss):Change in fair value of interest
rate swap (net of
tax effect)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.1
    )
    
    
    
    
    
    
    
    
    
    
    (7.1
    )Change in fair value of auction rate
securities (net of
tax effect)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    (2.5
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.6
    
    
    
    3.2
    
    
    
    31.8Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.6
    )
    
    
    28.6
    
    
    
    3.2
    
    
    
    22.2Balance at June 30, 2009
    
    
    749,550
    
    
    
    
    
    
    
    651.3
    
    
    
    (6.8
    )
    
    
    (56.7
    )
    
    
    8.0
    
    
    
    595.8Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2Repurchase of stock
    
    
    (242,659
    )
    
    
    
    
    
    
    (300.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300.6
    )Stock split ($.01 par value)
    
    
    242,213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.8
    )
    
    
    (2.8
    )Comprehensive income (loss):Change in fair value of interest
rate swap (net of
tax effect)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.6Termination of interest
rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49.2
    )
    
    
    2.9
    
    
    
    (46.3
    )Total comprehenive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    (49.2
    )
    
    
    2.9
    
    
    
    (42.0
    )Balance at June 30, 2010
    
    
    749,104
    
    
    $
    
    
    
    $
    354.9
    
    
    $
    (2.5
    )
    
    $
    (105.9
    )
    
    $
    8.1
    
    
    $
    254.6
   100




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended June 30,2008
    
    
    2009
    
    
    2010(In millions)Operating activities:Net income (loss)
    
    $
    2.3
    
    
    $
    31.8
    
    
    $
    (46.3
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Loss from discontinued operations
    
    
    1.1
    
    
    
    0.3
    
    
    
    1.7Depreciation and amortization
    
    
    129.3
    
    
    
    128.9
    
    
    
    139.6Provision for doubtful accounts
    
    
    205.5
    
    
    
    210.3
    
    
    
    152.5Amortization of loan costs
    
    
    4.9
    
    
    
    5.4
    
    
    
    5.2Accretion of principal on notes
    
    
    19.5
    
    
    
    21.8
    
    
    
    6.5Loss (gain) on disposal of assets
    
    
    0.8
    
    
    
    (2.3
    )
    
    
    1.8Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    3.1Stock compensation
    
    
    2.5
    
    
    
    4.4
    
    
    
    4.2Deferred income taxes
    
    
    (1.7
    )
    
    
    6.4
    
    
    
    (8.5
    )Impairment loss
    
    
    
    
    
    
    6.2
    
    
    
    43.1Realized holding loss on investments
    
    
    
    
    
    
    0.6
    
    
    
    Debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    73.5Changes in operating assets and liabilities:Accounts receivable
    
    
    (222.6
    )
    
    
    (185.6
    )
    
    
    (148.3
    )Inventories
    
    
    (4.1
    )
    
    
    1.0
    
    
    
    (1.3
    )Prepaid expenses and other current assets
    
    
    (19.6
    )
    
    
    (12.7
    )
    
    
    (80.5
    )Accounts payable
    
    
    12.4
    
    
    
    (27.5
    )
    
    
    67.1Accrued expenses and other liabilities
    
    
    45.3
    
    
    
    122.7
    
    
    
    102.8Net cash provided by operating activities  continuing operations
    
    
    175.6
    
    
    
    311.7
    
    
    
    316.2Net cash provided by (used in) operating activities  discontinued operations
    
    
    0.7
    
    
    
    1.4
    
    
    
    (1.0
    )Net cash provided by operating activities
    
    
    176.3
    
    
    
    313.1
    
    
    
    315.2Investing activities:Acquisitions and related expenses
    
    
    (0.2
    )
    
    
    (4.4
    )
    
    
    (4.6
    )Capital expenditures
    
    
    (119.8
    )
    
    
    (132.0
    )
    
    
    (155.9
    )Proceeds from asset dispositions
    
    
    0.4
    
    
    
    4.9
    
    
    
    2.0Purchases of auction rate securities
    
    
    (90.0
    )
    
    
    
    
    
    
    Sales of auction rate securities
    
    
    63.7
    
    
    
    
    
    
    
    1.8Other
    
    
    1.1
    
    
    
    (2.0
    )
    
    
    0.3Net cash used in investing activities  continuing operations
    
    
    (144.8
    )
    
    
    (133.5
    )
    
    
    (156.4
    )Net cash provided by (used in) investing activities  discontinued operations
    
    
    1.0
    
    
    
    (0.1
    )
    
    
    (0.1
    )Net cash used in investing activities
    
    
    (143.8
    )
    
    
    (133.6
    )
    
    
    (156.5
    )Financing activities:Payments of long-term debt
    
    
    (7.8
    )
    
    
    (7.8
    )
    
    
    (1,557.4
    )Proceeds from debt borrowings
    
    
    
    
    
    
    
    
    
    
    1,751.3Payments of refinancing costs and fees
    
    
    
    
    
    
    
    
    
    
    (93.6
    )Repurchases of stock, equity incentive units and stock options
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (300.6
    )Payments related to derivative instrument with financing element
    
    
    
    
    
    
    
    
    
    
    (6.2
    )Distributions paid to non-controlling interests and other
    
    
    (3.0
    )
    
    
    (4.9
    )
    
    
    (2.8
    )Net cash used in financing activities
    
    
    (11.0
    )
    
    
    (12.9
    )
    
    
    (209.3
    )Net increase (decrease) in cash and cash equivalents
    
    
    21.5
    
    
    
    166.6
    
    
    
    (50.6
    )Cash and cash equivalents, beginning of year
    
    
    120.1
    
    
    
    141.6
    
    
    
    308.2Cash and cash equivalents, end of year
    
    $
    141.6
    
    
    $
    308.2
    
    
    $
    257.6
   101




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended June 30,2008
    
    
    2009
    
    
    2010(In millions)Supplemental cash flow information:Net cash paid for interest
    
    $
    99.1
    
    
    $
    86.4
    
    
    $
    71.7Net cash paid (received) for income taxes
    
    $
    1.3
    
    
    $
    17.3
    
    
    $
    (11.1
    )Supplemental noncash activities:Capitalized interest
    
    $
    1.4
    
    
    $
    2.0
    
    
    $
    2.4Change in fair value of interest rate swap, net of taxes
    
    $
    2.8
    
    
    $
    (7.1
    )
    
    $
    2.6Change in fair value of auction rate securities, net of taxes
    
    $
    
    
    
    $
    (2.5
    )
    
    $
    
   102




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
 1. BUSINESS AND BASIS OF PRESENTATION
 Business
  Basis of Presentation
  Use of Estimates
  Probable Acquisition
    103




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Refinancing Transactions
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenues and Revenue Deductions
   .
  104




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
      Cash and Cash Equivalents
  Restricted Cash
   105




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Accounts Receivable
     Additions
    
    
    AccountsBalance at
    
    
    Charged to
    
    
    Written off,
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    Net of
    
    
    Endof Period
    
    
    Expenses
    
    
    Recoveries
    
    

of PeriodAllowance for doubtful accounts:Year ended June 30, 2008
    
    $
    113.2
    
    
    $
    201.0
    
    
    $
    196.5
    
    
    $
    117.7Year ended June 30, 2009
    
    $
    117.7
    
    
    $
    210.8
    
    
    $
    207.0
    
    
    $
    121.5Year ended June 30, 2010
    
    $
    121.5
    
    
    $
    152.5
    
    
    $
    198.4
    
    
    $
    75.6
 Inventories
  Property, Plant and Equipment
   106




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   June 30, 2009
    
    
    June 30, 2010Class of asset:Land and improvements
    
    $
    148.7
    
    
    $
    161.8Buildings and improvements
    
    
    842.4
    
    
    
    864.0Equipment
    
    
    641.5
    
    
    
    740.5Construction in progress
    
    
    60.0
    
    
    
    88.51,692.6
    
    
    
    1,854.8Less: accumulated depreciation
    
    
    (518.5
    )
    
    
    (651.0
    )Net property, plant and equipment
    
    $
    1,174.1
    
    
    $
    1,203.8
 Investments in Auction Rate Securities
  Balance at June 30, 2008
    
    $
    26.3Realized holding loss
    
    
    (0.6
    )Temporary impairment recognized in Accumulated Other
Comprehensive Loss ($2.5 million, net of taxes)
    
    
    (4.1
    )Balance at June 30, 2009
    
    
    21.6Proceeds from redemptions at par value
    
    
    (1.8
    )Balance at June 30, 2010
    
    $
    19.8
   107




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Long-Lived Assets and Goodwill
   Amortization of Intangible Assets
  Income Taxes
    108




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  
    
    Cumulative losses in recent years
    
    Income/losses expected in future years
    
    Unsettled circumstances that, if favorably resolved, would adversely affect future
operations
    
    Availability, or lack thereof, of taxable income in prior carryback periods that would
limit realization of tax benefits
    
    Carryforward period associated with the deferred tax assets and liabilities
    
    Prudent and feasible tax planning strategies
  Accrued Health Plan Claims and Settlements
   Employee Health Insurance Reserve
   109




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Professional and General Liability and Workers Compensation Reserves
    Market and Labor Risks
  Stock-Based Compensation
   110




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Minimum
    
    
    Black-ScholesValue
    
    
    MertonRisk-free interest rate
    
    
    4.11%-4.95
    %
    
    
    3.61%-5.13
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Volatility (wtd avg)
    
    
    N/A
    
    
    
    31.12
    %Volatility (annual)
    
    
    N/A
    
    
    
    26.39%-37.73
    %Expected option life
    
    10 years
    
    
    6.5 years
  Recently Issued Accounting Pronouncements
   3. FAIR VALUE MEASUREMENTS
  Level 1
    
    Unadjusted quoted prices in active markets for identical assets and liabilities.Level 2
    
    Directly or indirectly observable inputs, other than quoted prices included in
Level 1. Level 2 inputs may include, among others, interest rates and yield
curves observable at commonly quoted intervals, volatilities, loss severities,
credit risks and other inputs that are derived principally from or corroborated
by observable market data by correlation or other means.Level 3
    
    Unobservable inputs used when there is little, if any, market activity for the
asset or liability at the measurement date. These inputs represent the entitys
own assumptions about the assumptions that market participants would use to
price the asset or liability developed using the best information available.
  111




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Fair
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Value
    
    
    Inputs
    
    
    Inputs
    
    
    InputsAssets:Investments in auction rate securities
    
    $
    19.8
    
    
    $
    
    
    
    $
    
    
    
    $
    19.8
  Balance at
    
    
    
    
    
    
    Balance atJune 30, 2009
    
    
    Redemptions
    
    
    June 30, 2010Investments in auction rate securities
    
    $
    21.6
    
    
    $
    1.8
    
    
    $
    19.8
  Auction Rate Securities
    112




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Interest Rate Swap Agreement
    Cash and Cash Equivalents and Restricted Cash
  Accounts Receivable and Accounts Payable
  Long-Term Debt
  4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
  2009
    
    
    2010Prepaid insurance
    
    $
    6.1
    
    
    $
    0.4Prepaid maintenance contracts
    
    
    7.9
    
    
    
    6.4Other prepaid expenses
    
    
    8.9
    
    
    
    8.8Third party settlements
    
    
    2.1
    
    
    
    6.6Reinsurance receivables
    
    
    1.5
    
    
    
    Health plan receivables
    
    
    26.0
    
    
    
    81.4Other receivables
    
    
    15.9
    
    
    
    15.6$
    68.4
    
    
    $
    119.2
  113




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  5. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
  6. GOODWILL AND INTANGIBLE ASSETS
  Gross Carrying Amount
    
    
    Accumulated AmortizationClass of Intangible Asset
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Amortized intangible assets:Deferred loan costs
    
    $
    43.9
    
    
    $
    39.1
    
    
    $
    21.5
    
    
    $
    1.9Contracts
    
    
    31.4
    
    
    
    31.4
    
    
    
    14.9
    
    
    
    18.0Physician income and other guarantees
    
    
    27.3
    
    
    
    31.1
    
    
    
    18.3
    
    
    
    25.0Other
    
    
    4.5
    
    
    
    8.8
    
    
    
    1.0
    
    
    
    2.7Subtotal
    
    
    107.1
    
    
    
    110.4
    
    
    
    55.7
    
    
    
    47.6Indefinite-lived intangible assets:License and accreditation
    
    
    3.2
    
    
    
    3.2
    
    
    
    
    
    
    
    Total
    
    $
    110.3
    
    
    $
    113.6
    
    
    $
    55.7
    
    
    $
    47.6
    114




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  7. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES
  2009
    
    
    2010Property taxes
    
    $
    17.0
    
    
    $
    13.2Current portion of professional and general liability
and workers compensation insurance
    
    
    34.4
    
    
    
    24.0Accrued income guarantees
    
    
    3.0
    
    
    
    2.6Interest rate swap payable
    
    
    6.9
    
    
    
    Accrued capital expenditures
    
    
    10.7
    
    
    
    21.0Other
    
    
    7.5
    
    
    
    16.1$
    79.5
    
    
    $
    76.9
 8. FINANCING ARRANGEMENTS
  2009
    
    
    20109.0% Senior Subordinated Notes
    
    $
    575.0
    
    
    $
    11.25% Senior Discount Notes
    
    
    210.2
    
    
    
    Term loans payable under credit facility due 2011
    
    
    766.4
    
    
    
    8.0% Senior Unsecured Notes
    
    
    
    
    
    
    937.0Term loans payable under credit facility due 2016
    
    
    
    
    
    
    815.01,551.6
    
    
    
    1,752.0Less: current maturities
    
    
    (8.0
    )
    
    
    (8.2
    )$
    1,543.6
    
    
    $
    1,743.8
 8.0% Notes
 pari passu
  115




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Credit Facility Debt
      116




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Future Maturities
  Debt Extinguishment Costs
  Other Information
   117




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Balance Sheets
June 30, 2009
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    168.3
    
    
    $
    139.9
    
    
    $
    
    
    
    $
    308.2Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    1.7
    
    
    
    
    
    
    
    1.9Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    257.0
    
    
    
    18.3
    
    
    
    
    
    
    
    275.3Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44.5
    
    
    
    3.8
    
    
    
    
    
    
    
    48.3Prepaid expenses and other
current assets
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    94.9
    
    
    
    34.6
    
    
    
    (34.0
    )
    
    
    98.0Total current assets
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    564.9
    
    
    
    198.3
    
    
    
    (34.0
    )
    
    
    731.7Propery, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,114.7
    
    
    
    59.4
    
    
    
    
    
    
    
    1,174.1Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    608.5
    
    
    
    83.6
    
    
    
    
    
    
    
    692.1Intangible assets, net
    
    
    
    
    
    
    19.4
    
    
    
    2.9
    
    
    
    13.5
    
    
    
    18.8
    
    
    
    
    
    
    
    54.6Investments in consolidated
subsidiaries
    
    
    608.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24.5
    
    
    
    (633.3
    )
    
    
    Investments in auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.6
    
    
    
    
    
    
    
    21.6Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56.8
    
    
    
    0.2
    
    
    
    
    
    
    
    57.0Total assets
    
    $
    611.3
    
    
    $
    19.4
    
    
    $
    2.9
    
    
    $
    2,358.4
    
    
    $
    406.4
    
    
    $
    (667.3
    )
    
    $
    2,731.1LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    112.7
    
    
    $
    15.2
    
    
    $
    
    
    
    $
    127.9Accrued expenses and other current
liabilities
    
    
    
    
    
    
    20.0
    
    
    
    
    
    
    
    201.9
    
    
    
    122.3
    
    
    
    
    
    
    
    344.2Current maturities of long-term debt
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    
    
    
    
    8.0Total current liabilities
    
    
    
    
    
    
    28.0
    
    
    
    
    
    
    
    314.4
    
    
    
    137.7
    
    
    
    
    
    
    
    480.1Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71.9
    
    
    
    73.7
    
    
    
    (34.0
    )
    
    
    111.6Long-term debt, less current maturities
    
    
    
    
    
    
    1,333.4
    
    
    
    210.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,543.6Intercompany
    
    
    15.5
    
    
    
    (810.4
    )
    
    
    (120.9
    )
    
    
    1,314.8
    
    
    
    (60.1
    )
    
    
    (338.9
    )
    
    
    Equity
    
    
    595.8
    
    
    
    (531.6
    )
    
    
    (86.4
    )
    
    
    657.3
    
    
    
    255.1
    
    
    
    (294.4
    )
    
    
    595.8Total liabilities and equity
    
    $
    611.3
    
    
    $
    19.4
    
    
    $
    2.9
    
    
    $
    2,358.4
    
    
    $
    406.4
    
    
    $
    (667.3
    )
    
    $
    2,731.1
  118




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Balance Sheets
June 30, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    198.6
    
    
    $
    59.0
    
    
    $
    
    
    
    $
    257.6Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    1.7
    
    
    
    
    
    
    
    2.3Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249.4
    
    
    
    21.0
    
    
    
    
    
    
    
    270.4Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46.0
    
    
    
    3.6
    
    
    
    
    
    
    
    49.6Prepaid expenses and other
current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62.5
    
    
    
    85.9
    
    
    
    (7.3
    )
    
    
    141.1Total current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    557.1
    
    
    
    171.2
    
    
    
    (7.3
    )
    
    
    721.0Propery, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,147.3
    
    
    
    56.5
    
    
    
    
    
    
    
    1,203.8Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    564.3
    
    
    
    84.8
    
    
    
    
    
    
    
    649.1Intangible assets, net
    
    
    
    
    
    
    37.2
    
    
    
    
    
    
    
    14.8
    
    
    
    14.0
    
    
    
    
    
    
    
    66.0Investments in consolidated
subsidiaries
    
    
    608.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (608.8
    )
    
    
    Investments in auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.8
    
    
    
    
    
    
    
    19.8Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69.7
    
    
    
    0.2
    
    
    
    
    
    
    
    69.9Total assets
    
    $
    608.8
    
    
    $
    37.2
    
    
    $
    
    
    
    $
    2,353.2
    
    
    $
    346.5
    
    
    $
    (616.1
    )
    
    $
    2,729.6LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    158.2
    
    
    $
    36.6
    
    
    $
    
    
    
    $
    194.8Accrued expenses and other current
liabilities
    
    
    
    
    
    
    41.4
    
    
    
    
    
    
    
    212.9
    
    
    
    158.7
    
    
    
    
    
    
    
    413.0Current maturities of long-term debt
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    
    
    
    
    8.2Total current liabilities
    
    
    
    
    
    
    49.6
    
    
    
    
    
    
    
    370.9
    
    
    
    195.5
    
    
    
    
    
    
    
    616.0Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70.3
    
    
    
    52.2
    
    
    
    (7.3
    )
    
    
    115.2Long-term debt, less current maturities
    
    
    
    
    
    
    1,743.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,743.8Intercompany
    
    
    354.2
    
    
    
    (1,052.4
    )
    
    
    
    
    
    
    1,177.0
    
    
    
    (182.0
    )
    
    
    (296.8
    )
    
    
    Total equity (deficit)
    
    
    254.6
    
    
    
    (703.8
    )
    
    
    
    
    
    
    735.0
    
    
    
    280.8
    
    
    
    (312.0
    )
    
    
    254.6Total liabilities and equity
    
    $
    608.8
    
    
    $
    37.2
    
    
    $
    
    
    
    $
    2,353.2
    
    
    $
    346.5
    
    
    $
    (616.1
    )
    
    $
    2,729.6
  119




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the year ended June 30, 2008
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,197.1
    
    
    $
    150.8
    
    
    $
    (22.5
    )
    
    $
    2,325.4Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57.7
    
    
    
    392.7
    
    
    
    (0.2
    )
    
    
    450.2Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,254.8
    
    
    
    543.5
    
    
    
    (22.7
    )
    
    
    2,775.6Salaries and benefits
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    1,062.2
    
    
    
    81.5
    
    
    
    
    
    
    
    1,146.2Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35.8
    
    
    
    314.9
    
    
    
    (22.5
    )
    
    
    328.2Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405.0
    
    
    
    28.7
    
    
    
    
    
    
    
    433.7Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196.8
    
    
    
    8.7
    
    
    
    
    
    
    
    205.5Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132.6
    
    
    
    13.0
    
    
    
    
    
    
    
    145.6Other operating expenses
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    179.8
    
    
    
    32.1
    
    
    
    (0.2
    )
    
    
    211.9Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.0
    
    
    
    7.0
    
    
    
    
    
    
    
    41.0Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115.1
    
    
    
    14.2
    
    
    
    
    
    
    
    129.3Interest, net
    
    
    
    
    
    
    109.9
    
    
    
    19.8
    
    
    
    (9.3
    )
    
    
    1.7
    
    
    
    
    
    
    
    122.1Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.2
    )
    
    
    8.2
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.5
    
    
    
    (54.0
    )
    
    
    
    
    
    
    6.5Total costs and expenses
    
    
    2.7
    
    
    
    109.9
    
    
    
    19.8
    
    
    
    2,204.3
    
    
    
    456.0
    
    
    
    (22.7
    )
    
    
    2,770.0Income (loss) from continuing operations before income taxes
    
    
    (2.7
    )
    
    
    (109.9
    )
    
    
    (19.8
    )
    
    
    50.5
    
    
    
    87.5
    
    
    
    
    
    
    
    5.6Income tax benefit (expense)
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.4
    )
    
    
    13.4
    
    
    
    (2.2
    )Equity in earnings of subsidiaries
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    Income (loss) from continuing operations
    
    
    (0.7
    )
    
    
    (109.9
    )
    
    
    (19.8
    )
    
    
    50.5
    
    
    
    74.1
    
    
    
    9.2
    
    
    
    3.4Income (loss) from discontined
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    (3.2
    )
    
    
    
    
    
    
    (1.1
    )Net income (loss)
    
    
    (0.7
    )
    
    
    (109.9
    )
    
    
    (19.8
    )
    
    
    52.6
    
    
    
    70.9
    
    
    
    9.2
    
    
    
    2.3Less: Net income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.0
    )
    
    
    
    
    
    
    
    
    
    
    (3.0
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (0.7
    )
    
    $
    (109.9
    )
    
    $
    (19.8
    )
    
    $
    49.6
    
    
    $
    70.9
    
    
    $
    9.2
    
    
    $
    (0.7
    )
  120




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the year ended June 30, 2009
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,359.5
    
    
    $
    171.2
    
    
    $
    (23.3
    )
    
    $
    2,507.4Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.2
    
    
    
    618.0
    
    
    
    (0.2
    )
    
    
    678.0Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,419.7
    
    
    
    789.2
    
    
    
    (23.5
    )
    
    
    3,185.4Salaries and benefits
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    1,138.4
    
    
    
    91.0
    
    
    
    
    
    
    
    1,233.8Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.8
    
    
    
    514.1
    
    
    
    (23.3
    )
    
    
    525.6Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422.9
    
    
    
    32.6
    
    
    
    
    
    
    
    455.5Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200.2
    
    
    
    10.1
    
    
    
    
    
    
    
    210.3Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149.1
    
    
    
    14.7
    
    
    
    
    
    
    
    163.8Other operating expenses
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    198.8
    
    
    
    56.7
    
    
    
    (0.2
    )
    
    
    255.5Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35.6
    
    
    
    7.0
    
    
    
    
    
    
    
    42.6Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.7
    
    
    
    14.2
    
    
    
    
    
    
    
    128.9Interest, net
    
    
    
    
    
    
    93.8
    
    
    
    22.1
    
    
    
    (6.7
    )
    
    
    2.4
    
    
    
    
    
    
    
    111.6Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.1
    )
    
    
    14.1
    
    
    
    
    
    
    
    Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.2
    
    
    
    
    
    
    
    
    
    
    
    6.2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    2.7Total costs and expenses
    
    
    4.6
    
    
    
    93.8
    
    
    
    22.1
    
    
    
    2,282.6
    
    
    
    756.9
    
    
    
    (23.5
    )
    
    
    3,136.5Income (loss) from continuing operations
before income taxes
    
    
    (4.6
    )
    
    
    (93.8
    )
    
    
    (22.1
    )
    
    
    137.1
    
    
    
    32.3
    
    
    
    
    
    
    
    48.9Income tax benefit (expense)
    
    
    (16.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.4
    )
    
    
    9.4
    
    
    
    (16.8
    )Equity in earnings of subsidiaries
    
    
    50.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50.0
    )
    
    
    Income (loss) from continuing operations
    
    
    28.6
    
    
    
    (93.8
    )
    
    
    (22.1
    )
    
    
    137.1
    
    
    
    22.9
    
    
    
    (40.6
    )
    
    
    32.1Income (loss) from discontined
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )Net income (loss)
    
    
    28.6
    
    
    
    (93.8
    )
    
    
    (22.1
    )
    
    
    136.5
    
    
    
    23.2
    
    
    
    (40.6
    )
    
    
    31.8Less: Net income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    (3.2
    )Net income
(loss) attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    28.6
    
    
    $
    (93.8
    )
    
    $
    (22.1
    )
    
    $
    133.3
    
    
    $
    23.2
    
    
    $
    (40.6
    )
    
    $
    28.6
  121




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the year ended June 30, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,396.9
    
    
    $
    183.1
    
    
    $
    (42.8
    )
    
    $
    2,537.2Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59.5
    
    
    
    810.4
    
    
    
    (30.2
    )
    
    
    839.7Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,456.4
    
    
    
    993.5
    
    
    
    (73.0
    )
    
    
    3,376.9Salaries and benefits
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    1,194.9
    
    
    
    97.1
    
    
    
    
    
    
    
    1,296.2Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46.3
    
    
    
    662.3
    
    
    
    (42.8
    )
    
    
    665.8Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421.9
    
    
    
    34.2
    
    
    
    
    
    
    
    456.1Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144.9
    
    
    
    7.6
    
    
    
    
    
    
    
    152.5Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155.4
    
    
    
    24.1
    
    
    
    
    
    
    
    179.5Other operating expenses
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    219.0
    
    
    
    71.6
    
    
    
    (30.2
    )
    
    
    260.6Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.5
    
    
    
    7.3
    
    
    
    
    
    
    
    43.8Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127.1
    
    
    
    12.5
    
    
    
    
    
    
    
    139.6Interest, net
    
    
    
    
    
    
    104.4
    
    
    
    14.7
    
    
    
    (7.2
    )
    
    
    3.6
    
    
    
    
    
    
    
    115.5Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Debt extinguishment costs
    
    
    
    
    
    
    67.8
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.5Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.9
    )
    
    
    16.9
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.1
    
    
    
    
    
    
    
    
    
    
    
    9.1Total costs and expenses
    
    
    4.4
    
    
    
    172.2
    
    
    
    20.4
    
    
    
    2,374.1
    
    
    
    937.2
    
    
    
    (73.0
    )
    
    
    3,435.3Income (loss) from continuing operations
before income taxes
    
    
    (4.4
    )
    
    
    (172.2
    )
    
    
    (20.4
    )
    
    
    82.3
    
    
    
    56.3
    
    
    
    
    
    
    
    (58.4
    )Income tax benefit (expense)
    
    
    13.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.0
    )
    
    
    20.0
    
    
    
    13.8Equity in earnings of subsidiaries
    
    
    (58.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58.6
    
    
    
    Income (loss) from continuing operations
    
    
    (49.2
    )
    
    
    (172.2
    )
    
    
    (20.4
    )
    
    
    82.3
    
    
    
    36.3
    
    
    
    78.6
    
    
    
    (44.6
    )Income (loss) from discontined
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Net income (loss)
    
    
    (49.2
    )
    
    
    (172.2
    )
    
    
    (20.4
    )
    
    
    80.6
    
    
    
    36.3
    
    
    
    78.6
    
    
    
    (46.3
    )Less: Net income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Net income
(loss) attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    (49.2
    )
    
    $
    (172.2
    )
    
    $
    (20.4
    )
    
    $
    77.7
    
    
    $
    36.3
    
    
    $
    78.6
    
    
    $
    (49.2
    )
  122




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the year ended June 30, 2008
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Operating activities:Net income (loss)
    
    $
    (0.7
    )
    
    $
    (109.9
    )
    
    $
    (19.8
    )
    
    $
    52.1
    
    
    $
    70.9
    
    
    $
    9.7
    
    
    $
    2.3Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activitiesLoss (income) from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    3.2
    
    
    
    
    
    
    
    1.1Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115.1
    
    
    
    14.2
    
    
    
    
    
    
    
    129.3Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196.8
    
    
    
    8.7
    
    
    
    
    
    
    
    205.5Deferred income taxes
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Amortization of loan costs
    
    
    
    
    
    
    4.6
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9Accretion of principal on senior discount
notes
    
    
    
    
    
    
    
    
    
    
    19.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.5Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Stock compensation
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    (3.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.7
    
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216.5
    )
    
    
    (6.1
    )
    
    
    
    
    
    
    (222.6
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.3
    )
    
    
    0.2
    
    
    
    
    
    
    
    (4.1
    )Prepaid expenses and other current
assets
    
    
    (4.5
    )
    
    
    
    
    
    
    
    
    
    
    (17.5
    )
    
    
    2.4
    
    
    
    
    
    
    
    (19.6
    )Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.8
    
    
    
    6.6
    
    
    
    
    
    
    
    12.4Accrued expenses and other liabilities
    
    
    4.4
    
    
    
    (0.2
    )
    
    
    
    
    
    
    76.0
    
    
    
    (21.6
    )
    
    
    (13.4
    )
    
    
    45.2Net cash provided by (used in) operating
activities  continuing operations
    
    
    (3.7
    )
    
    
    (105.5
    )
    
    
    
    
    
    
    206.3
    
    
    
    78.5
    
    
    
    
    
    
    
    175.6Net cash provided by operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    1.3
    
    
    
    
    
    
    
    0.7Net cash provided by (used in)
operating activities
    
    
    (3.7
    )
    
    
    (105.5
    )
    
    
    
    
    
    
    205.7
    
    
    
    79.8
    
    
    
    
    
    
    
    176.3
  123




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the year ended June 30, 2008
(continued)
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116.3
    )
    
    
    (3.5
    )
    
    
    
    
    
    
    (119.8
    )Acquisitions and related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Purchases of auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90.0
    )
    
    
    
    
    
    
    (90.0
    )Sales of auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63.7
    
    
    
    
    
    
    
    63.7Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    1.1Net cash used in investing activities 
continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116.5
    )
    
    
    (28.3
    )
    
    
    
    
    
    
    (144.8
    )Net cash provided by (used in) investing
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.3
    
    
    
    (0.3
    )
    
    
    
    
    
    
    1.0Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115.2
    )
    
    
    (28.6
    )
    
    
    
    
    
    
    (143.8
    )Financing activities:Payments of long-term debt
    
    $
    
    
    
    $
    (7.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (7.8
    )Repurchases of stock, equity incentive
units and stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Cash provided by (used in) intercompany
activity
    
    
    3.7
    
    
    
    113.3
    
    
    
    
    
    
    
    (17.0
    )
    
    
    (100.0
    )
    
    
    
    
    
    
    Distributions paid to non-controlling interests and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.0
    )
    
    
    
    
    
    
    
    
    
    
    (3.0
    )Net cash provided by (used in) financing
activities
    
    
    3.7
    
    
    
    105.5
    
    
    
    
    
    
    
    (20.2
    )
    
    
    (100.0
    )
    
    
    
    
    
    
    (11.0
    )Net increase (decrease) in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70.3
    
    
    
    (48.8
    )
    
    
    
    
    
    
    21.5Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.7
    
    
    
    108.4
    
    
    
    
    
    
    
    120.1Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    82.0
    
    
    $
    59.6
    
    
    $
    
    
    
    $
    141.6
  124




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the year ended June 30, 2009
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Operating activities:Net income (loss)
    
    $
    28.6
    
    
    $
    (93.8
    )
    
    $
    (22.1
    )
    
    $
    135.7
    
    
    $
    23.2
    
    
    $
    (39.8
    )
    
    $
    31.8Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activitiesLoss (income) from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    (0.3
    )
    
    
    
    
    
    
    0.3Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.7
    
    
    
    14.2
    
    
    
    
    
    
    
    128.9Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200.2
    
    
    
    10.1
    
    
    
    
    
    
    
    210.3Deferred income taxes
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.4Amortization of loan costs
    
    
    
    
    
    
    5.1
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.4Accretion of principal on senior discount
notes
    
    
    
    
    
    
    
    
    
    
    21.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.8Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    (2.3
    )Stock compensation
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.4Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.2
    
    
    
    
    
    
    
    
    
    
    
    6.2Realized holding loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    (49.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49.2
    
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (182.6
    )
    
    
    (3.0
    )
    
    
    
    
    
    
    (185.6
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    0.2
    
    
    
    
    
    
    
    1.0Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.9
    
    
    
    (20.6
    )
    
    
    
    
    
    
    (12.7
    )Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24.8
    )
    
    
    (2.7
    )
    
    
    
    
    
    
    (27.5
    )Accrued expenses and other liabilities
    
    
    9.8
    
    
    
    6.8
    
    
    
    
    
    
    
    32.1
    
    
    
    83.4
    
    
    
    (9.4
    )
    
    
    122.7Net cash provided by (used in) operating
activities  continuing operations
    
    
    
    
    
    
    (81.9
    )
    
    
    
    
    
    
    288.5
    
    
    
    105.1
    
    
    
    
    
    
    
    311.7Net cash provided by operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    0.3
    
    
    
    
    
    
    
    1.4Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (81.9
    )
    
    
    
    
    
    
    289.6
    
    
    
    105.4
    
    
    
    
    
    
    
    313.1
  125




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the year ended June 30, 2009
(Continued)
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Gurantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122.2
    )
    
    
    (9.8
    )
    
    
    
    
    
    
    (132.0
    )Acquisitions and related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.4
    )
    
    
    
    
    
    
    
    
    
    
    (4.4
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9
    
    
    
    
    
    
    
    
    
    
    
    4.9Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (2.0
    )Net cash used in investing activities 
continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123.4
    )
    
    
    (10.1
    )
    
    
    
    
    
    
    (133.5
    )Net cash used in investing activities 
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123.5
    )
    
    
    (10.1
    )
    
    
    
    
    
    
    (133.6
    )Financing activities:Payments of long-term debt
    
    $
    
    
    
    $
    (7.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (7.8
    )Repurchases of stock, equity
incentive units and stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Cash provided by (used in) intercompany
activity
    
    
    
    
    
    
    89.7
    
    
    
    
    
    
    
    (74.7
    )
    
    
    (15.0
    )
    
    
    
    
    
    
    Distributions paid to non-controlling
interests and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.9
    )
    
    
    
    
    
    
    
    
    
    
    (4.9
    )Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    81.9
    
    
    
    
    
    
    
    (79.8
    )
    
    
    (15.0
    )
    
    
    
    
    
    
    (12.9
    )Net decrease in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86.3
    
    
    
    80.3
    
    
    
    
    
    
    
    166.6Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82.0
    
    
    
    59.6
    
    
    
    
    
    
    
    141.6Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    168.3
    
    
    $
    139.9
    
    
    $
    
    
    
    $
    308.2
  126




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the year ended June 30, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Operating activities:Net income (loss)
    
    $
    (49.2
    )
    
    $
    (172.2
    )
    
    $
    (20.4
    )
    
    $
    80.6
    
    
    $
    36.3
    
    
    $
    78.6
    
    
    $
    (46.3
    )Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127.1
    
    
    
    12.5
    
    
    
    
    
    
    
    139.6Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144.9
    
    
    
    7.6
    
    
    
    
    
    
    
    152.5Deferred income taxes
    
    
    (8.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.5
    )Amortization of loan costs
    
    
    
    
    
    
    4.9
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.2Accretion of principal on senior discount
notes
    
    
    
    
    
    
    0.7
    
    
    
    5.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.5Debt extinguishment costs
    
    
    
    
    
    
    67.8
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.5Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Stock compensation
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    3.1Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    58.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58.6
    )
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138.0
    )
    
    
    (10.3
    )
    
    
    
    
    
    
    (148.3
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    0.2
    
    
    
    
    
    
    
    (1.3
    )Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53.7
    )
    
    
    (26.8
    )
    
    
    
    
    
    
    (80.5
    )Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45.7
    
    
    
    21.4
    
    
    
    
    
    
    
    67.1Accrued expenses and other liabilities
    
    
    (5.1
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    115.0
    
    
    
    15.0
    
    
    
    (20.0
    )
    
    
    102.8Net cash provided by (used in) operating
activities  continuing operations
    
    
    
    
    
    
    (100.9
    )
    
    
    (8.6
    )
    
    
    369.8
    
    
    
    55.9
    
    
    
    
    
    
    
    316.2Net cash used in operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (100.9
    )
    
    
    (8.6
    )
    
    
    368.8
    
    
    
    55.9
    
    
    
    
    
    
    
    315.2
  127




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the year ended June 30, 2010
(Continued)
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Gurantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149.8
    )
    
    
    (6.1
    )
    
    
    
    
    
    
    (155.9
    )Acquisitions and related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    
    
    
    
    
    
    
    
    (4.6
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Sales of auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    1.8Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Net cash
used in investing activities 
continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152.1
    )
    
    
    (4.3
    )
    
    
    
    
    
    
    (156.4
    )Net cash used in investing activities 
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152.2
    )
    
    
    (4.3
    )
    
    
    
    
    
    
    (156.5
    )Financing activities:Payments of long-term debt
    
    $
    
    
    
    $
    (1,341.4
    )
    
    $
    (216.0
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,557.4
    )Proceeds from debt borrowings
    
    
    
    
    
    
    1,751.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,751.3Payments of refinancing costs and fees
    
    
    
    
    
    
    (80.3
    )
    
    
    (13.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93.6
    )Repurchases of stock, equity incentive
units and stock options
    
    
    (300.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300.6
    )Payments related to derivative instrument
with financing element
    
    
    (6.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.2
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.7
    )
    
    
    7.9
    
    
    
    (2.8
    )Cash provided by (used in) intercompany
activity
    
    
    306.8
    
    
    
    (228.7
    )
    
    
    237.9
    
    
    
    (186.3
    )
    
    
    (121.8
    )
    
    
    (7.9
    )
    
    
    Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    100.9
    
    
    
    8.6
    
    
    
    (186.3
    )
    
    
    (132.5
    )
    
    
    
    
    
    
    (209.3
    )Net increase (decrease) in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.3
    
    
    
    (80.9
    )
    
    
    
    
    
    
    (50.6
    )Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168.3
    
    
    
    139.9
    
    
    
    
    
    
    
    308.2Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    198.6
    
    
    $
    59.0
    
    
    $
    
    
    
    $
    257.6
  128




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 9. INCOME TAXES
  Year ended June 30,2008
    
    
    2009
    
    
    2010Current:Federal
    
    $
    1.5
    
    
    $
    8.2
    
    
    $
    (7.3
    )State
    
    
    2.3
    
    
    
    2.2
    
    
    
    2.0Total current
    
    
    3.8
    
    
    
    10.4
    
    
    
    (5.3
    )Deferred:Federal
    
    
    (0.8
    )
    
    
    8.6
    
    
    
    (10.0
    )State
    
    
    (8.6
    )
    
    
    (0.9
    )
    
    
    (2.3
    )Total deferred
    
    
    (9.4
    )
    
    
    7.7
    
    
    
    (12.3
    )Change in valuation allowance
    
    
    7.8
    
    
    
    (1.3
    )
    
    
    3.8Total income tax expense (benefit)
    
    $
    2.2
    
    
    $
    16.8
    
    
    $
    (13.8
    )
  Year ended June 30,2008
    
    
    2009
    
    
    2010Continuing operations
    
    $
    2.2
    
    
    $
    16.8
    
    
    $
    (13.8
    )Discontinued operations
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    (1.0
    )Total
    
    $
    1.5
    
    
    $
    16.6
    
    
    $
    (14.8
    )
  Year ended June 30,2008
    
    
    2009
    
    
    2010Income tax at federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Income tax at state statutory rate
    
    
    (125.2
    )
    
    
    1.0
    
    
    
    1.6Nondeductible expenses and other
    
    
    10.2
    
    
    
    3.3
    
    
    
    (1.0
    )Book income of consolidated partnerships
attributable to non-controlling interests
    
    
    (18.6
    )
    
    
    (2.3
    )
    
    
    1.6Nondeductible impairment loss
    
    
    
    
    
    
    
    
    
    
    (7.2
    )Change in valuation allowance
    
    
    137.9
    
    
    
    (2.6
    )
    
    
    (6.4
    )Effective income tax rate
    
    
    39.3
    %
    
    
    34.4
    %
    
    
    23.6
    %
  129




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  2009
    
    
    2010Deferred tax assets:Net operating loss carryover
    
    $
    33.7
    
    
    $
    82.6Excess tax basis over book basis of accounts receivable
    
    
    10.2
    
    
    
    3.8Accrued expenses and other
    
    
    42.2
    
    
    
    47.1Deferred loan costs
    
    
    1.4
    
    
    
    5.6Professional and general liability reserves
    
    
    21.6
    
    
    
    30.6Health plan claims, workers compensation and
employee health reserves
    
    
    13.7
    
    
    
    14.1Alternative minimum tax credit and other credits
    
    
    
    
    
    
    4.1Deferred interest expense
    
    
    30.9
    
    
    
    Total deferred tax assets
    
    
    153.7
    
    
    
    187.9Valuation allowance
    
    
    (28.6
    )
    
    
    (32.4
    )Total deferred tax assets, net of valuation allowance
    
    
    125.1
    
    
    
    155.5Deferred tax liabilities:Depreciation, amortization and fixed assets basis differences
    
    
    33.1
    
    
    
    59.7Exces book basis over tax basis of prepaid assets and other
    
    
    24.4
    
    
    
    23.9Total deferred tax liabilities
    
    
    57.5
    
    
    
    83.6Net deferred tax assets
    
    $
    67.6
    
    
    $
    71.9
  Accounting for Uncertainty in Income Taxes
  Balance at July 1, 2007
    
    $
    4.9Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    0.4Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance at June 30, 2008
    
    
    5.3Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    (0.3
    )Settlements
    
    
    Balance at June 30, 2009
    
    
    5.0Additions based on tax positions related to the current year
    
    
    0.8Additions for tax positions of prior years
    
    
    6.1Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance at June 30, 2010
    
    $
    11.9
  130




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
    10. STOCKHOLDERS EQUITY
  Common Stock of Vanguard and Class A Membership Units of Holdings
  Equity Incentive Membership Units of Holdings
    131




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Put and Call Features of Acquisition Subsidiary Stock
  Refinancing Transactions
  11. COMPREHENSIVE INCOME (LOSS)
  Year ended June 30,2008
    
    
    2009
    
    
    2010Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )Change in fair value of interest rate swap
    
    
    4.6
    
    
    
    (11.5
    )
    
    
    5.2Change in unrealized holding losses on ARS
    
    
    
    
    
    
    (4.1
    )
    
    
    Change in income tax (expense) benefit
    
    
    (1.8
    )
    
    
    6.0
    
    
    
    (2.6
    )Termination of interest rate swap reclassification
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    1.7Net income attributabe to non-controlling interests
    
    
    3.0
    
    
    
    3.2
    
    
    
    2.9Comprehensive income (loss)
    
    $
    5.1
    
    
    $
    22.2
    
    
    $
    (42.0
    )
  132




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  June 30, 2009
    
    
    June 30, 2010Fair value of interest rate swap
    
    $
    (6.9
    )
    
    $
    Unrealized holding loss on investments in auction rate securities
    
    
    (4.1
    )
    
    
    (4.1
    )Income tax benefit
    
    
    4.2
    
    
    
    1.6Accumulated other comprehensive loss
    
    $
    (6.8
    )
    
    $
    (2.5
    )
 12. STOCK BASED COMPENSATION
  2004 Stock Incentive Plan
   2004 Stock Incentive Plan# of
    
    
    Wtd AvgOptions
    
    
    Exercise PriceOptions outstanding at June 30, 2009
    
    
    102,455
    
    
    $
    1,242.57Options granted
    
    
    14,296
    
    
    
    1,240.42Options exercised
    
    
    
    
    
    
    Options cancelled
    
    
    (3,618
    )
    
    
    1,266.38Options outstanding at June 30, 2010
    
    
    113,133
    
    
    $
    1,241.53Options available for grant at June 30, 2010
    
    
    31,974
    
    
    $
    1,334.61Options exercisable at June 30, 2010
    
    
    39,732
    
    
    $
    1,557.55
  133




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Year ended June 30,2008
    
    
    2009
    
    
    2010Weighted average fair value of options granted during each year
    
    $
    408.6
    
    
    $
    315.2
    
    
    $
    342.3Intrinsic value of options exercised during each year (in millions)
    
    $
    0.1
    
    
    $
    
    
    
    $
    Fair value of outstanding options that vested during each year (in millions)
    
    $
    1.2
    
    
    $
    1.6
    
    
    $
    2.6
  Additional
    
    
    TotalCurrently
    
    
    Expected
    
    
    ExpectedVested
    
    
    to Vest
    
    
    to VestNumber of options at June 30, 2010
    
    
    39,732
    
    
    
    54,697
    
    
    
    94,429Weighted average exercise price
    
    $
    1,557.55
    
    
    $
    1,052.36
    
    
    $
    1,264.92Aggregate compensation cost at June 30, 2010 (in millions)
    
    $
    8.5
    
    
    $
    18.8
    
    
    $
    27.3Weighted average remaining contractual term
    
    5.7 years
    
    
    7.2 years
    
    
    6.7 years
 13. DEFINED CONTRIBUTION PLAN
   14. LEASES
  OperatingLeases2011
    
    $
    30.12012
    
    
    25.62013
    
    
    21.82014
    
    
    18.72015
    
    
    14.7Thereafter
    
    
    30.7$
    141.6
   134




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 15. CONTINGENCIES AND HEALTHCARE REGULATION
 Contingencies
  Professional and General Liability Insurance
  Governmental Regulation
  Reimbursement
   Acquisitions
   135




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Employment-Related Agreements
   Guarantees
 Physician Guarantees
  Other Guarantees
   136




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 16. RELATED PARTY TRANSACTIONS
    17. SEGMENT INFORMATION
   137




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Year ended June 30, 2008Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    2,325.4
    
    
    $
    
    
    
    $
    
    
    
    $
    2,325.4Premium revenues
    
    
    
    
    
    
    450.2
    
    
    
    
    
    
    
    450.2Inter-segment revenues
    
    
    31.2
    
    
    
    
    
    
    
    (31.2
    )
    
    
    Total revenues
    
    
    2,356.6
    
    
    
    450.2
    
    
    
    (31.2
    )
    
    
    2,775.6Salaries and benefits
(excludes stock compensation)
    
    
    1,127.7
    
    
    
    16.0
    
    
    
    
    
    
    
    1,143.7Health plan claims expense (1)
    
    
    
    
    
    
    328.2
    
    
    
    
    
    
    
    328.2Supplies
    
    
    433.5
    
    
    
    0.2
    
    
    
    
    
    
    
    433.7Provision for doubtful accounts
    
    
    205.5
    
    
    
    
    
    
    
    
    
    
    
    205.5Other operating expenses-external
    
    
    368.6
    
    
    
    29.9
    
    
    
    
    
    
    
    398.5Operating expenses-intersegment
    
    
    
    
    
    
    31.2
    
    
    
    (31.2
    )
    
    
    Total operating expenses
    
    
    2,135.3
    
    
    
    405.5
    
    
    
    (31.2
    )
    
    
    2,509.6Segment EBITDA (2)
    
    
    221.3
    
    
    
    44.7
    
    
    
    
    
    
    
    266.0Less:Interest, net
    
    
    126.6
    
    
    
    (4.5
    )
    
    
    
    
    
    
    122.1Depreciation and amortization
    
    
    125.1
    
    
    
    4.2
    
    
    
    
    
    
    
    129.3Equity method income
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Stock compensation
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    2.5Loss on disposal of assets
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Monitoring fees and expenses
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    6.4Income from continuing
operations before income taxes
    
    $
    (39.4
    )
    
    $
    45.0
    
    
    $
    
    
    
    $
    5.6Segment assets
    
    $
    2,400.8
    
    
    $
    181.5
    
    
    $
    
    
    
    $
    2,582.3Capital expenditures
    
    $
    119.2
    
    
    $
    0.6
    
    
    $
    
    
    
    $
    119.8
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members in
its owned health plans and eliminates the corresponding medical claims expenses
incurred by the health plans for those services.(2)
    
    Segment EBITDA is defined as income (loss) from continuing operations
before income taxes less interest expense (net of interest income),
depreciation and amortization, equity method income, stock compensation, gain
or loss on disposal of assets, realized holding losses on investments,
monitoring fees and expenses, acquisition related expenses, debt extinguishment
costs, and impairment losses. Management uses Segment EBITDA to measure
performance for Vanguards segments and to develop strategic objectives and
operating plans for those segments. Segment EBITDA eliminates the uneven effect
of non-cash depreciation of tangible assets and amortization of intangible
assets, much of which results from acquisitions accounted for under the
purchase method of accounting. Segment EBITDA also eliminates the effects of
changes in interest rates which management believes relate to general trends in
global capital markets, but are not necessarily indicative of the operating
performance of Vanguards segments. Management believes that Segment EBITDA
provides useful information about the financial performance of Vanguards
segments to investors, lenders, financial analysts and rating agencies.
Additionally, management believes that investors and lenders view Segment
EBITDA as an important factor in making investment decisions and assessing the
value of Vanguard. Segment EBITDA is not a substitute for net income (loss),
operating cash flows or other cash flow statement data determined in accordance
with accounting principles generally accepted in the United States. Segment
EBITDA, as presented, may not be comparable to similar measures of other
companies.  138




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Year ended June 30, 2009Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    2,507.4
    
    
    $
    
    
    
    $
    
    
    
    $
    2,507.4Premium revenues
    
    
    
    
    
    
    678.0
    
    
    
    
    
    
    
    678.0Inter-segment revenues
    
    
    34.0
    
    
    
    
    
    
    
    (34.0
    )
    
    
    Total revenues
    
    
    2,541.4
    
    
    
    678.0
    
    
    
    (34.0
    )
    
    
    3,185.4Salaries and benefits
(excludes stock compensation)
    
    
    1,198.8
    
    
    
    30.6
    
    
    
    
    
    
    
    1,229.4Health plan claims expense (1)
    
    
    
    
    
    
    525.6
    
    
    
    
    
    
    
    525.6Supplies
    
    
    455.2
    
    
    
    0.3
    
    
    
    
    
    
    
    455.5Provision for doubtful accounts
    
    
    210.3
    
    
    
    
    
    
    
    
    
    
    
    210.3Other operating expenses-external
    
    
    425.5
    
    
    
    36.4
    
    
    
    
    
    
    
    461.9Operating expenses-intersegment
    
    
    
    
    
    
    34.0
    
    
    
    (34.0
    )
    
    
    Total operating expenses
    
    
    2,289.8
    
    
    
    626.9
    
    
    
    (34.0
    )
    
    
    2,882.7Segment EBITDA (2)
    
    
    251.6
    
    
    
    51.1
    
    
    
    
    
    
    
    302.7Less:Interest, net
    
    
    112.2
    
    
    
    (0.6
    )
    
    
    
    
    
    
    111.6Depreciation and amortization
    
    
    124.8
    
    
    
    4.1
    
    
    
    
    
    
    
    128.9Equity method income
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Stock compensation
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    4.4Gain on disposal of assets
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    (2.3
    )Monitoring fees and expenses
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    5.2Realized loss on investments
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Impairment loss
    
    
    6.2
    
    
    
    
    
    
    
    
    
    
    
    6.2Income from continuing
operations before income taxes
    
    $
    1.3
    
    
    $
    47.6
    
    
    $
    
    
    
    $
    48.9Segment assets
    
    $
    2,480.8
    
    
    $
    250.3
    
    
    $
    
    
    
    $
    2,731.1Capital expenditures
    
    $
    130.3
    
    
    $
    1.7
    
    
    $
    
    
    
    $
    132.0
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members in
its owned health plans and eliminates the corresponding medical claims expenses
incurred by the health plans for those services.(2)
    
    Segment EBITDA is defined as income (loss) from continuing operations
before income taxes less interest expense (net of interest income),
depreciation and amortization, equity method income, stock compensation, gain
or loss on disposal of assets, realized holding losses on investments,
monitoring fees and expenses, acquisition related expenses, debt extinguishment
costs and impairment losses. Management uses Segment EBITDA to measure
performance for Vanguards segments and to develop strategic objectives and
operating plans for those segments. Segment EBITDA eliminates the uneven effect
of non-cash depreciation of tangible assets and amortization of intangible
assets, much of which results from acquisitions accounted for under the
purchase method of accounting. Segment EBITDA also eliminates the effects of
changes in interest rates which management believes relate to general trends in
global capital markets, but are not necessarily indicative of the operating
performance of Vanguards segments. Management believes that Segment EBITDA
provides useful information about the financial performance of Vanguards
segments to investors, lenders, financial analysts and rating agencies.
Additionally, management believes that investors and lenders view Segment
EBITDA as an important factor in making investment decisions and assessing the
value of Vanguard. Segment EBITDA is not a substitute for net income (loss),
operating cash flows or other cash flow statement data determined in accordance
with accounting principles generally accepted in the United States. Segment
EBITDA, as presented, may not be comparable to similar measures of other
companies.  139




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Year ended June 30, 2010Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    2,537.2
    
    
    $
    
    
    
    $
    
    
    
    $
    2,537.2Premium revenues
    
    
    
    
    
    
    839.7
    
    
    
    
    
    
    
    839.7Inter-segment revenues
    
    
    42.8
    
    
    
    
    
    
    
    (42.8
    )
    
    
    Total revenues
    
    
    2,580.0
    
    
    
    839.7
    
    
    
    (42.8
    )
    
    
    3,376.9Salaries and benefits
(excludes stock compensation)
    
    
    1,257.9
    
    
    
    34.1
    
    
    
    
    
    
    
    1,292.0Health plan claims expense (1)
    
    
    
    
    
    
    665.8
    
    
    
    
    
    
    
    665.8Supplies
    
    
    456.0
    
    
    
    0.1
    
    
    
    
    
    
    
    456.1Provision for doubtful accounts
    
    
    152.5
    
    
    
    
    
    
    
    
    
    
    
    152.5Other operating expenses-external
    
    
    447.0
    
    
    
    36.9
    
    
    
    
    
    
    
    483.9Operating expenses-intersegment
    
    
    
    
    
    
    42.8
    
    
    
    (42.8
    )
    
    
    Total operating expenses
    
    
    2,313.4
    
    
    
    779.7
    
    
    
    (42.8
    )
    
    
    3,050.3Segment EBITDA (2)
    
    
    266.6
    
    
    
    60.0
    
    
    
    
    
    
    
    326.6Less:Interest, net
    
    
    116.5
    
    
    
    (1.0
    )
    
    
    
    
    
    
    115.5Depreciation and amortization
    
    
    135.2
    
    
    
    4.4
    
    
    
    
    
    
    
    139.6Equity method income
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Stock compensation
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    4.2Loss on disposal of assets
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Monitoring fees and expenses
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    5.1Acquisition related expenses
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    3.1Debt extinguishment costs
    
    
    73.5
    
    
    
    
    
    
    
    
    
    
    
    73.5Impairment loss
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Income (loss) from continuing
operations before income taxes
    
    $
    (115.0
    )
    
    $
    56.6
    
    
    $
    
    
    
    $
    (58.4
    )Segment assets
    
    $
    2,503.6
    
    
    $
    226.0
    
    
    $
    
    
    
    $
    2,729.6Capital expenditures
    
    $
    154.8
    
    
    $
    1.1
    
    
    $
    
    
    
    $
    155.9
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members in
its owned health plans and eliminates the corresponding medical claims expenses
incurred by the health plans for those services.(2)
    
    Segment EBITDA is defined as income (loss) from continuing operations
before income taxes less interest expense (net of interest income),
depreciation and amortization, equity method income, stock compensation, gain
or loss on disposal of assets, realized holding losses on investments,
monitoring fees and expenses, acquisition related expenses, debt extinguishment
costs and impairment losses. Management uses Segment EBITDA to measure
performance for Vanguards segments and to develop strategic objectives and
operating plans for those segments. Segment EBITDA eliminates the uneven effect
of non-cash depreciation of tangible assets and amortization of intangible
assets, much of which results from acquisitions accounted for under the
purchase method of accounting. Segment EBITDA also eliminates the effects of
changes in interest rates which management believes relate to general trends in
global capital markets, but are not necessarily indicative of the operating
performance of Vanguards segments. Management believes that Segment EBITDA
provides useful information about the financial performance of Vanguards
segments to investors, lenders, financial analysts and rating agencies.
Additionally, management believes that investors and lenders view Segment
EBITDA as an important factor in making investment decisions and assessing the
value of Vanguard. Segment EBITDA is not a substitute for net income (loss),
operating cash flows or other cash flow statement data determined in accordance
with accounting principles generally accepted in the United States. Segment
EBITDA, as presented, may not be comparable to similar measures of other
companies.  140




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 18. UNAUDITED QUARTERLY OPERATING RESULTS
  September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,2008
    
    
    2008
    
    
    2009
    
    
    2009Total revenues
    
    $
    715.4
    
    
    $
    789.2
    
    
    $
    854.3
    
    
    $
    826.5Net income
    
    $
    1.9
    
    
    $
    10.8
    
    
    $
    16.4
    
    
    $
    2.7Net income
attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    1.0
    
    
    $
    10.1
    
    
    $
    15.7
    
    
    $
    1.8
 September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,2009
    
    
    2009
    
    
    2010
    
    
    2010Total revenues
    
    $
    819.9
    
    
    $
    840.5
    
    
    $
    858.1
    
    
    $
    858.4Net income (loss)
    
    $
    2.4
    
    
    $
    (19.9
    )
    
    $
    (32.4
    )
    
    $
    3.6Net income
(loss) attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    1.5
    
    
    $
    (20.7
    )
    
    $
    (32.8
    )
    
    $
    2.8
 19. SUBSEQUENT EVENTS
     141




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Control and Procedures
   142




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##### Table of Contents



REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    Internal Control  Integrated Framework
 Dodd-Frank Wall Street Reform and Consumer Protection Act
  143




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
   144




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   Name
    
    Age
    
    PositionCharles N. Martin, Jr.
    
    
    67
    
    
    Chairman of the Board & Chief Executive Officer; DirectorKent H. Wallace
    
    
    55
    
    
    President & Chief Operating OfficerKeith B. Pitts
    
    
    52
    
    
    Vice ChairmanMark R. Montoney, MD
    
    
    53
    
    
    Executive Vice President & Chief Medical OfficerJoseph D. Moore
    
    
    63
    
    
    Executive Vice PresidentBradley A. Perkins, MD
    
    
    51
    
    
    Executive Vice President-Strategy and Innovation & Chief Transformation OfficerPhillip W. Roe
    
    
    49
    
    
    Executive Vice President, Chief Financial Officer & TreasurerRonald P. Soltman
    
    
    64
    
    
    Executive Vice President, General Counsel & SecretaryDan F. Ausman
    
    
    55
    
    
    Senior Vice President-OperationsReginald M. Ballantyne III
    
    
    66
    
    
    Senior Vice President-Market Strategy & Government AffairsBruce F. Chafin
    
    
    54
    
    
    Senior Vice President-Compliance & EthicsPaul T. Dorsa
    
    
    53
    
    
    Senior Vice President-DevelopmentLarry Fultz
    
    
    55
    
    
    Senior Vice President-Human ResourcesJoseph J. Mullany
    
    
    45
    
    
    Senior Vice President-OperationsHarold H. Pilgrim III
    
    
    49
    
    
    Senior Vice President & Chief Development OfficerGraham Reeve
    
    
    46
    
    
    Senior Vice President-OperationsJames H. Spalding
    
    
    51
    
    
    Senior Vice President, Assistant General Counsel & Assistant SecretaryJana S. Stonestreet
    
    
    57
    
    
    Senior Vice President & Chief Nursing ExecutiveAlan G. Thomas
    
    
    56
    
    
    Senior Vice President-Operations FinanceThomas M. Ways
    
    
    60
    
    
    Senior Vice President-Managed CareGary D. Willis
    
    
    45
    
    
    Senior Vice President, Controller & Chief Accounting OfficerDeanna L. Wise
    
    
    41
    
    
    Senior Vice President & Chief Information OfficerMichael A. Dal Bello
    
    
    39
    
    
    DirectorM. Fazle Husain
    
    
    46
    
    
    DirectorJames A. Quella
    
    
    60
    
    
    DirectorNeil P. Simpkins
    
    
    44
    
    
    Director
 Charles N. Martin, Jr.
  145




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##### Table of Contents



Kent H. Wallace
 Keith B. Pitts
 Mark R. Montoney, MD
 Joseph D. Moore
 Bradley A. Perkins, MD
 Phillip W. Roe
 Ronald P. Soltman
 Dan F. Ausman
  146




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##### Table of Contents



Reginald M. Ballantyne III
 Bruce F. Chafin
 Paul T. Dorsa
 Larry Fultz
 Joseph J. Mullany
 Harold H. Pilgrim III
 Graham Reeve
 James H. Spalding
 Jana S. Stonestreet
  147




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##### Table of Contents



Alan G. Thomas
 Thomas M. Ways
 Gary D. Willis
 Deanna L. Wise
 Michael A. Dal Bello
 M. Fazle Husain
 James A. Quella
 Neil P. Simpkins
   148




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##### Table of Contents



Composition of the Board of Directors
 General
   Committees
  Code of Ethics
 www.vanguardhealth.com/pdfs/codeofbusinessconductandethics.pdf
 Compensation Committee Interlocks and Insider Participation
   149




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##### Table of Contents



Director Compensation
    Change inpension valueFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and nonqualifiedearned
    
    
    
    
    
    
    
    
    
    
    Non-equity
    
    
    deferred
    
    
    Allor paid
    
    
    Stock
    
    
    Option
    
    
    incentive plan
    
    
    compensation
    
    
    otherName
    
    in cash ($)
    
    
    awards
    
    
    awards
    
    
    compensation ($)
    
    
    earnings
    
    
    compensation
    
    
    TotalMichael J. Parsons
    
    
    20,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,500
 
 (1)
    
    The director compensation in the above table reflects the annual cash retainer paid by us to any independent, non-employee director of $60,000 per year, with the $20,500 representing the portion of the fiscal year that this
director served on our board. The employee director and the Sponsor-affiliated directors receive no additional
compensation for serving on our board and, as a result, are not listed in the table above.  150




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##### Table of Contents



Item 11. Executive Compensation.
 Compensation Discussion and Analysis
 Overview
    Philosophy of Executive Compensation Program
  
    
    Attract, retain, and motivate superior management talent critical to our long-term
success with compensation that is competitive within the marketplace;
 
    
    Maintain a reasonable balance among base salary, annual cash incentive payments and
long-term equity-based incentive compensation and other benefits;
 
    
    Ensure that compensation levels reflect the internal value and future potential of each
executive and the achievement of outstanding individual results;
 
    
    Link executive compensation to the creation and maintenance of long-term equity value;
 
    
    Promote equity ownership by executives to align their interests with the interests of
our equity holders; and
 
    
    Ensure that incentive compensation is linked to the achievement of specific financial
and strategic objectives, which are established in advance and approved by the compensation
committee.
  151




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##### Table of Contents



Compensation Determination Process
     Elements of Our Executive Compensation Program
  
    
    Base salaries;
 
    
    Annual cash incentive opportunities;
 
    
    Long-term equity-based incentives; and
 
    
    Benefits and executive perquisites.
  Base Salaries
   152




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##### Table of Contents



Annual Cash Incentive Compensation
 Annual Incentive Plan
    153




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##### Table of Contents



Charles N.
    
    
    Phillip W.
    
    
    Keith B.
    
    
    Kent H.
    
    
    Bradley A.
    
    
    Mark R.Percentage of Base Salary
    
    Martin, Jr.
    
    
    Roe
    
    
    Pitts
    
    
    Wallace
    
    
    Perkins
    
    
    MontoneyTarget
    
    
    100
    %
    
    
    70
    %
    
    
    90
    %
    
    
    90
    %
    
    
    90
    %
    
    
    70
    %Threshold
    
    
    10
    %
    
    
    7
    %
    
    
    9
    %
    
    
    9
    %
    
    
    9
    %
    
    
    7
    %Maximum
    
    
    150
    %
    
    
    105
    %
    
    
    135
    %
    
    
    135
    %
    
    
    135
    %
    
    
    105
    %Financial WeightingsAdjusted EBITDA(1)
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %Free cash flow(2)
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
    
    
    50
    %
 
 (1)
    
    Adjusted EBITDA is defined by us as income (loss) before interest
expense (net of interest income), income taxes, depreciation and
amortization, non-controlling interests, gain or loss on the disposal
of assets, equity method income, stock compensation, monitoring fees
and expenses, realized holding loss on investments, debt
extinguishment costs, acquisition related expenses, impairment loss and
discontinued operations, net of taxes. Monitoring fees and expenses
represent fees and reimbursed expenses paid to affiliates of The
Blackstone Group and Metalmark Subadvisor LLC for advisory and
oversight services.(2)
    
    Free cash flow is defined by us as Adjusted EBITDA minus capital
expenditures except those construction projects which we are allowed
to exclude from our covenant limiting our annual capital expenditures
found in our principal credit facility.    154




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Long Term Incentive Plan
       155




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##### Table of Contents



Long-Term Equity-Based Incentive Compensation
    Benefits and Executive Perquisites
  Retirement Benefits
    156




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##### Table of Contents



Other Benefits
  Perquisites
  Our Employment Agreements with the Named Executive Officers
   Our Severance Protection Agreements
   157




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##### Table of Contents



Stock Ownership
  Impact of Tax and Accounting Rules
  Recovery of Certain Awards
  Risk Analysis of Compensation Plans
   158




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##### Table of Contents



Summary Compensation Table
  Non-EquityIncentive Plan
    
    
    Option
    
    
    All OtherName and
    
    
    
    
    
    
    
    
    
    
    
    Compensation
    
    
    Awards
    
    
    CompensationPrincipal Position
    
    Year
    
    Salary ($)
    
    
    Bonus ($)
    
    
    ($)(a)
    
    
    ($)(b)
    
    
    ($)(c)
    
    
    TotalCharles N. Martin, Jr.Chairman of the Board &
    
    2010
    
    
    1,098,079
    
    
    
    
    
    
    
    1,290,243
    
    
    
    
    
    
    
    14,208
    
    
    
    2,402,530Chief Executive Officer
    
    2009
    
    
    1,062,238
    
    
    
    
    
    
    
    1,454,956
    
    
    
    
    
    
    
    13,758
    
    
    
    2,530,9522008
    
    
    1,050,291
    
    
    
    
    
    
    
    1,050,291
    
    
    
    
    
    
    
    13,608
    
    
    
    2,114,190Phillip W. RoeExecutive Vice President,
    
    2010
    
    
    525,000
    
    
    
    
    
    
    
    431,813
    
    
    
    
    
    
    
    8,352
    
    
    
    965,165Chief Financial Officer &
    
    2009
    
    
    487,500
    
    
    
    
    
    
    
    486,939
    
    
    
    
    
    
    
    7,640
    
    
    
    982,079Treasurer
    
    2008
    
    
    440,192
    
    
    
    
    
    
    
    332,500
    
    
    
    537,683
    
    
    
    7,620
    
    
    
    1,317,995Keith B. PittsVice Chairman
    
    2010
    
    
    685,000
    
    
    
    
    
    
    
    724,388
    
    
    
    
    
    
    
    8,592
    
    
    
    1,417,9802009
    
    
    652,633
    
    
    
    
    
    
    
    816,864
    
    
    
    
    
    
    
    8,142
    
    
    
    1,477,6392008
    
    
    641,845
    
    
    
    100,000
    
    
    
    577,661
    
    
    
    403,262
    
    
    
    7,992
    
    
    
    1,730,760Kent H. WallacePresident &
    
    2010
    
    
    685,000
    
    
    
    
    
    
    
    724,388
    
    
    
    
    
    
    
    9,132
    
    
    
    1,418,520Chief Operating Officer
    
    2009
    
    
    621,250
    
    
    
    
    
    
    
    816,864
    
    
    
    1,617,712
    
    
    
    8,142
    
    
    
    3,063,9682008
    
    
    600,000
    
    
    
    100,000
    
    
    
    540,000
    
    
    
    403,262
    
    
    
    7,992
    
    
    
    1,651,254Bradley A. Perkins, MDExecutive
Vice President &
    
    2010
    
    
    675,000
    
    
    
    
    
    
    
    713,813
    
    
    
    2,083,935
    
    
    
    24,506
    
    
    
    3,497,254Chief Transformation
    
    2009
    
    
    2,596
    (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,596Officer
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark R. Montoney, MDExecutive Vice President &
    
    2010
    
    
    522,750
    
    
    
    
    
    
    
    429,962
    
    
    
    868,306
    
    
    
    52,707
    
    
    
    1,873,725Chief Medical Officer
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  159




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##### Table of Contents



(a)
    
    The Compensation Committee determined the amount of Annual Incentive
Plan compensation that was earned by each of these named executive
officers for fiscal 2010. This amount will be paid to each named
executive officer in September 2010, except, for Messrs. Martin, Roe,
Pitts, Wallace, Perkins and Montoney, amounts earned in excess of 100%
of their target awards for exceeding the free cash flow performance
goal under the Plan for fiscal year 2010 (such amounts being $247,068
for Mr. Martin, $82,688 for Mr. Roe, $138,713 for Mr. Pitts, $138,713
for Mr. Wallace, $136,688 for Dr. Perkins and $82,333 for Dr.
Montoney) are payable as follows: 1/3 in September 2010; 1/3 in
September 2011 and 1/3 in September 2012. See Compensation Discussion
and Analysis  Annual Cash Incentive Compensation for more details
in respect of the incentive plan awards.(b)
    
    Option Awards reflect the aggregate grant date fair value of the
option award computed in accordance with ASC Topic 718, Compensation
 Stock Compensation(excluding estimates of forfeitures) with
respect to options to purchase shares of our common stock which have
been awarded under our 2004 Stock Incentive Plan in our 2010, 2009 and
2008 fiscal years to five of our named executive officers. See Note 13
of the Notes to our consolidated financial statements for the fiscal
year ended June 30, 2010 included in this report for assumptions used
in calculation of these amounts. The actual number of Option Awards
granted in fiscal 2010 is shown in the Grants of Plan Based Awards in
Fiscal Year 2010 table set forth below.(c)
    
    The amounts disclosed under All Other Compensation in the Summary
Compensation Table for fiscal 2010 represent: (1) the following
amounts of our matching contributions made under our 401(k) plan: Mr.
Martin: $7,350; Mr. Roe: $7,350; Mr. Pitts: $7,350; and Mr. Wallace:
$7,350; (2) the following amounts of insurance premiums paid by
Vanguard with respect to group term life insurance: Mr. Martin:
$6,858; Mr. Roe: $1,002; Mr. Pitts: $1,242; Mr. Wallace: $1,782; Dr.
Perkins: $1,246 and Dr. Montoney: $1,294 and (3) perquisites and other
personal benefits as follows: Dr. Perkins: $23,260 for reimbursement
of expenses related to his relocation to Nashville, Tennessee upon
commencement of his employment on June 30, 2009 and Dr. Montoney:
$51,413 for reimbursement of expenses related to his relocation to
Nashville, Tennessee upon commencement of his employment on December
31, 2008. The relocation reimbursement for Dr. Perkins and Dr.
Montoney includes reimbursement of payroll taxes related to the
relocation benefits of $5,470 and $12,078, respectively, determined
based upon the estimated marginal federal income tax rate applicable
to each individual and the employee Medicare tax rate.(d)
    
    This amount reflects solely one day of employment in fiscal year 2009 (June 30, 2009).  160




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##### Table of Contents



Grants of Plan-Based Awards in Fiscal Year 2010
 All OtherOption Awards:
    
    
    Exercise orNumber of
    
    
    Base Price
    
    
    Grant DateEstimated Future Payouts Under
    
    
    Securities
    
    
    of Option
    
    
    Fair ValueGrant
    
    Non-Equity Incentive Plan Awards(a)
    
    
    Underlying
    
    
    Awards
    
    
    of OptionName
    
    Date
    
    Threshold ($)
    
    
    Target ($)
    
    
    Maximum ($)
    
    
    Options(b)(#)
    
    
    (b)($/share)
    
    
    Awards(b)($)Charles N. Martin,
Jr.AIP (c)
    
    n/a
    
    
    109,808
    
    
    
    1,098,079
    
    
    
    1,647,119LTIP (d)
    
    n/a
    
    
    
    
    
    
    549,040
    
    
    
    1,098,079Phillip W. RoeAIP
    
    n/a
    
    
    36,750
    
    
    
    367,500
    
    
    
    551,250LTIP
    
    n/a
    
    
    
    
    
    
    183,750
    
    
    
    367,500Keith B. PittsAIP
    
    n/a
    
    
    61,650
    
    
    
    616,500
    
    
    
    924,750LTIP
    
    n/a
    
    
    
    
    
    
    308,250
    
    
    
    616,500Kent H. WallaceAIP
    
    n/a
    
    
    61,650
    
    
    
    616,500
    
    
    
    924,750LTIP
    
    n/a
    
    
    
    
    
    
    308,250
    
    
    
    616,500Bradley A. PerkinsAIP
    
    n/a
    
    
    60,750
    
    
    
    607,500
    
    
    
    911,250LTIP
    
    n/a
    
    
    
    
    
    
    303,750
    
    
    
    607,5008/18/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100
    
    
    
    656.94
    
    
    
    943,5308/18/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100
    
    
    
    656.94
    
    
    
    1,140,4058/18/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    2,599.53
    
    
    
    Mark R. MontoneyAIP
    
    n/a
    
    
    36,593
    
    
    
    365,925
    
    
    
    548,888LTIP
    
    n/a
    
    
    
    
    
    
    182,963
    
    
    
    365,9258/18/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    875
    
    
    
    656.94
    
    
    
    393,1388/18/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    875
    
    
    
    656.94
    
    
    
    475,1688/18/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    2,599.53
    
    
    
    
 
 (a)
    
    The threshold, target and maximum amounts in these columns have
been provided in accordance with Item 402(d) of Regulation S-K and
show the range of payouts targeted for fiscal 2010 performance
under the Annual Incentive Plan and the Long Term Incentive Plan.
For fiscal year 2010, each of the named executive officers earned
non-equity incentive plan awards only under the Annual Incentive
Plan, the Committee approved them and they will be paid in cash to
the named executive officers in September 2010 (except for certain
portions thereof payable in September 2011 and September 2012, as
disclosed in footnote (a) to the Summary Compensation Table) and
the full amounts of the awards are reflected in the Summary
Compensation Table under the column labeled Non-Equity Incentive
Plan Compensation. See Compensation Discussion and Analysis 
Annual Cash Incentive Compensation  Annual Incentive Plan for a
detailed description of our Annual Incentive Plan; and see
Compensation Discussion and Analysis  Annual Cash Incentive
Compensation-Long Term Incentive Plan for a detailed description
of our Long Term Incentive Plan.(b)
    
    These stock options were awarded under the 2004 Stock Incentive
Plan by the Committee as part of the named executive officers
long term equity incentive compensation. None of these options
were granted with exercise prices below the fair market value of
the underlying common stock on the date of grant. The exercise
prices of these options were subsequently reduced by $400.47 in
connection with the Refinancing so that the exercise prices are
now $656.94, $656.94 and $2,599.53, respectively. Because we are a
privately-held company, the Committee determines the fair market
value of our common stock primarily from an independent appraisal
of our common stock which we obtain no less frequently than
annually. The terms of these option awards are described in more
detail below under Narrative Disclosure to Summary Compensation
Table and Grants of Plan-Based Awards in Fiscal 2010 Table  Our
2004 Stock Incentive Plan. We utilize a Black-Scholes-Merton
model to estimate the fair value of options granted. The aggregate
grant date fair value of the option award computed in accordance
with ASC Topic 718, Compensation  Stock Compensation
(excluding estimates of forfeitures) with respect to these option
grants is reflected in the Option Awards column of the Summary
Compensation Table.(c)
    
    AIP in this table means our Annual Incentive Plan.(d)
    
    LTIP in this table means our Long Term Incentive Plan.  161




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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in Fiscal
2009 Table
 Holdings LLC Units Plan
  General
  Administration
  Adjustments Upon Certain Events
  Amendment and Termination
   162




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##### Table of Contents



Holdings LLC Units Held by Certain of our Managers
   Terms of the Holdings Class A Units, Class B Units, Class C Units and Class D Units
     163




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##### Table of Contents



Certain Rights and Restrictions Applicable to the Units Held by Our Managers
    164




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##### Table of Contents



Our 2004 Stock Incentive Plan
 General
   Administration
  Stock Options and Stock Appreciation Rights
       165




---



##### Table of Contents



Awards of Restricted Stock Units
     166




---



##### Table of Contents



Other Stock-Based Awards
  Adjustments Upon Certain Events
  Amendment and Termination
   167




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##### Table of Contents



Outstanding Equity Awards at Fiscal 2010 Year-End
  Number of Securities
    
    
    Number of SecuritiesUnderlying
    
    
    UnderlyingUnexercised
    
    
    Unexercised
    
    
    OptionOptions (#)
    
    
    Options (#)
    
    
    Exercise
    
    
    OptionName
    
    Exercisable(a)
    
    
    Unexercisable(b)
    
    
    Price ($)(c)
    
    
    Expiration DatePhillip W. Roe
    
    
    283
    (d)
    
    
    70
    (d)
    
    
    749.90
    
    
    11/3/15
    
    
    
    353
    (e)
    
    
    749.90
    
    
    11/3/15242
    (d)
    
    
    60
    (d)
    
    
    2,599.53
    
    
    11/3/15280
    (f)
    
    
    420
    (f)
    
    
    599.53
    
    
    2/5/18
    
    
    
    700
    (g)
    
    
    599.53
    
    
    2/5/18240
    (f)
    
    
    360
    (f)
    
    
    2,599.53
    
    
    2/5/18Keith B. Pitts
    
    
    210
    (f)
    
    
    315
    (f)
    
    
    599.53
    
    
    2/5/18
    
    
    
    525
    (g)
    
    
    599.53
    
    
    2/5/18180
    (f)
    
    
    270
    (f)
    
    
    2,599.53
    
    
    2/5/18Kent H. Wallace
    
    
    687
    (d)
    
    
    171
    (d)
    
    
    749.90
    
    
    11/3/15
    
    
    
    858
    (e)
    
    
    749.90
    
    
    11/3/15589
    (d)
    
    
    147
    (d)
    
    
    2,599.53
    
    
    11/3/151,274
    (j)
    
    
    318
    (j)
    
    
    749.90
    
    
    11/28/15
    
    
    
    1,592
    (k)
    
    
    749.90
    
    
    11/28/151,092
    (j)
    
    
    272
    (j)
    
    
    2,599.53
    
    
    11/28/15210
    (f)
    
    
    315
    (f)
    
    
    599.53
    
    
    2/5/18
    
    
    
    525
    (g)
    
    
    599.53
    
    
    2/5/18180
    (f)
    
    
    270
    (f)
    
    
    2,599.53
    
    
    2/5/18350
    (l)
    
    
    1,400
    (l)
    
    
    656.94
    
    
    5/5/19
    
    
    
    1,750
    (m)
    
    
    656.94
    
    
    5/5/19300
    (l)
    
    
    1,200
    (l)
    
    
    2,599.53
    
    
    5/5/19Bradley A. Perkins, MD
    
    
    
    
    
    
    2,100
    (h)
    
    
    656.94
    
    
    8/18/19
    
    
    
    2,100
    (i)
    
    
    656.94
    
    
    8/18/19
    
    
    
    1,800
    (h)
    
    
    2,599.53
    
    
    8/18/19Mark R. Montoney, MD
    
    
    175
    (n)
    
    
    700
    (n)
    
    
    656.94
    
    
    2/4/19
    
    
    
    875
    (o)
    
    
    656.94
    
    
    2/4/19150
    (n)
    
    
    600
    (n)
    
    
    2,599.53
    
    
    2/4/19
    
    
    
    875
    (h)
    
    
    656.94
    
    
    8/18/19
    
    
    
    875
    (i)
    
    
    656.94
    
    
    8/18/19
    
    
    
    750
    (h)
    
    
    2,599.53
    
    
    8/18/19
 
 (a)
    
    This column represents the number of stock options that had vested and were exercisable as of June 30, 2010.(b)
    
    This column represents the number of stock options that had not vested and were not exercisable as of June 30, 2010.(c)
    
    The exercise price for the options was never less than the grant date fair market value of a share of Vanguard
common stock as determined by the Compensation Committee. The original exercise price as of the grant date was
reduced by $400.47 in connection with the Refinancing during fiscal 2010.(d)
    
    20% of the options represented by this option grant vest and become exercisable on each of the first five
anniversaries of the November 3, 2005 grant date of these options (or earlier upon a change of control). 80% of
this option grant was vested as of June 30, 2010.  168




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(e)
    
    100% of the options represented by this option grant vest and become exercisable on the eighth anniversary of the
November 3, 2005 grant date of these options (or earlier upon a liquidity event).(f)
    
    20% of the options represented by this option grant vest and become exercisable on each of the first five
anniversaries of the February 5, 2008 grant date of these options (or earlier upon a change of control). 40% of
this option grant was vested as of June 30, 2010.(g)
    
    100% of the options represented by this option grant vest and become exercisable on the eighth anniversary of the
February 5, 2008 grant date of these options (or earlier upon a liquidity event).(h)
    
    20% of the options represented by this option grant vest and become exercisable on each of the first five
anniversaries of the August 18, 2009 grant date of these options (or earlier upon a change of control). None of
this option grant was vested as of June 30, 2010.(i)
    
    100% of the options represented by this option grant vest and become exercisable on the eighth anniversary of the
August 18, 2009 grant date of these options (or earlier upon a liquidity event).(j)
    
    20% of the options represented by this option grant vest and become exercisable on each of the first five
anniversaries of the November 28, 2005 grant date of these options (or earlier upon a change of control). 80% of
this option grant was vested as of June 30, 2010.(k)
    
    100% of the options represented by this option grant vest and become exercisable on the eighth anniversary of the
November 28, 2005 grant date of these options (or earlier upon a liquidity event).(l)
    
    20% of the options represented by this option grant vest and become exercisable on each of the first five
anniversaries of the May 5, 2009 grant date of these options (or earlier upon change of control). 20% of this
option grant was vested as of June 30, 2010.(m)
    
    100% of the options represented by this option grant vest and become exercisable on the eighth anniversary of the
May 5, 2009 grant date of these options (or earlier upon a liquidity event).(n)
    
    20% of the options represented by this option grant vest and become exercisable on each of the first five
anniversaries of the February 4, 2009 grant date of these options (or earlier upon change of control). 20% of this
option grant was vested as of June 30, 2010.(o)
    
    100% of the options represented by this option grant vest and become exercisable on the eighth anniversary of the
February 4, 2009 grant date of these options (or earlier upon a liquidity event). Option Exercises and Stock Vested in Fiscal 2010
  Pension Benefits for Fiscal 2010
  Nonqualified Deferred Compensation for Fiscal 2010
  Potential Payments upon Termination or Change-in-Control
   169




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Continuation ofCash
    
    
    Medical/Welfare
    
    
    TotalSeverance
    
    
    Benefits
    
    
    TerminationName
    
    Payment ($)
    
    
    (present value) ($)
    
    
    Benefits ($)Charles N. Martin, Jr.- Voluntary retirement
    
    
    
    
    
    
    
    
    
    
    - Involuntary termination
    
    
    4,701,405
    
    
    
    24,210
    
    
    
    4,725,615- Involuntary or Good
Reason termination after
change in control
    
    
    7,052,108
    
    
    
    24,210
    
    
    
    7,076,318Phillip W. Roe- Voluntary retirement
    
    
    
    
    
    
    
    
    
    
    - Involuntary termination
    
    
    1,869,439
    
    
    
    18,862
    
    
    
    1,888,301- Involuntary or Good
Reason termination after
change in control
    
    
    2,804,159
    
    
    
    18,862
    
    
    
    2,823,021Keith B. Pitts- Voluntary retirement
    
    
    
    
    
    
    
    
    
    
    - Involuntary termination
    
    
    2,764,525
    
    
    
    22,448
    
    
    
    2,786,973- Involuntary or Good
Reason termination after
change in control
    
    
    4,146,788
    
    
    
    22,448
    
    
    
    4,169,236Kent H. Wallace- Voluntary retirement
    
    
    
    
    
    
    
    
    
    
    - Involuntary termination
    
    
    2,726,864
    
    
    
    24,210
    
    
    
    2,751,074- Involuntary or Good
Reason termination after
change in control
    
    
    4,090,296
    
    
    
    24,210
    
    
    
    4,114,506Bradley A. Perkins, MD- Voluntary retirement
    
    
    
    
    
    
    
    
    
    
    - Involuntary termination
    
    
    1,350,000
    
    
    
    24,210
    
    
    
    1,374,210- Involuntary or Good
Reason termination after
change in control
    
    
    2,025,000
    
    
    
    24,210
    
    
    
    2,049,210Mark A. Montoney, MD- Voluntary retirement
    
    
    
    
    
    
    
    
    
    
    - Involuntary termination
    
    
    1,247,784
    
    
    
    18,862
    
    
    
    1,266,646- Involuntary or Good
Reason termination after
change in control
    
    
    1,871,676
    
    
    
    18,862
    
    
    
    1,890,538
 Cash severance payments; Timing. prior
 Continuation of health, welfare and other benefits.
  170




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Accrued Pay and Regular Retirement Benefits.
 
    
    Accrued salary and vacation pay and earned but unpaid bonus.
 
    
    Distributions of plan balances under our 401(k) plan.
 Death and Disability.
 Involuntary Termination and Change-in-Control Severance Pay Program.
 and
 Obligations of Named Executive Officers.
 
    
    Not to disclose our confidential business information;
 
    
    Not to solicit for employment any of our employees for a period expiring two years
after the termination of their employment; and
 
    
    Not to accept employment with or consult with, or have any ownership interest in, any
hospital or hospital management entity for a period expiring two years after the
termination of their employment, except there shall be not such prohibitions if (1) we
terminate the executive under his employment agreement or (2) the executive terminates his
agreement for Good Reason or because we have breached his agreement.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
    171




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Shares of
    
    
    OwnershipName of Beneficial Owner
    
    Common Stock
    
    
    PercentageBlackstone Funds(1)
    
    
    494,930
    
    
    
    66.1
    %MSCP Funds(2)
    
    
    130,000
    
    
    
    17.4
    %Charles N. Martin, Jr.(3)
    
    
    56,553
    
    
    
    7.5
    %Phillip W. Roe(4)
    
    
    7,970
    
    
    
    1.1
    %Keith B. Pitts(5)
    
    
    21,127
    
    
    
    2.8
    %Kent H. Wallace(6)
    
    
    10,401
    
    
    
    1.4
    %Bradley A. Perkins, MD(7)
    
    
    780
    
    
    
    *Mark R. Montoney, MD(8)
    
    
    650
    
    
    
    *M. Fazle Husain(9)
    
    
    126,750
    
    
    
    16.9
    %James A. Quella(1)
    
    
    494,930
    
    
    
    66.1
    %Neil P. Simpkins(1)
    
    
    494,930
    
    
    
    66.1
    %Michael A. Dal Bello(10)
    
    
    
    
    
    
    
    %All directors and executive officers as a group (26 persons)(11)
    
    
    781,179
    
    
    
    94.9
    %
 
 *
    
    Represents less than 1%.(1)
    
    Includes common stock interests directly and indirectly owned by each of Blackstone FCH Capital Partners IV L.P.,
Blackstone FCH Capital Partners IV-A L.P., Blackstone FCH Capital Partners IV-B L.P., Blackstone Capital Partners
IV-A L.P., Blackstone Family Investment Partnership IV-A L.P., Blackstone Health Commitment Partners L.P. and
Blackstone Health Commitment Partners-A L.P. (the Blackstone Funds), for which Blackstone Management Associates
IV L.L.C. (BMA) is the general partner having voting and investment power over the membership interests in
Holdings and the shares in Vanguard held or controlled by each of the Blackstone Funds. Messrs. Quella and
Simpkins are members of BMA, but disclaim any beneficial ownership of the membership interests or the shares
beneficially owned by BMA. Mr. Stephen A. Schwarzman is the founding member of BMA and as such may be deemed to
share beneficial ownership of the membership interests or shares held or controlled by the Blackstone Funds. Mr.
Schwarzman disclaims beneficial ownership of such membership interests and shares. The address of BMA and the
Blackstone Funds is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154.(2)
    
    The MSCP Funds consist of the following six funds: Morgan Stanley Capital Partners III, L.P., MSCP III 892
Investors, L.P., Morgan Stanley Capital Investors, L.P., Morgan Stanley Dean Witter Capital Partners IV, L.P.,
MSDW IV 892 Investors, L.P., and Morgan Stanley Dean Witter Capital Investors IV, L.P. The address of each of
Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors, L.P., Morgan Stanley Dean Witter Capital
Partners IV, L.P. and MSDW IV 892 Investors, L.P. is c/o Metalmark Capital LLC, 1177 Avenue of the Americas, New
York, New York 10036. The address of each of Morgan Stanley Capital Investors, L.P. and Morgan Stanley Dean Witter
Capital Investors IV, L.P. is c/o Morgan Stanley, 1585 Broadway, New York, New York 10036. Metalmark Capital LLC
shares investment and voting power with Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors, L.P.,
Morgan Stanley Dean Witter Capital Partners IV, L.P. and MSDW IV 892 Investors, L.P. over 126,750 of these 130,000
shares of Vanguard common stock indirectly owned by these four funds.(3)
    
    Includes 8,913 B units and 7,640 D units in Holdings which are vested or vest within 60 days of as of August 15,
2010. Also, includes an aggregate of 5,000 A units in Holdings owned by two Charles N. Martin, Jr. Irrevocable
Grantor Retained Annuity Trusts, of which Mr. Martin is Trustee and one of the beneficiaries.(4)
    
    Includes 1,045 options on Vanguard common stock and 2,097 B units and 1,798 D units in Holdings which are vested
or vest within 60 days of August 15, 2010.(5)
    
    Includes 390 options on Vanguard common stock and 5,243 B units and 4,494 D units in Holdings which are vested or
vest within 60 days of August 15, 2010.(6)
    
    Includes 4,682 options on Vanguard common stock which are vested or vest within 60 days of August 15, 2010.(7)
    
    Consists solely of 780 options on Vanguard common stock which are vested or vest within 60 days of August 15, 2010.(8)
    
    Consists solely of 650 options on Vanguard common stock which are vested or vest within 60 days of August 15, 2010.(9)
    
    Mr. Husain is a Managing Director of Metalmark Capital LLC and exercises shared voting or investment power over
the membership interests in Holdings owned by Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors,
L.P., Morgan Stanley Dean Witter Capital Partners IV, L.P., and MSDW IV 892 Investors, L.P. and, as a result, may
be deemed to be the beneficial owner of such membership interests and the 126,750 shares of Vanguard common stock
indirectly owned by these four funds. Mr. Husain disclaims beneficial ownership of such membership interests and
shares of common stock as a result of his employment arrangements with Metalmark, except to the extent of his
pecuniary interest therein ultimately realized. Metalmark Capital does not have investment and voting power with
respect to 3,250 shares of Vanguard common stock indirectly owned by Morgan Stanley Capital Investors, L.P. and
Morgan Stanley Dean Witter Capital Investors IV, L.P. and these 3,250 shares are not included in the 126,750
shares contained in this table for Mr. Husain.(10)
    
    Mr. Dal Bello is an employee of Blackstone, but has no investment or voting control over the shares beneficially
owned by Blackstone.(11)
    
    Includes 20,781 options in Vanguard and 28,574 B units and 24,492 D units in Holdings which have vested or vest
within 60 days of August 15, 2010.  172




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Item 13. Certain Relationships and Related Transactions, and Director Independence.
 Holdings Limited Liability Company Agreement
    Stockholders Agreement
   173




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Holdings Warrants
  Transaction and Monitoring Fee Agreement
       174




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Registration Rights Agreement
  Employer Health Program Agreement with a Blackstone Affiliate, Equity Healthcare LLC
     Commercial Transactions with Sponsor Portfolio Companies
  Policy on Transactions with Related Persons
   175




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
    
    the company or any of its subsidiaries may employ a related person
in the ordinary course of business consistent with the companys
policies and practices with respect to the employment of
non-related persons in similar positions; and
    
    any other related person transaction that would be required to be
publicly disclosed must be approved or ratified by the board of
directors, a committee thereof or if it is impractical to defer
consideration of the matter until a board or committee meeting, by
a non-management director who is not involved in the transaction.
   Director Independence
   176




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Item 14. Principal Accounting Fees and Services.
 Fees Paid to the Independent Auditor
  2009
    
    
    2010Audit Fees (1)
    
    $
    852,712
    
    
    $
    1,251,362Audit-related fees
    
    
    1,995
    
    
    
    26,995Audit and audit-related fees
    
    
    854,707
    
    
    
    1,278,357Tax fees (2)
    
    
    133,384
    
    
    
    301,149All other fees (3)
    
    
    1,002,563
    
    
    
    573,215Total fees (4)
    
    $
    1,990,654
    
    
    $
    2,152,721
 
 (1)
    
    Audit fees for 2009 and 2010 include fees for the audit of the annual consolidated financial statements, reviews of
the condensed consolidated financial statements included in Vanguards quarterly reports, debt offering comfort
letters and statutory audits.(2)
    
    Tax fees for 2009 and 2010 consisted principally of fees for tax advisory services.(3)
    
    All other fees for 2009 and 2010 consisted of assistance in identification of Medicaid eligible days for inclusion
in the Medicare cost reports for Medicare disproportionate share reimbursement; assistance in validating average
wage rates in our markets used in Medicare reimbursement; assistance in preparing reports for us relating to payer
matters; and assistance in preparing occupational mix survey data in accordance with CMS requirements.(4)
    
    Ernst & Young LLP full time, permanent employees performed all of the professional services described in this chart. Pre-Approval Policies and Procedures
    177




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PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    List of documents filed as part of this report.
    (b)
    
    Exhibits.See Item 15(a)(3) of this report.(c)
    
    Financial Statement Schedules.See Item 15(a)(2) of this report.
  178




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SIGNATURES
  VANGUARD HEALTH SYSTEMS, INC.
    
    DateBy:
    
    /s/ Charles N. Martin, Jr.

Charles N. Martin, Jr.
    
    August 26, 2010Chairman of the Board & Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Charles N. Martin, Jr.

Charles N. Martin, Jr.
    
    Chairman of the Board & Chief Executive Officer;
Director

(Principal Executive Officer)
    
    August 26, 2010/s/ Phillip W. Roe

Phillip W. Roe
    
    Executive Vice President, Chief Financial Officer &
Treasurer
(Principal Financial Officer)
    
    August 26, 2010/s/ Gary D. Willis

Gary D. Willis
    
    Senior Vice President, Controller & Chief Accounting
Officer
(Principal Accounting Officer)
    
    August 26, 2010/s/ Michael A. Dal Bello

Michael A. Dal Bello
    
    Director
    
    August 26, 2010/s/ M. Fazle Husain

M. Fazle Husain
    
    Director
    
    August 26, 2010/s/ James A. Quella

James A. Quella
    
    Director
    
    August 26, 2010/s/ Neil P. Simpkins

Neil P. Simpkins
    
    Director
    
    August 26, 2010
  179




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Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
   180




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EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger, dated as of July 23, 2004, among VHS Holdings LLC,
Health Systems Acquisition Corp. and Vanguard Health Systems, Inc.(1)2.2
    
    
    First Amendment to the Agreement and Plan of Merger, dated as of September 23, 2004,
among VHS Holdings LLC, Health Systems Acquisition Corp. and Vanguard Health
Systems, Inc.(1)2.3
    
    
    Indemnification Agreement, dated as of July 23, 2004, among VHS Holdings LLC,
Vanguard Health Systems, Inc., and the stockholders and holders of options set forth
therein(1)(3)2.4
    
    
    Purchase and Sale Agreement dated as of June 10, 2010, by and among The Detroit
Medical Center, Harper-Hutzel Hospital, Detroit Receiving Hospital and University
Health Center, Childrens Hospital of Michigan, Rehabilitation Institute, Inc.,
Sinai Hospital of Greater Detroit, Huron Valley Hospital, Inc., Detroit Medical
Center Cooperative Services, DMC Orthopedic Billing Associates, LLC, Metro TPA
Services, Inc. and Michigan Mobile PET CT, LLC (collectively, as Seller) and VHS of
Michigan, Inc., VHS Harper-Hutzel Hospital, Inc., VHS Detroit Receiving Hospital,
Inc., VHS Childrens Hospital of Michigan, Inc., VHS Rehabilitation Institute of
Michigan, Inc., VHS Sinai-Grace Hospital, Inc., VHS Huron Valley-Sinai Hospital,
Inc., VHS Detroit Businesses, Inc. and VHS Detroit Ventures, Inc. (collectively, as
Buyer) and Vanguard Health Systems, Inc.(6)3.1
    
    
    Amended and Restated Certificate of Incorporation of Vanguard Health Systems, Inc.(1)3.2
    
    
    By-Laws of Vanguard Health Systems, Inc.(7)4.1
    
    
    Indenture, relating to the 8% Senior Notes, dated as of January 29, 2010, among
Vanguard Health Holding Company II, LLC, Vanguard Holding Company II, Inc., Vanguard
Health Systems, Inc. and the Guarantors party thereto and U.S. Bank National
Association, as Trustee(24)4.2
    
    
    Registration Rights Agreement, dated as of January 29, 2010, relating to the 8%
Senior Notes due 2018, among Vanguard Health Holding Company II, LLC, Vanguard
Holding Company II, Inc., Vanguard Health Systems, Inc. and the other guarantors
named therein and Banc of America Securities LLC, Barclays Capital Inc. Citigroup
Global Markets Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Morgan
Stanley & Co. Incorporated(24)4.3
    
    
    Registration Rights Agreement, concerning Vanguard Health Systems, Inc., dated as of
September 23, 2004(1)4.4
    
    
    First Supplemental Indenture, dated as of February 25, 2010, among Vanguard Health
Holding Company II, LLC, Vanguard Holding Company II, Inc., the Guarantors party
thereto and the Trustee(25)4.5
    
    
    Second Supplemental Indenture, dated as of July 14, 2010, relating to the 8% Senior
Notes due 2018, among Vanguard Health Holding Company II, LLC, Vanguard Holding
Company II, Inc., Vanguard Health Systems, Inc., the other guarantors named therein
and U.S. Bank National Association, as trustee(5)4.6
    
    
    Registration Rights Agreement, dated as of July 14, 2010, relating to the 8% Senior
Notes due 2018, among Vanguard Health Holding Company II, LLC, Vanguard Holding
Company II, Inc., Vanguard Health Systems, Inc. the other guarantors named therein
and Bank of America Securities LLC and Barclays Capital Inc. on behalf of themselves
and as representatives of the several initial purchasers listed on Schedule I
thereto(5)
  181




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Exhibit No.
    
    Description10.1
    
    
    Credit Agreement, dated as of January 29, 2010, among Vanguard Health Holding
Company II, LLC, Vanguard Health Holding Company I, LLC, the lenders from time to
time party thereto, Bank of America, N.A., as Administrative Agent, and the other
parties thereto(24)10.2
    
    
    Security Agreement, dated as of January 29, 2010, made by each assignor party
thereto in favor of Bank of America, N.A., as collateral agent(25)10.3
    
    
    Vanguard Guaranty, dated as of January 29, 2010, made by and among Vanguard Health
Systems, Inc. in favor of Bank of America, N.A., as administrative agent(25)10.4
    
    
    Subsidiaries Guaranty, dated as of January 29, 2010, made by and among each of the
guarantors party thereto in favor of Bank of America, N.A., as administrative
agent(25)10.5
    
    
    Pledge Agreement, dated as of January 29, 2010, among each of the pledgors party
thereto and Bank of America, N.A., as collateral agent(25)10.6
    
    
    Transaction and Monitoring Fee Agreement, dated as of September 23, 2004, among
Vanguard Health Systems, Inc., Blackstone Management Partners IV L.L.C., and
Metalmark Management LLC(1)10.7
    
    
    Amended and Restated Limited Liability Company Operating Agreement of VHS Holdings
LLC, dated as of September 23, 2004(1)10.8
    
    
    Vanguard Health Systems, Inc. 2004 Stock Incentive Plan(1)(3)10.9
    
    
    VHS Holdings LLC 2004 Unit Plan(1)(3)10.10
    
    
    Vanguard Health Systems, Inc. 2001 Annual Incentive Plan(2)(3)10.11
    
    
    Amended and Restated Employment Agreement between Vanguard Health Systems, Inc. and
Charles N. Martin, Jr., dated as of September 23, 2004(1)(3)10.12
    
    
    Amended and Restated Employment Agreement between Vanguard Health Systems, Inc. and
Joseph D. Moore, dated as of September 23, 2004(1)(3)10.13
    
    
    Amended and Restated Employment Agreement between Vanguard Health Systems, Inc. and
Ronald P. Soltman, dated as of September 23, 2004(1)(3)10.14
    
    
    Amended and Restated Employment Agreement between Vanguard Health Systems, Inc. and
Keith B. Pitts, dated as of September 23, 2004(1)(3)10.15
    
    
    Form of Amended and Restated Severance Protection Agreement of Vanguard Health
Systems, Inc. dated as of September 23, 2004 for Vice Presidents and above (1)(3)10.16
    
    
    Amended and Restated Agreement Between the Shareholders of VHS Acquisition
Subsidiary Number 5, Inc. executed on September 8, 2004, but effective as of
September 1, 2004(1)10.17
    
    
    Certificate of Designations, Preferences and Rights of Series A Preferred Stock of
VHS Acquisition Subsidiary Number 5, Inc., dated as of September 8, 2004(1)10.18
    
    
    License Agreement between Baptist Health System and VHS San Antonio Partners, L.P.
dated as of January 1, 2003(4)10.19
    
    
    Form of Performance Option Under 2004 Stock Incentive Plan(1)(3)10.20
    
    
    Form of Time Option Under 2004 Stock Incentive Plan(1)(3)
  182




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Exhibit No.
    
    Description10.21
    
    
    Form of Liquidity Event Option Under 2004 Stock Incentive Plan(1)(3)10.22
    
    
    Stockholders Agreement Concerning Vanguard Health Systems, Inc., dated as of
November 4, 2004, by and among Vanguard Health Systems, Inc., VHS Holdings LLC,
Blackstone FCH Capital Partners IV L.P. and its affiliates identified on the
signature pages thereto and the employees identified on the signature pages
thereto(1)10.23
    
    
    Amendment No. 1 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Charles N. Martin, Jr., dated as of December 1, 2004(1)(3)10.24
    
    
    Amendment No. 1 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Joseph D. Moore, dated as of December 1, 2004(1)(3)10.25
    
    
    Amendment No. 1 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Ronald P. Soltman, dated as of December 1, 2004(1)(3)10.26
    
    
    Amendment No. 1 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Keith B. Pitts, dated as of December 1, 2004(1)(3)10.27
    
    
    First Amendment of VHS Holdings LLC 2004 Unit Plan(3)(7)10.28
    
    
    Form of Restricted Stock Unit Agreement (Time Vesting RSUs) used under Vanguard
Health Systems, Inc. 2004 Stock Incentive Plan (3)10.29
    
    
    Form of Restricted Stock Unit Agreement (Liquidity Event RSUs) used under Vanguard
Health Systems, Inc. 2004 Stock Incentive Plan (3)10.30
    
    
    Amendment No. 2 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Charles N. Martin, Jr., dated as of December 1, 2005(3)(9)10.31
    
    
    Amendment No. 2 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Joseph D. Moore, dated as of December 1, 2005(3)(9)10.32
    
    
    Amendment No. 2 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Ronald P. Soltman, dated as of December 1, 2005(3)(9)10.33
    
    
    Amendment No. 2 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Keith B. Pitts, dated as of December 1, 2005(3)(9)10.34
    
    
    Amendment No. 1, dated as of November 3, 2005, to Amended and Restated Limited
Liability Company Operating Agreement of VHS Holdings LLC(9)10.35
    
    
    Amendment Number 1 to the Vanguard Health Systems, Inc. 2004 Stock Incentive Plan,
effective November 28, 2005(3)(9)10.36
    
    
    Amendment Number 2 to the Vanguard Health Systems, Inc. 2004 Stock Incentive Plan,
effective February 15, 2006(3)(10)10.37
    
    
    Amendment Number 3 to the Vanguard Health Systems, Inc. 2004 Stock Incentive Plan,
effective April 15, 2006(3)(10)10.38
    
    
    Amendment Number 4 to the Vanguard Health Systems, Inc. 2004 Stock Incentive Plan,
effective November 13, 2006(3)(12)10.39
    
    
    Amendment No. 3 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Charles N. Martin, Jr., dated as of October 1, 2007(3)(15)
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Exhibit No.
    
    Description10.40
    
    
    Amendment No. 3 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Keith B. Pitts, dated as of October 1, 2007(3)(15)10.41
    
    
    Amendment No. 3 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Joseph D. Moore, dated as of October 1, 2007(3)(15)10.42
    
    
    Amendment No. 4 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Joseph D. Moore, dated as of November 7, 2007(3)(15)10.43
    
    
    Amendment No. 3 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Ronald P. Soltman, dated as of October 1, 2007(3)(15)10.44
    
    
    Employment Agreement between Vanguard Health Systems, Inc. and Kent H. Wallace dated
as of November 15, 2007(3)(15)10.45
    
    
    Employment Agreement between Vanguard Health Systems, Inc. and Phillip W. Roe dated
as of November 15, 2007(3)(15)10.46
    
    
    Form of Amendment No. 1 to Severance Protection Agreement dated as of October 1,
2007, entered into between Vanguard Health Systems, Inc. and each of its executive
officers (other than Messrs. Martin, Pitts, Moore, Soltman, Wallace and Roe who each
have entered into employment agreements with the registrant)(3)(15)10.47
    
    
    Amendment Number 5 to the Vanguard Health Systems, Inc. 2004 Stock Incentive Plan,
effective May 6, 2008(3)(16)10.48
    
    
    Letter dated May 13, 2008, from the Arizona Health Care Cost Containment System to
VHS Phoenix Health Plan, LLC, countersigned by VHS Phoenix Health Plan, LLC on May
13, 2008 awarding Contract No. YH09-0001-07(17)10.49
    
    
    Waiver No. 1 dated as of May 22, 2008, to Amended and Restated Limited Liability
Company Operating Agreement of VHS Holdings LLC, dated as of September 23, 2004, as
amended by Amendment No. 1, dated as of November 3, 2005(20)10.50
    
    
    Amendment No. 5 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Joseph D. Moore, dated as of June 30, 2008(3)(20)10.51
    
    
    Form of Severance Protection Agreement of Vanguard Health Systems, Inc. in use for
Vice Presidents and above employed after October 1, 2007(3)(20)10.52
    
    
    Arizona Health Care Cost Containment System Administration RFP re Contract No.
YH09-0001-07 with VHS Phoenix Health Plan, LLC awarded May 13, 2008(20)10.53
    
    
    Solicitation Amendments to RFP numbers One, Two, Three, Four and Five dated February
29, 2008, March 14, 2008, March 26, 2008, March 28, 2008 and April 10, 2008,
respectively, to Arizona Health Care Cost Containment System Administration Contract
No. YH09-0001-07 with VHS Phoenix Health Plan, LLC(20)10.54
    
    
    Contract Amendment Number 1, executed on September 23, 2008, but effective as of
October 1, 2008, to the Arizona Health Care Cost Containment System Administration
Contract No. YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona
Health Care Cost Containment System(21)
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Exhibit No.
    
    Description10.55
    
    
    Contract Amendment Number 2, executed on January 16, 2009, but effective as of
January 15, 2009, to the Arizona Health Care Cost Containment System Administration
Contract No. YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona
Health Care Cost Containment System(18)10.56
    
    
    Contract Amendment Number 3, executed on April 6, 2009, but effective as of May 1,
2009, to the Arizona Health Care Cost Containment System Administration Contract No.
YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona Health Care Cost
Containment System(19)10.57
    
    
    Contract Amendment Number 4, executed on July 7, 2009, but effective as of August 1,
2009, to the Arizona Health Care Cost Containment System Administration Contract No.
YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona Health Care Cost
Containment
System (8)10.58
    
    
    Contract Amendment Number 5, executed on July 7, 2009, but effective as of August 1,
2009, to the Arizona Health Care Cost Containment System Administration Contract No.
YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona Health Care Cost
Containment
System (8)10.59
    
    
    Amendment Number 6 to the Vanguard Health Systems, Inc. 2004 Stock Incentive Plan,
effective February 13, 2009(3)(19)10.60
    
    
    Form of Indemnification Agreement between the Company and each of its directors and
executive officers (3)(22)10.61
    
    
    Amendment No. 4 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Charles N. Martin, Jr., dated as of May 5, 2009(3)(8)10.62
    
    
    Amendment No. 4 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Keith B. Pitts, dated as of May 5, 2009(3)(8)10.63
    
    
    Amendment No. 4 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Ronald P. Soltman, dated as of May 5, 2009(3)(8)10.64
    
    
    Amendment No. 1 to Employment Agreement between Vanguard Health Systems, Inc. and
Kent H. Wallace, dated as of May 5, 2009(3)(8)10.65
    
    
    Amendment No. 1 to Employment Agreement between Vanguard Health Systems, Inc. and
Phillip W. Roe, dated as of May 5, 2009(3)(8)10.66
    
    
    Employment Agreement between Vanguard Health Systems, Inc. and Mark R. Montoney,
M.D. dated as of December 31, 2008(3)(8)10.67
    
    
    Amendment No. 1 to Employment Agreement between Vanguard Health Systems, Inc. and
Mark R. Montoney, M.D. dated as of May 5, 2009(3)(8)10.68
    
    
    Employment Agreement between Vanguard Health Systems, Inc. and Bradley A. Perkins
dated as of July 1, 2009(3)(8)10.69
    
    
    Vanguard Health Systems, Inc. 2009 Long Term Incentive Plan (3)(23)10.70
    
    
    Amendment No. 7 to Vanguard Health Systems, Inc. 2004 Stock Incentive Plan (3)(23)10.71
    
    
    Contract Amendment Number 6, executed on September 17, 2009, but effective as of
October 1, 2009, to the Arizona Health Care Cost Containment System Administration
Contract No. YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona
Health Care Cost Containment System(11)
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Exhibit No.
    
    Description10.72
    
    
    Contract Amendment Number 7, executed on September 17, 2009, but effective as of
October 1, 2009, to the Arizona Health Care Cost Containment System Administration
Contract No. YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona
Health Care Cost Containment System(11)10.73
    
    
    Contract Amendment Number 8, executed on September 17, 2009, but effective as of
October 1, 2009, to the Arizona Health Care Cost Containment System Administration
Contract No. YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona
Health Care Cost Containment System(11)10.74
    
    
    Contract Amendment Number 9, executed on October 13, 2009, but effective as of
October 1, 2009, to the Arizona Health Care Cost Containment System Administration
Contract No. YH09-0001-07 between VHS Phoenix Health Plan, LLC and the Arizona
Health Care Cost Containment System(11)10.75
    
    
    Amendment No. 1, dated as of November 3, 2009, to Stockholders Agreement Concerning
Vanguard Health Systems, Inc., dated as of November 4, 2004, by and among Vanguard
Health Systems, Inc., VHS Holdings LLC, Blackstone FCH Capital Partners IV L.P. and
its affiliates identified on the signature pages thereto and Charles N. Martin, Jr.,
as proxyholder for certain employees party thereto (13)10.76
    
    
    Amendment No. 2, dated as of January 13, 2010, to Amended and Restated Limited
Liability Company Operating Agreement of VHS Holdings, LLC (25)10.77
    
    
    Amendment No. 3, dated as of January 28, 2010, to Amended and Restated Limited
Liability Company Operating Agreement of VHS Holdings, LLC (25)12.1
    
    
    Computation of Ratios of Earnings to Fixed Charges21.1
    
    
    Subsidiaries of Vanguard Health Systems, Inc.31.1
    
    
    Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200299.1
    
    
    Asset Purchase Agreement, dated as of March 17, 2010, among West Suburban Medical
Center, Westlake Community Hospital, Resurrection Services, Resurrection Ambulatory
Services, VHS Westlake Hospital, Inc., and VHS West Suburban Medical Center, Inc
(14)99.2
    
    
    First Amendment to Asset Purchase Agreement dated as of July 31, 2010, among West
Suburban Medical Center, Westlake Community Hospital, Resurrection Services,
Resurrection Ambulatory Services, VHS Westlake Hospital, Inc., VHS West Suburban
Medical Center, Inc., VHS Acquisition Subsidiary Number 4, Inc., Midwest Pharmacies,
Inc. and MacNeal Physicians Group, LLC(14)
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##### Table of Contents



(1)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Registration Statement on Form S-4 first filed on
November 12, 2004 (Registration No. 333-120436).(2)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Registration Statement on Form S-1 first filed on
October 19, 2001 (Registration No. 333-71934).(3)
    
    Management compensatory plan or arrangement.(4)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated January 14,
2003, File No. 333-71934.(5)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated July 19, 2010,
File No. 333-71934.(6)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated June 15, 2010,
File No. 333-71934.(7)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Annual Report on Form 10-K for the annual period
ended June 30, 2005, File No. 333-71934.(8)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Annual Report on Form 10-K for the annual period
ended June 30, 2009, File No. 333-71934.(9)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2005, File No. 333-71934.(10)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2006, File No. 333-71934.(11)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2009, File No. 333-71934.(12)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2006, File No. 333-71934.(13)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2009, File No. 333-71934.(14)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated August 4, 2010,
File No. 333-71934.(15)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2007, File No. 333-71934.(16)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated May 9, 2008,
File No. 333-71934.(17)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated May 16, 2008,
File No. 333-71934.(18)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2008, File No. 333-71934.(19)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2009, File No. 333-71934.  187




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##### Table of Contents



(20)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Annual Report on Form 10-K for the annual period
ended June 30, 2008, File No. 333-71934.(21)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2008, File No. 333-71934.(22)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated May 6, 2009,
File No. 333-71934.(23)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K dated August 21, 2009,
File No. 333-71934.(24)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Current Report on Form 8-K, dated February 3,
2010, File No. 333-71934.(25)
    
    Incorporated by reference from exhibits to Vanguard Health
Systems, Inc.s Registration Statement on Form S-4 first filed on
March 3, 2010 (Registration No. 333-165157).  188