##### 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, 2011
 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: 001-35204
 
 (VANGUARD HEALTH SYSTEMS LOGO)
 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
  Title of each Class
    
    Name of exchange on which registeredCommon Stock, $.01 par value
    
    New York Stock Exchange
  o Yes þ No
 o Yes þ No
 þ Yes o No
 Yes o
No o
 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
   DOCUMENTS INCORPORATED BY REFERENCE




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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
    
    
    52Item 1B. Unresolved Staff Comments
    
    
    81Item 2. Properties
    
    
    81Item 3. Legal Proceedings
    
    
    81Item 4. (Removed and Reserved)
    
    
    83PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    84Item 6. Selected Financial Data
    
    
    86Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    89Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    115Item 8. Financial Statements and Supplementary Data
    
    
    116Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    171Item 9A. Controls and Procedures
    
    
    171Item 9B. Other Information
    
    
    173PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    174Item 11. Executive Compensation
    
    
    174Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    174Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    174Item 14. Principal Accounting Fees and Services
    
    
    174PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    175SIGNATURES
    
    
    176Exhibit 10.93Exhibit 10.94Exhibit 10.95Exhibit 10.96Exhibit 10.97Exhibit 10.98Exhibit 10.99Exhibit 10.100Exhibit 10.101Exhibit 12.1Exhibit 21.1Exhibit 23Exhibit 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 of two hospitals in Chicago, our recent acquisition of The Detroit Medical
Center and other future acquisitions or to recognize expected synergies from such
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 levels in general and with respect to the impact of the Budget Control Act
of 2011 and other future deficit reduction plans;
 
    
    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 and
improvements to our existing facilities;
 
    
    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 achieve operating and financial targets and to maintain and
increase patient volumes and control the costs of providing services, including salaries
and benefits, supplies and bad debts;
 
    
    Increased compliance costs from further government regulation of healthcare and
our failure to comply, or allegations of our failure to comply, with applicable laws and
regulations;
 
    
    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;
  3




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
    
    A failure of our information systems would adversely impact our ability to
manage our operations;
 
    
    Changes in general economic conditions nationally and regionally in our
markets;
 
    
    Costs and compliance risks associated with Section 404 of the Sarbanes-Oxley
Act of 2002;
 
    
    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;
 
    
    Changes in accounting practices; and
 
    
    Our ability to demonstrate meaningful use of certified electronic health record
technology and to recognize revenues for the related Medicare or Medicaid incentive
payments.
  
 PART I
 
 Item 1.
    
    Business.
 Our Company
  Markets
    
    Hospitals
    
    
    Licensed Beds
    
    
    % of total revenuesSan Antonio
    
    
    5
    
    
    
    1,674
    
    
    
    17.1
    %Metropolitan Phoenix (excluding health plans)
    
    
    6
    
    
    
    1,032
    
    
    
    10.9Metropolitan Chicago
    
    
    4
    
    
    
    1,121
    
    
    
    12.7Metropolitan Detroit
    
    
    8
    
    
    
    1,734
    
    
    
    35.3Massachusetts
    
    
    3
    
    
    
    640
    
    
    
    10.3
     4




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Our History and Sponsors
   Initial Public Offering
    5




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Our Competitive Strengths
  
    
    Attractive markets with substantial growth opportunities.We have established a
significant presence in five attractive urban and suburban markets across the United
States. We believe that our markets are attractive because of their favorable demographics,
large size, competitive landscape, payer mix and opportunities for expansion. We enjoy
leading positions and unique capabilities in many of our markets and have attractive
opportunities across our portfolio to expand our service capabilities to drive additional
growth and market penetration.
 
    
    Regionally-focused integrated care networks.We provide a broad range of services in
all of our markets through established networks of acute care and specialty hospitals and
complementary outpatient facilities. In each of San Antonio, Detroit, Phoenix and Chicago,
we operate networks of four or more hospitals and, within all of these networks; our
hospitals are located within a six to fourteen mile radius of each other depending upon the
market. We believe our network approach allows us to more effectively collaborate with
physicians and tailor our services to meet the needs of a broader population and enhance
our market share. Additionally, we believe a broader network presence provides us with
certain competitive advantages, particularly our ability to attract payers and recruit
physicians and other medical personnel.
 
    
    Comprehensive portfolio of attractive facilities.We have invested substantially since
the beginning of fiscal 2005 to enhance the quality and range of services provided at our
facilities. We have expanded the size of several facilities and invested strategic capital
in medical equipment and technology. We believe that, as a result of our significant
capital investments in our facilities, we have established a positive reputation among
patients and referral sources, and are well positioned to attract leading physicians and
other highly skilled healthcare professionals in our communities. This enables us to
continue providing a broad range of high quality healthcare services in the communities we
serve.
 
    
    Focus on high-quality, patient-centered care.We are focused on providing
high-performance, patient-centered care in our communities. Central to this mission is a
significant focus on clinical quality, where we have implemented several initiatives to
maintain and enhance our delivery of quality care, including investment in clinical best
practices, patient safety initiatives, investment in information technology and tools and
close involvement of senior leadership. Likewise, we have made significant investments in
providing a patient-centered experience and driving high patient satisfaction, including
hourly rounding by administration and nursing staff, post-discharge follow-up and
satisfaction surveys and a robust commitment to patient advocacy.
 
    
    Track record of consistent organic growth and cash flows.Prior to fiscal 2011, most of
our growth during the previous five years has been achieved by enhancing and expanding our
services, improving our revenues and managing our costs in our existing markets. Through
these efforts, we have generated consistent organic growth and strong cash flows, and our
performance has enabled us to invest significant capital in our markets and facilities.
 
    
    Proven ability to complete and integrate acquisitions.Since our founding in 1997, we
have expanded our operations by acquiring hospital systems that fit our strategic profile
and operating strategies. We have demonstrated a consistent ability to leverage our
experience, access to capital, transformative clinical and business approaches and other
capabilities to enhance the profitability of our acquired hospital systems and execute
in-market development activities to expand our market presence and accelerate growth. For
example, we acquired the Baptist Health System in San Antonio, Texas in 2003 with 1,537
licensed beds and annual revenues of approximately $431.0 million. Baptist Health Systems
annual revenues had grown to approximately $1,039.5 million for the fiscal year ended June
30, 2011.
 
    
    Experienced and incentivized management team.Our senior management team has an average
of more than 20 years of experience in the healthcare industry and a proven track record of
executing on strategic acquisitions and
achieving strong operating results. Our management team collectively owns a substantial
percentage of our equity, providing strong alignment with the long-term interests of
stockholders.
  6




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Our Growth Strategy
  
    
    Pursue growth opportunities in established markets.We continuously work to identify
services that are in demand in the communities we serve that we do not provide or provide
only on a limited basis. When such opportunities are identified, we employ a number of
strategies to respond, including facility development, outpatient strategies and physician
recruiting. For example, during fiscal year 2011 we upgraded cancer services in Chicago;
began construction of a new cancer center in Massachusetts; upgraded orthopedics and
vascular services in San Antonio and opened a state of the art replacement hospital in San
Antonio. Where appropriate, we will also make selective acquisitions. For example, we
acquired Arizona Heart Hospital and Arizona Heart Institute in October 2010 as part of a
strategy to build a top tier regional service line in cardiology.
 
    
    Capitalize on recent acquisitions.We have completed or announced several acquisitions
recently that enhance our capabilities in existing markets or position us well in new
markets. For example, through our acquisition of West Suburban Medical Center and Westlake
Hospital from Resurrection Health Care, we have substantially expanded our presence in the
greater Chicago market. Additionally, we acquired The Detroit Medical Center during fiscal
year 2011, which we believe provides us a unique growth opportunity in a new market, where
we can leverage the established market presence of The Detroit Medical Center system and
our expertise and strong financial position to expand services and pursue other initiatives
that we believe will result in attractive growth. Additionally, the acquisition adds our
first childrens hospital, first womens hospital and first freestanding rehabilitation
hospital and we believe the experience we will obtain in managing these specialty hospitals
will enable us to introduce such services across the company.
 
    
    Continue to strengthen our market presence and leading reputation.We intend to
position ourselves to thrive in a changing healthcare environment by continuing to build
and operate high-performance, patient-centered care networks, fully engaging in health and
wellness, and enhancing our strong reputation in our markets. 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. In addition, we intend to lead
efforts to measure and directly improve the health of our communities. We believe these
efforts, together with our local presence and trust, national scale and access to capital,
will enable us to advance our reputation and generate sustainable growth.
 
    
    Drive physician collaboration and alignment.We believe that in order to help our
communities achieve health for life, we must work collaboratively with physicians to
provide clinically superior healthcare services. The first step in this process is to
ensure that physician resources are available to provide the necessary services to our
patients. Since the beginning of fiscal year 2009, we have recruited a significant number
of physicians through both relocation and employment agreements, including the addition of
over 180 employed physicians through our acquisitions of The Detroit Medical Center and the
Arizona Heart Institute. In addition, we have implemented multiple initiatives including
physician leadership councils, training programs and information technology upgrades to
ease the flow of on-site and off-site communication between physicians, nurses and patients
in order to effectively align the interests of all patient caregivers. In addition, we are
aligning with our physicians to participate in various forms of risk contracting, including
pay for performance programs, bundled payments and, eventually, global risk.
  7




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
    
    Leverage our health plan capabilities.We operate strategically-important health plans
in Arizona and Illinois that we believe provide us with differentiated capabilities in
these markets and enable us to develop experience and competencies that we expect to become
increasingly important as the healthcare system evolves. Specifically, PHP, our
Arizona-based Medicaid managed health plan, provides us with insights into state
initiatives to manage this
population ahead of the anticipated expansion of health coverage to currently uninsured
patients pursuant to the Patient Protection and Affordable Care Act (the Health Reform
Law). Additionally, through MHP, our Chicago-based preferred provider network, we manage
capitated contracts covering outpatient and physician services. We believe our ownership of
MHP allows us to gain experience with risk-bearing contracts and delivery of care in
low-cost settings, including our network of health centers.
 
    
    Pursue selective acquisitions.We believe that our foundation built on patient-centered
healthcare and clinical quality and efficiency in our existing markets will give us a
competitive advantage in expanding our services in these and other markets through
acquisitions or partnering opportunities. We continue to monitor opportunities to acquire
hospitals or systems that strategically fit our vision and long-term strategies.
 Our Industry
 Overview
     
    
    Growing need for healthcare services.The U.S. Census Bureau estimates that the number
of individuals age 65 and older has grown 1.3% compounded annually over the past 20 years
and is expected to grow 3.0% compounded annually over the next 20 years, approximately
three times faster than the overall population. We believe the anticipated increase in the
number of individuals age 65 and older, together with the expansion of health coverage,
increased prevalence of chronic conditions such as diabetes and advances in technology,
will drive demand for our specialized medical services and generally favor providers that
possess integrated networks and a wide array of services and capabilities.
 
    
    Growing premium on high-performance, patient-centered care networks.The U.S.
healthcare system continues to evolve in a manner that places an increasing emphasis on
high-performance, patient-centered care supported by robust information technology and
effective care coordination. For example, there are a number of initiatives that we expect
to continue to gain importance, including introduction of value-based payment methodologies
tied to performance, quality and coordination of care, implementation of integrated
electronic health records and information and an increasing ability for patients and
consumers to make choices about all aspects of healthcare. We believe our focus on
developing clinically integrated, comprehensive healthcare delivery networks, commitment to
patient-centered care, our experience with risk-based contracting and our experienced
management team position us well to respond to these emerging trends and to manage the
changing healthcare regulatory and reimbursement environment.
  8




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
    
    Impact of health reform.The Health Reform Law is expected to have a substantial impact
on the healthcare industry. Among other things, the Health Reform Law expands health
insurance coverage to approximately 32 to
34 million additional individuals, significantly reduces the growth of Medicare program
payments, materially decreases Medicare and Medicaid disproportionate share hospital
(DSH) payments and establishes programs where reimbursement is tied in part to quality
and integration. We believe the expansion of insurance coverage will, over time, increase
our reimbursement related to providing services to individuals who were previously
uninsured. Conversely, the reductions in the growth in Medicare payments and the decreases
in DSH payments will adversely affect our government reimbursement. Significant uncertainty
regarding the ultimate implementation of the Health Reform Law remains and therefore we are
unable to predict its net impact on us. However, due to attributes such as our
high-quality, patient-centered care model, well-developed integrated care networks and our
alignment with physicians, we believe that we are well positioned to respond effectively to
the opportunities and challenges presented by this important legislation.
 Acute Care Hospital Consolidation
  
    
    limited access to the capital necessary to expand and upgrade their hospital facilities
and range of services;
 
    
    poor financial performance resulting, in part, from the challenges associated with
changes in reimbursement;
 
    
    the need and ability to recruit primary care physicians and specialists; and
 
    
    the need to achieve general economies of scale to reduce operating and purchasing
costs.
  Our Recent Acquisitions
 The Detroit Medical Center
    9




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The Resurrection Facilities
  Arizona Heart Hospital and Arizona Heart Institute
  The Markets We Serve
  San Antonio, Texas
     Metropolitan Phoenix, Arizona
   10




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Metropolitan Chicago, Illinois
    Metropolitan Detroit, Michigan
   11




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Massachusetts
     12




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Our Facilities
  LicensedHospital
    
    City
    
    Beds
    
    
    Date AcquiredTexasBaptist Medical Center
    
    San Antonio
    
    
    623
    
    
    January 1, 2003Northeast Baptist Hospital
    
    San Antonio
    
    
    379
    
    
    January 1, 2003North Central Baptist Hospital
    
    San Antonio
    
    
    280
    
    
    January 1, 2003Mission Trail Baptist Hospital (2)
    
    San Antonio
    
    
    110
    
    
    June 27, 2011St. Lukes Baptist Hospital
    
    San Antonio
    
    
    282
    
    
    January 1, 2003ArizonaMaryvale Hospital
    
    Phoenix
    
    
    232
    
    
    June 1, 1998Arrowhead Hospital
    
    Glendale
    
    
    220
    
    
    June 1, 2000Phoenix Baptist Hospital
    
    Phoenix
    
    
    221
    
    
    June 1, 2000Paradise Valley Hospital
    
    Phoenix
    
    
    136
    
    
    November 1, 2001West Valley Hospital (2)
    
    Goodyear
    
    
    164
    
    
    September 4, 2003Arizona Heart Hospital (3)
    
    Phoenix
    
    
    59
    
    
    October 1, 2010IllinoisMacNeal Hospital
    
    Berwyn
    
    
    427
    
    
    February 1, 2000Louis A. Weiss Memorial Hospital (4)
    
    Chicago
    
    
    236
    
    
    June 1, 2002West Suburban Medical Center
    
    Oak Park
    
    
    233
    
    
    August 1, 2010Westlake Hospital
    
    Melrose Park
    
    
    225
    
    
    August 1, 2010MichiganDMC Harper University Hospital
    
    Detroit
    
    
    567
    
    
    January 1, 2011DMC Hutzel Womens Hospital (5)
    
    Detroit
    
    
    N/A
    
    
    January 1, 2011DMC Childrens Hospital of Michigan
    
    Detroit
    
    
    228
    
    
    January 1, 2011DMC Detroit Receiving Hospital
    
    Detroit
    
    
    273
    
    
    January 1, 2011DMC SinaiGrace Hospital
    
    Detroit
    
    
    383
    
    
    January 1, 2011DMC Huron ValleySinai Hospital
    
    Commerce
    
    
    153
    
    
    January 1, 2011DMC Rehabilitation Institute of Michigan (3)
    
    Detroit
    
    
    94
    
    
    January 1, 2011DMC Surgery Hospital (3)
    
    Madison Heights
    
    
    36
    
    
    January 1, 2011MassachusettsMetroWest Medical Center  Leonard Morse Hospital
    
    Natick
    
    
    141
    
    
    December 31, 2004MetroWest Medical Center  Framingham Union Hospital
    
    Framingham
    
    
    178
    
    
    December 31, 2004Saint Vincent Hospital at Worcester Medical Center
    
    Worcester
    
    
    321
    
    
    December 31, 2004Total Licensed Beds
    
    
    
    
    6,201
 
 (1)
    
    All of our hospitals are acute care hospitals, except as indicated below.(2)
    
    These hospitals were constructed, not acquired. Mission Trail Baptist
Hospital was a replacement facility for Southeast Baptist Hospital.(3)
    
    This is a specialty hospital.(4)
    
    This hospital is operated by us in a consolidated joint venture
corporation in which we own 80.1% of the equity interests andthe University of Chicago Hospitals owns 19.9% of the equity interests.(5)
    
    Licensed beds for DMC Hutzel Womens Hospital are presented on a
combined basis with DMC Harper University Hospital.  13




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Our Hospital Operations
 Acute Care Services
  Management and Oversight
     14




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Attracting Patients
     Outpatient Services
   15




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Operating Statistics
  Year ended June 30,2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Number of hospitals at end of period (a)
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    26Number of licensed beds at end of period (a)
    
    
    4,143
    
    
    
    4,181
    
    
    
    4,135
    
    
    
    4,135
    
    
    
    6,201Discharges (a)
    
    
    166,873
    
    
    
    169,668
    
    
    
    167,880
    
    
    
    168,370
    
    
    
    223,793Adjusted discharges (a)
    
    
    277,231
    
    
    
    283,250
    
    
    
    288,807
    
    
    
    295,702
    
    
    
    404,178Net revenue per adjusted discharge (a)(b)
    
    $
    7,674
    
    
    $
    8,047
    
    
    $
    8,503
    
    
    $
    8,408
    
    
    $
    9,637Average length of stay (days) (a)
    
    
    4.33
    
    
    
    4.33
    
    
    
    4.23
    
    
    
    4.17
    
    
    
    4.37Total surgeries (a)
    
    
    113,833
    
    
    
    110,877
    
    
    
    114,348
    
    
    
    113,289
    
    
    
    148,688Emergency room visits (a)
    
    
    572,946
    
    
    
    588,246
    
    
    
    605,729
    
    
    
    626,237
    
    
    
    924,848Member lives (a)
    
    
    145,600
    
    
    
    149,600
    
    
    
    218,700
    
    
    
    241,200
    
    
    
    245,100
 
 (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
      16




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Abrazo Advantage Health Plan
  MacNeal Health Providers
  Competition
     17




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Employees and Medical Staff
   nd th
   18




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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.
  19




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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.
  20




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Year ended June 30,2009
    
    
    2010
    
    
    2011Medicare
    
    
    25.3
    %
    
    
    25.5
    %
    
    
    25.7
    %Medicaid
    
    
    7.9
    %
    
    
    7.4
    %
    
    
    12.0
    %Managed Medicare
    
    
    14.1
    %
    
    
    14.8
    %
    
    
    11.8
    %Managed Medicaid
    
    
    8.8
    %
    
    
    9.5
    %
    
    
    9.4
    %Managed care
    
    
    34.7
    %
    
    
    34.9
    %
    
    
    31.8
    %Self pay
    
    
    8.3
    %
    
    
    6.8
    %
    
    
    8.4
    %Other
    
    
    0.9
    %
    
    
    1.1
    %
    
    
    0.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Traditional Medicare
  Medicare Inpatient Acute Care Reimbursement
 Medicare Severity-Adjusted Diagnosis-Related Group Payments.
  21




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Outlier Payments.
  Disproportionate Share Hospital Payments.
 Direct Graduate and Indirect Medical Education.
  22




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Hospital acquired conditions and serious medical errors.
 Medicare Outpatient Services Reimbursement
   Rehabilitation Units
  Psychiatric Units
   23




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Federal Fiscal Year 2012 Payment Updates
    Impact of Health Reform Law on Medicare Reimbursement
 Inpatient Reimbursement.
    24




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Outpatient Reimbursement.
 Rehabilitation Unit Reimbursement.
 Psychiatric Unit Reimbursement.
  25




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Impact of Budget Control Act of 2011 on Medicare Reimbursement
     
    
    Raising the age of eligibility from 65 to 67;
 
    
    Cuts in supplemental Medicare funding such as IME/GME, DSH and bad debts reimbursement;
 
    
    Combining Part A and B deductibles Into a single annual deductible;
 
    
    Additional means testing of Medicare;
 
    
    Eliminating first-dollar Medigap coverage;
 
    
    Shifting coverage of persons dually eligible for Medicare and Medicaid (dual eligibles)
to Medicaid; and
 
    
    Turning Medicare into a voucher program, and limiting overall federal spending, which
could cap Medicare expenditures, forcing deep cuts in the program.
 Contractor Reform
   26




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Recovery Audit Contractors
         27




---



##### Table of Contents



Accountable Care Organizations and Pilot Projects
       28




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##### Table of Contents




    
    CMS will limit the number of Pioneer ACOs to approximately 30, selected through a
competitive application process;
 
    
    Pioneer ACOs will permit prospective or retrospective assignment of beneficiaries and
will assign beneficiaries to Pioneer ACOs based on primary care services received from a
broader range of providers including certain non-physician practitioners and specialists;
 
    
    Pioneer ACOs will be required to accept population-based payments, fixed-amount
payments that will replace a portion of fee-for-service payments, in the third performance
year; and
 
    
    Pioneer ACOs will have the option to choose among four risk sharing models, including
models that allow for incurring less downside risk than the previously proposed ACO model.
  Bundled Payment Pilot Programs
   29




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##### Table of Contents



Managed Medicare
  Medicaid
  Disproportionate Share Payments
  Medicaid Electronic Health Record Incentive Payments
   30




---



##### Table of Contents



Impact of Health Reform Law on Medicaid Reimbursement
     Managed Medicaid
  Annual Cost Reports
    31




---



##### Table of Contents



Managed Care and Other Private Insurers
  Self-Pay Patients
      32




---



##### Table of Contents



Government Regulation and Other Factors
 Overview
  Licensing, Certification and Accreditation
    33




---



##### Table of Contents



Certificates of Need
  Utilization Review
  qui tam qui tam
 Federal Healthcare Program Statutes and Regulations
   34




---



##### Table of Contents




    
    Hospital cost reporting of pension costs;
 
    
    Conditions of participation for hospitals and other healthcare facilities;
 
    
    Inpatient rehabilitation unit payment systems;
 
    
    Outpatient hospital physician supervision requirements;
 
    
    Medicare reconsideration and appeals processes;
 
    
    Medicare Advantage and prescription drug plan marketing rules and comment process for
annual policy changes;
 
    
    Physician documentation requirements;
 
    
    Ambulatory Surgical Center same-day services rules;
 
    
    Medicaid home and community-based services waivers; and
 
    
    State Innovation Waivers under PPACA.
  Anti-Kickback Statute
     35




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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.
    36




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Other Fraud and Abuse Provisions
    37




---



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The Stark Law
     38




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##### Table of Contents



Similar State Laws, etc.
  Certain Implications of these Fraud and Abuse Laws or New Laws
  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 Law
permits the DOJ to oppose a defendants motion to dismiss on public disclosure bar grounds,
at its discretion so that the whistleblower can proceed with his or her complaint.
   39




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Corporate Practice of Medicine and Fee Splitting
  The Health Insurance Portability and Accountability Act of 1996
   40




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##### Table of Contents



41




---



##### Table of Contents



Conversion Legislation
  The Emergency Medical Treatment and Active Labor Act
  Antitrust Laws
   42




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##### Table of Contents



Healthcare Reform
  Expanded Coverage
  Medicaid Expansion.
    43




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##### Table of Contents



Private Sector Expansion.
     44




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##### Table of Contents



Public Program Spending
  Payments for Hospitals
 Inpatient Market Basket and Productivity Adjustment.
      45




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##### Table of Contents



Quality-Based Payment Adjustments and Reductions for Inpatient Services.
   Outpatient Market Basket and Productivity Adjustment.
 Medicare and Medicaid Disproportionate Share Hospital Payments.
    46




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Accountable Care Organizations.
 Bundled Payment Pilot Programs.
 Medicare Managed Care (Medicare Advantage or MA).
 Physician-owned Hospital Limitations
  Program Integrity and Fraud and Abuse
   47




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Impact of Health Reform Law on Us
   
    
    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.
  48




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
    
    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.
  Healthcare Industry Investigations
   49




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qui tam
   Health Plan Regulatory Matters
   50




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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 waste as well as low level radioactive
and other medical waste;
 
    
    ownership, operation 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
    51




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Item 1A.
    
    Risk Factors.
 You should carefully consider the following risks as well as the other information included in
this report, including Managements Discussion and Analysis of Financial Condition and Results of
Operations and our financial statements and related notes. Any of the following risks could
materially and adversely affect our business, financial condition or results of operations.
However, the selected risks described below are not the only risks facing us. Additional risks and
uncertainties not currently known to us or those we currently view to be immaterial may also
materially and adversely affect our business, financial condition or results of operations. While
we attempt to mitigate known risks to the extent we believe to be practicable and reasonable, we
can provide no assurance, and we make no representation, that our mitigation efforts will be
successful.
 Risks Related to Our Business and Structure
 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; Detroit, Michigan; or certain
communities in Massachusetts experience a greater degree of economic weakness than average,
the adverse impact on our operations could be magnified.
 
    
    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 $260.0 million revolving credit facility expiring in January
2015 (the 2010 Revolving Facility) and our $815.0 million senior secured term loan
maturing in January 2016 (the 2010 Term Loan Facility and, together with the 2010
Revolving Facility, the 2010 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.
   52




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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 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 American Health Benefit Exchanges (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;
  53




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
    
    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. Twenty-nine states and various private
groups have challenged the constitutionality of the Health Reform Law in federal courts and
lower courts have issued conflicting rulings on the constitutionality of the Health Reform
Law, including specifically the requirement that individuals maintain health insurance or
pay a penalty. In June 2011 the U.S. Court of Appeals for the 6th Circuit upheld this
mandate that individuals maintain health insurance or pay a penalty as a justifiable
exercise of congressional Commerce Clause power. However, in August 2011 setting up a
circuit conflict over this probably most controversial part of the Health Reform Law, a
divided panel of the U.S. Court of Appeals for the 11th Circuit ruled that the individual
mandate feature exceeds the authority of Congress to legislate under the Constitution. The
August 2011 decision affirmed part of a January 2011 ruling by U.S. District Judge Roger
Vinson of Florida, who ruled the health-insurance mandate unconstitutional. The 11th
Circuit, however, overruled Judge Vinson on a key point: whether the entire law must be
struck down or only the individual-mandate part. Judge Vinson voided the entire law, but
the 11th Circuit appellate judges said other provisions should remain legally operative.
After the August 2011 11th Circuit ruling occurred, most legal commentary seemed to agree
that the August 2011 decision makes U.S. Supreme Court review of the situation almost
certain, because the most common justification for Supreme Court review has now been met: a
conflict between two circuits. Two more federal appellate courtsin Virginia and the
District of Columbiahave yet to rule on the Health Reform Law. The 4th Circuit Court of
Appeals in Richmond, Virginia is expected to rule as soon as September 2011. The D.C. appellate
court will hear arguments in September 2011. Legal commentators seem to agree that this
matter could now land at the Supreme Court as soon as its 2011-12 term, which ends in June
2012, or wait until the 2012-13 term, which would put the final resolution after the
November 2012 presidential election; and
 
    
    on January 19, 2011, the U.S. House of Representatives voted 245-189 to repeal the
Health Reform Law. However, the Senate rejected this proposal on February 2, 2011.
Republicans have indicated, however, that in the event their efforts to repeal the Health
Reform Law are unsuccessful, their intent is to seek to implement incremental revisions to
many of the laws provisions or to defund certain programs.
  
    
    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 or whether they will decrease reimbursement;
 
    
    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.
  54




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If we are unable to enter into favorable contracts with managed care plans, our operating revenues
may be reduced.
  Our revenues may decline if federal or state programs reduce our Medicare or Medicaid payments.
    55




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56




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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.
   
    
    Hospital cost reporting of pension costs;
 
    
    Conditions of participation for hospitals and other health care facilities;
 
    
    Inpatient rehabilitation unit payment systems;
 
    
    Outpatient hospital physician supervision requirements;
 
    
    Medicare reconsideration and appeals processes;
 
    
    Medicare Advantage and prescription drug plan marketing rules and comment process for
annual policy changes;
 
    
    Physician documentation requirements;
 
    
    Ambulatory Surgical Center same-day services rules;
 
    
    Medicaid home and community-based services waivers; and
 
    
    State Innovation Waivers under the Health Reform Law
   57




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58




---



##### Table of Contents



qui tam
      59




---



##### Table of Contents



Friedman et. al. v. Sebelius
   Some of our hospitals may be required to submit to CMS information on their relationships with
physicians and this submission could subject such hospitals and us to liability.
   60




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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.
  qui tam qui tam
  61




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62




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Competition from other hospitals or healthcare providers (especially specialty hospitals) may
reduce our patient volumes and profitability.
    63




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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.
   64




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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.
    65




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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.
  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.
   66




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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 30,2009
    
    
    2010
    
    
    2011San Antonio
    
    
    29.6
    %
    
    
    26.8
    %
    
    
    20.7
    %PHP and AAHP
    
    
    19.3
    %
    
    
    23.1
    %
    
    
    16.6
    %Massachusetts
    
    
    18.3
    %
    
    
    18.2
    %
    
    
    12.5
    %Metropolitan Phoenix, excluding PHP and AAHP
    
    
    17.9
    %
    
    
    17.5
    %
    
    
    13.2
    %Metropolitan Chicago (1)
    
    
    14.6
    %
    
    
    14.1
    %
    
    
    15.5
    %Metropolitan Detroit
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    21.3
    %Other
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.2
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Includes MHP.   67




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If we are unable to control our healthcare costs at Phoenix Health Plan, if this health plan should
lose its governmental contract or if budgetary cuts reduce the scope of Medicaid 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.
  Controls designed to reduce inpatient services may reduce our revenues.
   68




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qui tam qui tam
 The industry trend towards value-based purchasing may negatively impact our revenues.
      69




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Our facilities are subject to extensive federal and state laws and regulations relating to the
privacy of individually identifiable information.
   As a result of increased post-payment reviews of claims we submit to Medicare and Medicaid for our
services, we may incur additional costs and may be required to repay amounts already paid to us.
    70




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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.
     71




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Our pension plan obligations under one of DMCs pension plans are currently underfunded, and we may
have to make significant cash payments to this plan, which would reduce the cash available for our
businesses.
   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;
 
    
    remote physician access to patient data;
 
    
    negotiating, pricing and administering managed care contracts; and
 
    
    monitoring quality of care.
  72




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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.
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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.
  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.
   74




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Risks Related to Our Indebtedness
 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 our existing notes;
 
    
    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 2010 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.
    75




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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.
  An increase in interest rates would increase the cost of servicing our debt and could reduce our
profitability.
  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 the issuers of the
notes or other restricted subsidiaries;
 
    
    create liens without securing the 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.
  76




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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.
   Vanguard must rely on payments from its subsidiaries to fund payments on its indebtedness. Such
funds may not be available in certain circumstances.
  If we default on our obligations to pay our other indebtedness, we may not be able to make payments
on our existing notes.
   77




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##### Table of Contents



Risks Relating to Ownership of Our Common Stock
 The market price of our common stock could decline due to the future issuance of additional common
stock in connection with our incentive plans, acquisitions or otherwise.
  The market price of our common stock may be volatile, which could cause the value of our common
stock to decline.
  
    
    quarterly variations in our results of operations;
 
    
    results of operations that vary from the expectations of securities analysts and
investors;
 
    
    results of operations that vary from those of our competitors;
 
    
    changes in expectations as to our future financial performance, including financial
estimates by securities analysts and investors;
 
    
    announcements by us, our competitors or our vendors of significant contracts,
acquisitions, joint ventures or capital commitments;
 
    
    announcements by third parties of significant claims or proceedings against us;
 
    
    future sales of our common stock; and
 
    
    general domestic economic conditions.
    78




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##### Table of Contents



If we or our existing investors sell additional shares of our common stock, the market price of our
common stock could decline.
    Because we have no current plans to pay cash dividends on our common stock for the foreseeable
future, stockholders may not receive any return on investment unless they sell their common stock
for a price greater than that which they paid for it.
  Our Sponsors and certain members of our management continue to have significant influence over us,
including control over decisions that require the approval of stockholders, which could limit our
stockholders ability to influence the outcome of key transactions, including a change of control.
   79




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We are a controlled company within the meaning of the New York Stock Exchange rules and, as a
result, qualify for, and are relying on, exemptions from certain corporate governance
requirements. Our stockholders do not have the same protections afforded to stockholders of
companies that are subject to such requirements.
  
    
    the requirement that a majority of the board of directors consist of independent
directors;
 
    
    the requirement that we have a nominating and corporate governance committee that is
composed entirely of independent directors with a written charter addressing the
committees purpose and responsibilities;
 
    
    the requirement that we have a compensation committee that is composed entirely of
independent directors with a written charter addressing the committees purpose and
responsibilities; and
 
    
    the requirement for an annual performance evaluation of the nominating and corporate
governance and compensation committees.
  Anti-takeover provisions in our certificate of incorporation and by-laws and Delaware law could
delay or prevent a change in control.
    80




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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) and
Cason-Merenda, et al. v. Detroit Medical Center, et al., Case No. 2:06-cv-15601-GER-DAS (United
States District Court, Eastern District of Michigan, Southern Division, filed December 15, 2006
   81




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Self-Disclosure of Employment of Excluded Persons
  New DOJ Enforcement Initiative: Medicare Billing for Implantable Cardioverter Defibrillators
(ICDs)
   82




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Claims in the ordinary course of business
  
 Item 4.
    
    (Removed and Reserved).
  83




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Price Range of Common Stock
   High
    
    
    LowJune 22, 2011 to June 30, 2011
    
    $
    18.58
    
    
    $
    16.62
 Recent Sales of Unregistered Securities
  Date of Issuance
    
    Purchase Price ($)
    
    
    Share AmountApril 25, 2011
    
    $
    3,948
    
    
    
    1,370April 26, 2011
    
    
    30,640
    
    
    
    10,963April 27, 2011
    
    
    11,656
    
    
    
    4,170April 28, 2011
    
    
    24,117
    
    
    
    8,341April 29, 2011
    
    
    55,560
    
    
    
    19,186April 29, 2011
    
    
    23,617
    
    
    
    8,163May 2, 2011
    
    
    22,314
    
    
    
    7,984$
    171,852
    
    
    
    60,177
  Dividend Policy
   84




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Use of Proceeds
    85




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##### Table of Contents



Item 6.
    
    Selected Financial Data.
  Year ended June 30,2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Statement of Operations Data (millions):Total revenues
    
    $
    2,563.9
    
    
    $
    2,775.6
    
    
    $
    3,185.4
    
    
    $
    3,376.9
    
    
    $
    4,895.9Costs and expenses:Salaries and benefits (includes stock
compensation of $1.2, $2.5, $4.4
$4.2 and $4.8, respectively)
    
    
    1,061.4
    
    
    
    1,146.2
    
    
    
    1,233.8
    
    
    
    1,296.2
    
    
    
    2,020.4Health plan claims expense
    
    
    297.0
    
    
    
    328.2
    
    
    
    525.6
    
    
    
    665.8
    
    
    
    686.3Supplies
    
    
    420.8
    
    
    
    433.7
    
    
    
    455.5
    
    
    
    456.1
    
    
    
    669.9Provision for doubtful accounts
    
    
    174.8
    
    
    
    205.5
    
    
    
    210.3
    
    
    
    152.5
    
    
    
    302.3Other operating expenses
    
    
    367.6
    
    
    
    398.5
    
    
    
    461.9
    
    
    
    483.9
    
    
    
    798.8Depreciation and amortization
    
    
    117.0
    
    
    
    129.3
    
    
    
    128.9
    
    
    
    139.6
    
    
    
    193.8Interest, net
    
    
    123.8
    
    
    
    122.1
    
    
    
    111.6
    
    
    
    115.5
    
    
    
    171.2Monitoring fees and expenses
    
    
    5.2
    
    
    
    6.3
    
    
    
    5.2
    
    
    
    5.1
    
    
    
    31.3Impairment and restructuring charges
    
    
    123.8
    
    
    
    
    
    
    
    6.2
    
    
    
    43.1
    
    
    
    6.0Debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.5
    
    
    
    Other expenses
    
    
    (5.0
    )
    
    
    0.2
    
    
    
    (2.5
    )
    
    
    4.0
    
    
    
    8.0Subtotal
    
    
    2,686.4
    
    
    
    2,770.0
    
    
    
    3,136.5
    
    
    
    3,435.3
    
    
    
    4,888.0Income
(loss) from continuing operations before income taxes
    
    
    (122.5
    )
    
    
    5.6
    
    
    
    48.9
    
    
    
    (58.4
    )
    
    
    7.9Income tax benefit (expense)
    
    
    11.6
    
    
    
    (2.2
    )
    
    
    (16.8
    )
    
    
    13.8
    
    
    
    (9.3
    )Income (loss) from continuing operations
    
    
    (110.9
    )
    
    
    3.4
    
    
    
    32.1
    
    
    
    (44.6
    )
    
    
    (1.4
    )Loss from discontinued operations,
net of taxes
    
    
    (19.2
    )
    
    
    (1.1
    )
    
    
    (0.3
    )
    
    
    (1.7
    )
    
    
    (5.9
    )Net income (loss)
    
    
    (130.1
    )
    
    
    2.3
    
    
    
    31.8
    
    
    
    (46.3
    )
    
    
    (7.3
    )Less: Net income attributable to
non-controlling interests
    
    
    (2.6
    )
    
    
    (3.0
    )
    
    
    (3.2
    )
    
    
    (2.9
    )
    
    
    (3.6
    )Net income (loss) attributable to VanguardHealth Systems, Inc. stockholders
    
    $
    (132.7
    )
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )
    
    $
    (10.9
    )Per Share Data:Basic earnings (loss) per share
    
    $
    (2.97
    )
    
    $
    (0.01
    )
    
    $
    0.64
    
    
    $
    (1.10
    )
    
    $
    (0.24
    )Diluted earnings (loss) per share
    
    
    (2.97
    )
    
    
    (0.01
    )
    
    
    0.63
    
    
    
    (1.10
    )
    
    
    (0.24
    )Cash dividends paid per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.81Balance Sheet Data (millions):Cash and cash equivalents
    
    $
    120.1
    
    
    $
    141.6
    
    
    $
    308.2
    
    
    $
    257.6
    
    
    $
    936.6Assets
    
    
    2,538.1
    
    
    
    2,582.3
    
    
    
    2,731.1
    
    
    
    2,729.6
    
    
    
    4,568.4Long-term debt, including current portion
    
    
    1,528.7
    
    
    
    1,537.5
    
    
    
    1,551.6
    
    
    
    1,752.0
    
    
    
    2,787.6Working capital
    
    
    156.4
    
    
    
    217.8
    
    
    
    251.6
    
    
    
    105.0
    
    
    
    351.6
  86




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Year ended June 30,2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Other Financial Data (millions):Adjusted EBITDA (a)
    
    $
    243.5
    
    
    $
    266.0
    
    
    $
    302.7
    
    
    $
    326.6
    
    
    $
    423.0Capital expenditures
    
    
    164.3
    
    
    
    119.8
    
    
    
    132.0
    
    
    
    155.9
    
    
    
    206.5Cash provided by operating activities
    
    
    125.6
    
    
    
    176.3
    
    
    
    313.1
    
    
    
    315.2
    
    
    
    276.6Cash used in investing activities
    
    
    (118.5
    )
    
    
    (143.8
    )
    
    
    (133.6
    )
    
    
    (156.5
    )
    
    
    (544.9
    )Cash provided by (used in) financing
activities
    
    
    (10.6
    )
    
    
    (11.0
    )
    
    
    (12.9
    )
    
    
    (209.3
    )
    
    
    947.3
 Year ended June 30,2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Unaudited Operating Data 
continuing operations:Number of hospitals, end of period
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    26Number of licensed beds, end of period (b)
    
    
    4,143
    
    
    
    4,181
    
    
    
    4,135
    
    
    
    4,135
    
    
    
    6,201Discharges (c)
    
    
    166,873
    
    
    
    169,668
    
    
    
    167,880
    
    
    
    168,370
    
    
    
    223,793Adjusted discharges (d)
    
    
    277,231
    
    
    
    283,250
    
    
    
    288,807
    
    
    
    295,702
    
    
    
    404,178Net revenue per adjusted discharge (e)
    
    $
    7,674
    
    
    $
    8,047
    
    
    $
    8,503
    
    
    $
    8,408
    
    
    $
    9,637Patient days (f)
    
    
    721,832
    
    
    
    734,838
    
    
    
    709,952
    
    
    
    701,265
    
    
    
    977,879Average length of stay (g)
    
    
    4.33
    
    
    
    4.33
    
    
    
    4.23
    
    
    
    4.17
    
    
    
    4.37Inpatient surgeries (h)
    
    
    37,227
    
    
    
    37,538
    
    
    
    37,970
    
    
    
    37,320
    
    
    
    49,813Outpatient surgeries (i)
    
    
    76,606
    
    
    
    73,339
    
    
    
    76,378
    
    
    
    75,969
    
    
    
    98,875Emergency room visits (j)
    
    
    572,946
    
    
    
    588,246
    
    
    
    605,729
    
    
    
    626,237
    
    
    
    924,848Occupancy rate (k)
    
    
    48
    %
    
    
    48
    %
    
    
    47
    %
    
    
    46
    %
    
    
    43
    %Member lives (l)
    
    
    145,600
    
    
    
    149,600
    
    
    
    218,700
    
    
    
    241,200
    
    
    
    245,100
 
 (a)
    
    We define Adjusted EBITDA as income (loss) from continuing operations before income taxes
less interest expense (net of interest income), depreciation and amortization, non-controlling
interests, equity method income, stock compensation, gain or loss on disposal of assets,
realized gains or losses on investments, monitoring fees and expenses, acquisition related
expenses, debt extinguishment costs, impairment and restructuring charges, pension expense
(credits), 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 is a measure used by
management to evaluate its operating performance. It is reasonable to expect these reconciling
items to occur in future periods, but for many of them the amounts recognized can vary
significantly from period to period, do not relate directly to the ongoing operations of our
healthcare facilities and complicate period comparisons of our results of operations and
operations comparisons with other healthcare companies. Adjusted EBITDA is not intended 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 GAAP.
Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow available for
managements discretionary use, since it does not consider certain cash requirements such as
interest payments, tax payments and other debt service requirements. Because Adjusted EBITDA
is not a GAAP measure and is susceptible to varying calculations, Adjusted EBITDA, as
presented by us, may not be comparable to similarly titled measures of other companies. We
believe that Adjusted EBITDA provides useful information as a measurement of our financial
performance on the same basis as that viewed by management to investors, lenders, financial
analysts and rating agencies. 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 operating performance compared to
that of other companies in the healthcare industry and 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. Many of the items excluded from
Adjusted EBITDA result from decisions outside the control of operating management and may
differ significantly from company to company due to differing long-term decisions regarding
capital structure, capital investment strategies, the tax jurisdictions in which the companies
operate and unique circumstances of acquired entities. 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).  87




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Year ended June 30,2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (132.7
    )
    
    $
    (0.7
    )
    
    $
    28.6
    
    
    $
    (49.2
    )
    
    $
    (10.9
    )Interest, net
    
    
    123.8
    
    
    
    122.1
    
    
    
    111.6
    
    
    
    115.5
    
    
    
    171.2Income tax expense (benefit)
    
    
    (11.6
    )
    
    
    2.2
    
    
    
    16.8
    
    
    
    (13.8
    )
    
    
    9.3Depreciation and amortization
    
    
    117.0
    
    
    
    129.3
    
    
    
    128.9
    
    
    
    139.6
    
    
    
    193.8Non-controlling interests
    
    
    2.6
    
    
    
    3.0
    
    
    
    3.2
    
    
    
    2.9
    
    
    
    3.6Equity method income
    
    
    (1.0
    )
    
    
    (0.7
    )
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    (0.9
    )Stock compensation
    
    
    1.2
    
    
    
    2.5
    
    
    
    4.4
    
    
    
    4.2
    
    
    
    4.8Loss (gain) on disposal of assets
    
    
    (4.0
    )
    
    
    0.8
    
    
    
    (2.3
    )
    
    
    1.8
    
    
    
    (0.2
    )Realized losses (gains) on investments
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    (1.3
    )Monitoring fees and expenses
    
    
    5.2
    
    
    
    6.4
    
    
    
    5.2
    
    
    
    5.1
    
    
    
    31.3Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1
    
    
    
    12.5Debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.5
    
    
    
    Impairment and restructuring charges
    
    
    123.8
    
    
    
    
    
    
    
    6.2
    
    
    
    43.1
    
    
    
    6.0Pension expense (credits)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Loss from discontinued operations
net of taxes
    
    
    19.2
    
    
    
    1.1
    
    
    
    0.3
    
    
    
    1.7
    
    
    
    5.9Adjusted EBITDA
    
    $
    243.5
    
    
    $
    266.0
    
    
    $
    302.7
    
    
    $
    326.6
    
    
    $
    423.0
 
 (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)
    
    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 or freestanding
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 rooms.(l)
    
    Member lives represent the total number of members in PHP, AAHP and MHP as of the end of the
respective period.  88




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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
     The Acquisitions
 The Detroit Medical Center
   89




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##### Table of Contents



The Resurrection Facilities
  Arizona Heart Hospital and Arizona Heart Institute
  Operating Environment
  Payer Mix Shifts
   90




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##### Table of Contents



Health Reform Law
  Physician Alignment
  Cost pressures
 th
 Implementation of our Clinical Quality Initiatives
   91




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##### Table of Contents



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 30,2009
    
    
    2010
    
    
    2011Medicare
    
    
    25.3
    %
    
    
    25.5
    %
    
    
    25.7
    %Medicaid
    
    
    7.9
    %
    
    
    7.4
    %
    
    
    12.0
    %Managed Medicare
    
    
    14.1
    %
    
    
    14.8
    %
    
    
    11.8
    %Managed Medicaid
    
    
    8.8
    %
    
    
    9.5
    %
    
    
    9.4
    %Managed care
    
    
    34.7
    %
    
    
    34.9
    %
    
    
    31.8
    %Self pay
    
    
    8.3
    %
    
    
    6.8
    %
    
    
    8.4
    %Other
    
    
    0.9
    %
    
    
    1.1
    %
    
    
    0.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Volumes by Payer
  Year ended June 30,2009
    
    
    2010
    
    
    2011Medicare
    
    
    45,516
    
    
    
    27.1
    %
    
    
    46,385
    
    
    
    27.5
    %
    
    
    64,320
    
    
    
    28.7
    %Medicaid (a)
    
    
    17,068
    
    
    
    10.2
    %
    
    
    14,867
    
    
    
    8.8
    %
    
    
    23,783
    
    
    
    10.6
    %Managed Medicare
    
    
    26,925
    
    
    
    16.0
    %
    
    
    27,393
    
    
    
    16.3
    %
    
    
    31,984
    
    
    
    14.3
    %Managed Medicaid
    
    
    23,185
    
    
    
    13.8
    %
    
    
    25,717
    
    
    
    15.3
    %
    
    
    36,670
    
    
    
    16.4
    %Managed care
    
    
    48,977
    
    
    
    29.2
    %
    
    
    45,152
    
    
    
    26.8
    %
    
    
    53,527
    
    
    
    23.9
    %Self pay (a)
    
    
    5,650
    
    
    
    3.4
    %
    
    
    8,168
    
    
    
    4.9
    %
    
    
    12,459
    
    
    
    5.6
    %Other
    
    
    559
    
    
    
    0.3
    %
    
    
    688
    
    
    
    0.4
    %
    
    
    1,050
    
    
    
    0.5
    %Total
    
    
    167,880
    
    
    
    100.0
    %
    
    
    168,370
    
    
    
    100.0
    %
    
    
    223,793
    
    
    
    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. Our Medicaid pending policy change had no comparative impact between
the years ended June 30, 2010 and 2011.  92




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Payer Reimbursement Trends
  Accounts Receivable Collection Risks Leading to Increased Bad Debts
  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
    %
 June 30, 2011
    
    0-90 days
    
    
    91-180 days
    
    
    Over 180 days
    
    
    TotalMedicare
    
    
    15.8
    %
    
    
    1.5
    %
    
    
    1.0
    %
    
    
    18.3
    %Medicaid
    
    
    6.1
    %
    
    
    1.2
    %
    
    
    1.6
    %
    
    
    8.9
    %Managed Medicare
    
    
    6.9
    %
    
    
    0.7
    %
    
    
    0.5
    %
    
    
    8.1
    %Managed Medicaid
    
    
    12.2
    %
    
    
    1.7
    %
    
    
    1.6
    %
    
    
    15.5
    %Managed care
    
    
    21.0
    %
    
    
    2.9
    %
    
    
    1.6
    %
    
    
    25.5
    %Self pay(1)
    
    
    10.5
    %
    
    
    3.7
    %
    
    
    1.5
    %
    
    
    15.7
    %Self pay after primary(2)
    
    
    1.5
    %
    
    
    2.2
    %
    
    
    1.0
    %
    
    
    4.7
    %Other
    
    
    1.9
    %
    
    
    0.6
    %
    
    
    0.8
    %
    
    
    3.3
    %Total
    
    
    75.9
    %
    
    
    14.5
    %
    
    
    9.6
    %
    
    
    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.    93




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Governmental and Managed Care Payer Reimbursement
       Premium Revenues
    94




---



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Critical Accounting Policies
  Revenues and Revenue Deductions
      95




---



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Allowance for Doubtful Accounts and Provision for Doubtful Accounts
    96




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Year ended June 30,2010
    
    
    2011Medicaid pending accounts receivable
    
    $
    23.5
    
    
    $
    63.7Medicaid pending successfully qualified
    
    $
    44.3
    
    
    $
    151.9Medicaid pending not qualified (uninsured)
    
    $
    63.5
    
    
    $
    78.3Medicaid pending not qualified (charity)
    
    $
    17.1
    
    
    $
    52.5Medicaid pending qualification success percentage
    
    
    36
    %
    
    
    54
    %
   Insurance Reserves
     97




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ProfessionalandEmployee
    
    
    General
    
    
    WorkersHealth
    
    
    Liability
    
    
    CompensationReserve balance:June 30, 2008
    
    $
    1.5
    
    
    $
    74.3
    
    
    $
    18.8June 30, 2009
    
    $
    13.4
    
    
    $
    92.9
    
    
    $
    18.2June 30, 2010
    
    $
    14.1
    
    
    $
    91.8
    
    
    $
    15.7June 30, 2011
    
    $
    30.6
    
    
    $
    326.8
    
    
    $
    32.1Acquired balances and other:Year ended June 30, 2011
    
    $
    14.2
    
    
    $
    227.9
    
    
    $
    17.0Current year provision for claims losses:Year ended June 30, 2009
    
    $
    93.2
    
    
    $
    22.2
    
    
    $
    7.8Year ended June 30, 2010
    
    $
    115.8
    
    
    $
    26.4
    
    
    $
    7.4Year ended June 30, 2011
    
    $
    169.3
    
    
    $
    52.1
    
    
    $
    11.0Adjustments to prior year claims losses:Year ended June 30, 2009
    
    $
    (0.6
    )
    
    $
    13.4
    
    
    $
    (3.8
    )Year ended June 30, 2010
    
    $
    (1.5
    )
    
    $
    8.4
    
    
    $
    (5.1
    )Year ended June 30, 2011
    
    $
    (3.0
    )
    
    $
    (5.4
    )
    
    $
    (4.3
    )Claims paid related to current year:Year ended June 30, 2009
    
    $
    79.8
    
    
    $
    0.3
    
    
    $
    1.6Year ended June 30, 2010
    
    $
    101.7
    
    
    $
    1.1
    
    
    $
    1.1Year ended June 30, 2011
    
    $
    144.8
    
    
    $
    0.2
    
    
    $
    2.1Claims paid related to prior year:Year ended June 30, 2009
    
    $
    0.9
    
    
    $
    16.7
    
    
    $
    3.0Year ended June 30, 2010
    
    $
    11.9
    
    
    $
    34.8
    
    
    $
    3.7Year ended June 30, 2011
    
    $
    19.2
    
    
    $
    39.4
    
    
    $
    5.2
   98




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Professional and
    
    
    WorkersGeneral Liability
    
    
    CompensationReserve at June 30, 2010As reported
    
    $
    91.8
    
    
    $
    15.7With 75% confidence level
    
    $
    105.7
    
    
    $
    19.4With 90% confidence level
    
    $
    119.7
    
    
    $
    22.8Reserve at June 30, 2011As reported
    
    $
    326.8
    
    
    $
    32.1With 75% confidence level
    
    $
    371.0
    
    
    $
    36.4With 90% confidence level
    
    $
    469.6
    
    
    $
    44.7
  Health Plan Claims Reserves
  Year ended June 30,2009
    
    
    2010
    
    
    2011Health plan reserves and settlements, beginning of year
    
    $
    51.1
    
    
    $
    117.6
    
    
    $
    149.8Current year provision for health plan claims
    
    
    525.5
    
    
    
    670.7
    
    
    
    699.0Current year adjustments to prior year health plan
claims
    
    
    0.1
    
    
    
    (4.9
    )
    
    
    (12.7
    )Program settlement, capitation and other activity
    
    
    19.3
    
    
    
    31.0
    
    
    
    (32.5
    )Claims paid related to current year
    
    
    (424.6
    )
    
    
    (571.7
    )
    
    
    (608.2
    )Claims paid related to prior years
    
    
    (53.8
    )
    
    
    (92.9
    )
    
    
    (80.5
    )Health plan reserves and settlements, end of year
    
    $
    117.6
    
    
    $
    149.8
    
    
    $
    114.9
  Income Taxes
   99




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
    
    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;
and
 
    
    Prudent and feasible tax planning strategies.
  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
    
    
    11.9Additions based on tax positions related to the current year
    
    
    0.9Additions for tax positions of prior years
    
    
    0.7Reductions for tax positions of prior years
    
    
    (0.3
    )Settlements
    
    
    Balance at June 30, 2011
    
    $
    13.2
   100




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Long-Lived Assets and Goodwill
     101




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Selected Operating Statistics
  Year ended June 30,2009
    
    
    2010
    
    
    2011CONSOLIDATED:Number of hospitals at end of period
    
    
    15
    
    
    
    15
    
    
    
    26Licensed beds at end of period
    
    
    4,135
    
    
    
    4,135
    
    
    
    6,201Discharges (a)
    
    
    167,880
    
    
    
    168,370
    
    
    
    223,793Adjusted discharges (b)
    
    
    288,807
    
    
    
    295,702
    
    
    
    404,178Average length of stay (c)
    
    
    4.23
    
    
    
    4.17
    
    
    
    4.37Patient days (d)
    
    
    709,952
    
    
    
    701,265
    
    
    
    977,879Adjusted patient days (e)
    
    
    1,221,345
    
    
    
    1,231,604
    
    
    
    1,766,085Patient revenue per adjusted discharge (f)
    
    $
    8,503
    
    
    $
    8,408
    
    
    $
    9,637Inpatient surgeries (g)
    
    
    37,970
    
    
    
    37,320
    
    
    
    49,813Outpatient surgeries (h)
    
    
    76,378
    
    
    
    75,969
    
    
    
    98,875Emergency room visits (i)
    
    
    605,729
    
    
    
    626,237
    
    
    
    924,848Occupancy rate (j)
    
    
    47
    %
    
    
    46
    %
    
    
    43
    %Member lives (k)
    
    
    218,700
    
    
    
    241,200
    
    
    
    245,100Health plan claims expense percentage (l)
    
    
    77.5
    %
    
    
    79.3
    %
    
    
    78.9
    %
 Year ended June 30,2009
    
    
    2010
    
    
    2011SAME HOSPITAL:Number of hospitals at end of period
    
    
    15
    
    
    
    15
    
    
    
    15Licensed beds at end of period
    
    
    4,135
    
    
    
    4,135
    
    
    
    3,950Patient service revenues (in millions)
    
    $
    2,507.5
    
    
    $
    2,537.1
    
    
    $
    2,660.9Discharges (a)
    
    
    167,880
    
    
    
    168,370
    
    
    
    167,937Adjusted discharges (b)
    
    
    288,807
    
    
    
    295,702
    
    
    
    302,804Average length of stay (c)
    
    
    4.23
    
    
    
    4.17
    
    
    
    4.16Patient days (d)
    
    
    709,952
    
    
    
    701,265
    
    
    
    698,408Adjusted patient days (e)
    
    
    1,221,345
    
    
    
    1,231,604
    
    
    
    1,259,286Patient revenue per adjusted discharge (f)
    
    $
    8,503
    
    
    $
    8,408
    
    
    $
    8,618Inpatient surgeries (g)
    
    
    37,970
    
    
    
    37,320
    
    
    
    35,679Outpatient surgeries (h)
    
    
    76,378
    
    
    
    75,969
    
    
    
    72,737Emergency room visits (i)
    
    
    605,729
    
    
    
    626,237
    
    
    
    663,745Occupancy rate (j)
    
    
    47
    %
    
    
    46
    %
    
    
    48
    %
 
 (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 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.(c)
    
    Average length of stay represents the average number of days an admitted patient stays in our hospitals.(d)
    
    Patient days represent the number of days (calculated as overnight stays) our beds were occupied by patients during the periods.(e)
    
    Adjusted patient days represent actual patient days adjusted to include outpatient services by multiplying actual patient days
by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues.  102




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##### Table of Contents



(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)
    
    Inpatient surgeries represent the number of surgeries performed in our hospitals where overnight stays are necessary.(h)
    
    Outpatient surgeries represent the number of surgeries performed at hospitals or ambulatory surgery centers on an outpatient
basis (patient overnight stay not necessary).(i)
    
    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.(j)
    
    Occupancy rate represents the percentage of hospital licensed beds occupied by patients. Occupancy rate provides a measure of
the utilization of inpatient beds.(k)
    
    Member lives represent the total number of members in PHP, AAHP and MHP as of the end of the respective period.(l)
    
    Health plan claims expense percentage is calculated by dividing health plan claims expense by premium revenues.  103




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Results of Operations
  Year ended June 30,2009
    
    
    2010
    
    
    2011(Dollars in millions)Patient service revenues
    
    $
    2,507.4
    
    
    
    78.7
    %
    
    $
    2,537.2
    
    
    
    75.1
    %
    
    $
    4,026.5
    
    
    
    82.2
    %Premium revenues
    
    
    678.0
    
    
    
    21.3
    %
    
    
    839.7
    
    
    
    24.9
    %
    
    
    869.4
    
    
    
    17.8
    %Total revenues
    
    
    3,185.4
    
    
    
    100.0
    %
    
    
    3,376.9
    
    
    
    100.0
    %
    
    
    4,895.9
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits (includes stock compensation
of $4.4, $4.2 and $4.8, respectively)
    
    
    1,233.8
    
    
    
    38.7
    %
    
    
    1,296.2
    
    
    
    38.4
    %
    
    
    2,020.4
    
    
    
    41.3
    %Health plan claims expense
    
    
    525.6
    
    
    
    16.5
    %
    
    
    665.8
    
    
    
    19.7
    %
    
    
    686.3
    
    
    
    14.0
    %Supplies
    
    
    455.5
    
    
    
    14.3
    %
    
    
    456.1
    
    
    
    13.5
    %
    
    
    669.9
    
    
    
    13.7
    %Provision for doubtful accounts
    
    
    210.3
    
    
    
    6.6
    %
    
    
    152.5
    
    
    
    4.5
    %
    
    
    302.3
    
    
    
    6.2
    %Other operating expenses
    
    
    461.9
    
    
    
    14.5
    %
    
    
    483.9
    
    
    
    14.3
    %
    
    
    798.8
    
    
    
    16.3
    %Depreciation and amortization
    
    
    128.9
    
    
    
    4.0
    %
    
    
    139.6
    
    
    
    4.1
    %
    
    
    193.8
    
    
    
    4.0
    %Interest, net
    
    
    111.6
    
    
    
    3.5
    %
    
    
    115.5
    
    
    
    3.4
    %
    
    
    171.2
    
    
    
    3.5
    %Monitoring fees and expenses
    
    
    5.2
    
    
    
    0.2
    %
    
    
    5.1
    
    
    
    0.2
    %
    
    
    31.3
    
    
    
    0.6
    %Acquisition related expenses
    
    
    
    
    
    
    0.0
    %
    
    
    3.1
    
    
    
    0.1
    %
    
    
    12.5
    
    
    
    0.3
    %Impairment and restructuring charges
    
    
    6.2
    
    
    
    0.2
    %
    
    
    43.1
    
    
    
    1.3
    %
    
    
    6.0
    
    
    
    0.1
    %Debt extinguishment costs
    
    
    
    
    
    
    0.0
    %
    
    
    73.5
    
    
    
    2.2
    %
    
    
    
    
    
    
    0.0
    %Other
    
    
    (2.5
    )
    
    
    (0.1
    )%
    
    
    0.9
    
    
    
    0.0
    %
    
    
    (4.5
    )
    
    
    (0.1
    )%Income (loss) from continuing operations
before income taxes
    
    
    48.9
    
    
    
    1.5
    %
    
    
    (58.4
    )
    
    
    (1.7
    )%
    
    
    7.9
    
    
    
    0.2
    %Income tax benefit (expense)
    
    
    (16.8
    )
    
    
    (0.5
    )%
    
    
    13.8
    
    
    
    0.4
    %
    
    
    (9.3
    )
    
    
    (0.2
    )%Income (loss) from continuing operations
    
    
    32.1
    
    
    
    1.0
    %
    
    
    (44.6
    )
    
    
    (1.3
    )%
    
    
    (1.4
    )
    
    
    0.1
    %Loss from discontinued operations
net of taxes
    
    
    (0.3
    )
    
    
    (0.0
    )%
    
    
    (1.7
    )
    
    
    (0.1
    )%
    
    
    (5.9
    )
    
    
    (0.1
    )%Net income (loss)
    
    
    31.8
    
    
    
    1.0
    %
    
    
    (46.3
    )
    
    
    (1.4
    )%
    
    
    (7.3
    )
    
    
    (0.1
    )%Less: Net income attributable to
non-controlling interests
    
    
    (3.2
    )
    
    
    (0.1
    )%
    
    
    (2.9
    )
    
    
    (0.1
    )%
    
    
    (3.6
    )
    
    
    (0.1
    )%Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    28.6
    
    
    
    1.0
    %
    
    $
    (49.2
    )
    
    
    (1.4
    )%
    
    $
    (10.9
    )
    
    
    (0.1
    )%
  104




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Year ended June 30, 2011 compared to Year ended June 30, 2010
 Revenues
   Costs and expenses
 
    
    Salaries and benefits. Salaries and benefits as a percentage of
total revenues increased to 41.3% during the current year
compared to 38.4% for the prior year. On a same hospital basis,
salaries and benefits as a percentage of total revenues was
37.9% during the current year. We continue to employ more
physicians to support the communities our hospitals serve and
have made significant investments in clinical quality
initiatives that required additional human resources during the
year ended June 30, 2011, compared to the prior year. For the
acute care services operating segment, salaries and benefits as
a percentage of patient service revenues was 48.8% during the
current year compared to 48.9% during the prior year. As of June
30, 2011, we had approximately 38,600 full-time and part-time
employees compared to approximately 20,100 as of June 30, 2010.
On a same hospital basis, including corporate and regional
employees, the number of full-time and part-time employees
increased approximately 1.3% when compared to the prior year.
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 1.1% for the year ended June 30, 2011 compared to 1.3%
for the prior year.
  105




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
    
    Health plan claims. Health plan claims expense as a percentage
of premium revenues decreased to 78.9% during the current year
compared to 79.3% 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 prior
contract year, which negatively impacted this ratio, while lower
utilization of healthcare services by members positively
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 $41.3
million, or 5.7% 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 16.5% during the current year
compared to 17.7% during the prior year. This ratio was
positively impacted by the continued reduction in surgeries
between the current and prior years. We continued our focus on
supply chain efficiencies including reduction in physician
commodity variation and improved pharmacy formulary management
during the current year. Outside of the continued reduction in
surgeries, 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 increased
to 7.5% during the current year from 6.0% during the prior year.
This ratio was negatively impacted in the current year by the
increase in self-pay volumes, as measured on a same hospital
basis, and by the continued challenges we face to collect the
patient co-pays and deductibles. 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 15.8%
and 15.7% on a consolidated basis and 15.8% and 17.5% on a same
hospital basis for the years ended June 30, 2010 and 2011,
respectively.
 Other operating expenses
 Other
 Income taxes
 Net income (loss) attributable to Vanguard Health Systems, Inc. stockholders
  106




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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 year over year.
This ratio was 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 year
ended June 30, 2010 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 year
ended June 30, 2010 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 employed more physicians to support the
communities our hospitals serve and made significant investments
in clinical quality initiatives that 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 were 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 was 1.2% for the year ended June 30,
2010, compared to 2.6% for the prior year.
    
    Health plan claims. Health plan claims expense as a percentage
of premium revenues increased to 79.3% during the year ended
June 30, 2010, 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 year ended June 30, 2010.
  107




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
    
    Supplies. Supplies as a percentage of acute care services
segment revenues decreased to 17.7% during the year ended June
30, 2010, compared to 17.9% during the prior year. This ratio
would have reflected a greater improvement during 2010 absent
the impact to patient service revenues of the changes to our
uninsured discount and Medicaid pending policies previously
discussed. We successfully implemented supply chain efficiencies
including reduction in physician commodity variation and
improved pharmacy formulary management during the year ended
June 30, 2010.
    
    Provision for doubtful accounts. The provision for doubtful
accounts as a percentage of patient service revenues decreased
to 6.0% during the year ended June 30, 2010 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.
 Other operating expenses
 Other
 Income taxes
 Net income (loss) attributable to Vanguard Health Systems, Inc. stockholders
 Liquidity and Capital Resources
 Operating Activities
   108




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Investing Activities
  Financing Activities
     Debt Covenants
   109




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Debt
    
    
    ActualCovenant Ratio
    
    
    RatioInterest coverage ratio requirement
    
    
    2.10
    x
    
    
    3.57
    xTotal leverage ratio limit
    
    
    5.95
    x
    
    
    2.49
    x (1)
 
 (1)
    
    The total leverage ratio as of June 30, 2011 was positively impacted by the
net IPO proceeds received but not yet used to redeem the 2011 Discount Notes. The actual
ratio would still have been comfortably below the maximum ratio allowed under the 2010
Credit Facilities without this impact.  Capital Resources
     110




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
    
    Completed acquisition of DMCEffective January 1, 2011, we purchased the DMC system,
which owns and operates eight hospitals in and around Detroit, Michigan with 1,734 licensed
beds for a cash purchase price of $363.3 million. We also assumed a frozen defined
benefit pension liability as part of the acquisition. Additionally, we committed to make
$350.0 million in routine capital expenditures and $500.0 million in capital expenditures
related to a specific project list agreed to by DMC and us as part of the acquisition.
Notwithstanding these $350.0 million and $500.0 million capital commitments, if in the
future we should pay any amounts to any governmental agency (each a Special Payment), and
the Special Payment arises out of a violation or alleged violation by DMC prior to the
closing of the DMC acquisition of certain stipulated healthcare laws, then, if and to the
extent that the Special Payment, individually or together with all previous Special
Payments exceeds $25.0 million (the Special Payment Threshold), we shall have the right
to apply the amount of the Special Payment, but only to the extent the Special Payment
Threshold has been exceeded (the Excess Payment), as follows: (i) the first $10.0 million
of such Excess Payment in any particular year shall be applied against our obligation to
make routine capital expenditures during such year and (ii) any remaining portion of the
Excess Payment in any particular year which has not been so applied as described above
shall be applied against our $500.0 million capital commitment related to specific
projects. To collateralize this commitment, concurrent with the closing of the transaction,
we placed into escrow for the benefit of DMC a warrant certificate representing warrants in
respect of 400,000 shares of our common stock (the Warrant Shares). In May 2011, we
replaced the Warrant Shares with a contingent note payable to the legacy DMC entity to
collateralize these commitments, as permitted by our purchase agreement relating to DMC.
The note payable is reduced proportionately as we expend capital or escrow cash related to
our capital commitments.
 Liquidity
     111




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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)
    
    $
    648.0
    
    
    $
    393.2
    
    
    $
    1,161.6
    
    
    $
    1,794.4
    
    
    $
    3,997.2Operating leases (2)
    
    
    47.0
    
    
    
    68.0
    
    
    
    43.6
    
    
    
    43.6
    
    
    
    202.2Purchase obligations (2)
    
    
    92.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92.2Defined benefit pension plan funding (3)
    
    
    27.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27.2Health plan claims and settlements payable (4)
    
    
    114.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.9Estimated self-insurance liabilities (5)
    
    
    99.8
    
    
    
    124.6
    
    
    
    81.3
    
    
    
    83.8
    
    
    
    389.5Subtotal
    
    $
    1,029.1
    
    
    $
    585.8
    
    
    $
    1,286.5
    
    
    $
    1,921.8
    
    
    $
    4,823.2
 Within
    
    
    During
    
    
    During
    
    
    After1 year
    
    
    Years 2-3
    
    
    Years 4-5
    
    
    5 Years
    
    
    Total(In millions)Other Commitments:Construction and capital improvements (6)
    
    $
    172.1
    
    
    $
    300.0
    
    
    $
    400.0
    
    
    $
    
    
    
    $
    872.1Guarantees of surety bonds (7)
    
    
    55.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55.0Letters of credit (8)
    
    
    
    
    
    
    
    
    
    
    37.2
    
    
    
    
    
    
    
    37.2Physician commitments (9)
    
    
    3.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.7Estimated liability for uncertain tax positions (10)
    
    
    13.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.2Subtotal
    
    $
    244.0
    
    
    $
    300.0
    
    
    $
    437.2
    
    
    $
    
    
    
    $
    981.2Total obligations and commitments
    
    $
    1,273.1
    
    
    $
    885.8
    
    
    $
    1,723.7
    
    
    $
    1,921.8
    
    
    $
    5,804.4
 
 (1)
    
    Includes both principal and interest payments. The interest portion of our debt
outstanding at June 30, 2011 assumes an average interest rate of 8.0%.(2)
    
    These obligations are not reflected in our consolidated balance sheets.(3)
    
    This obligation represents our estimated minimum required funding to the DMC Pension Plan
trust beginning in our first quarter of fiscal year 2012. Because the future cash
outflows are uncertain and subject to change, the timing and amounts of payments to the
trust beyond twelve months are not included as of June 30, 2011. For additional
information about the DMC Pension Plan and expected future benefit payments from the trust
see Item 8- Note 10 to the Consolidated Financial Statements.(4)
    
    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 are separately stated on our consolidated balance sheets.(5)
    
    Includes the current and long-term portions of our professional and general liability,
workers compensation and employee health reserves.  112




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##### Table of Contents



(6)
    
    Represents our estimate of amounts we are committed to fund in future periods through
executed agreements to complete projects included as property, plant and equipment on our
consolidated balance sheets. The construction and capital improvements obligations,
include the following capital commitments under the executed DMC
Purchase Agreement (as previously discussed) as of June 30, 2011: $126.0 million committed
within one year; $300.0 million committed within two to three years and $400.0 million
committed within four to five years.(7)
    
    Represents performance bonds we have purchased related to health claims liabilities of PHP.(8)
    
    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.(9)
    
    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.(10)
    
    Represents expected future tax liabilities recognized in our consolidated balance sheets
determined under the guidance of accounting for income taxes.  113




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Guarantees and Off Balance Sheet Arrangements
    Effects of Inflation and Changing Prices
   114




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Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
        115




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##### Table of Contents



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
    
    
    117Consolidated Balance Sheets as of June 30, 2010 and 2011
    
    
    118Consolidated Statements of Operations for the years ended June 30, 2009, 2010 and 2011
    
    
    119Consolidated Statements of Equity for the years ended June 30, 2009, 2010 and 2011
    
    
    120Consolidated Statements of Cash Flows for the years ended June 30, 2009, 2010 and 2011
    
    
    121Notes to Consolidated Financial Statements
    
    
    123
  116




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  117




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 Item 1.
    
    Financial Statements.
 VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30, 2010
    
    
    June 30, 2011(In millions, except share andper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    257.6
    
    
    $
    936.6Restricted cash
    
    
    2.3
    
    
    
    2.3Accounts receivable, net of allowance for doubtful accounts of
$75.6 and $205.0, respectively
    
    
    270.4
    
    
    
    484.4Inventories
    
    
    49.6
    
    
    
    83.9Deferred tax assets
    
    
    21.9
    
    
    
    82.5Prepaid expenses and other current assets
    
    
    119.2
    
    
    
    157.9Total current assets
    
    
    721.0
    
    
    
    1,747.6Property, plant and equipment, net of accumulated depreciation
    
    
    1,203.8
    
    
    
    1,830.5Goodwill
    
    
    649.1
    
    
    
    739.7Intangible assets, net of accumulated amortization
    
    
    66.0
    
    
    
    94.0Deferred tax assets, noncurrent
    
    
    50.0
    
    
    
    27.5Investments in securities
    
    
    19.8
    
    
    
    63.3Other assets
    
    
    19.9
    
    
    
    65.8Total assets
    
    $
    2,729.6
    
    
    $
    4,568.4LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    194.8
    
    
    $
    314.3Accrued salaries and benefits
    
    
    144.9
    
    
    
    248.9Accrued health plan claims and settlements
    
    
    149.8
    
    
    
    114.9Accrued interest
    
    
    41.4
    
    
    
    62.3Other accrued expenses and current liabilities
    
    
    76.9
    
    
    
    193.8Current maturities of long-term debt
    
    
    8.2
    
    
    
    461.8Total current liabilities
    
    
    616.0
    
    
    
    1,396.0Professional and general liability and workers compensation reserves
    
    
    83.6
    
    
    
    289.7Pension benefit obligation
    
    
    
    
    
    
    188.0Other liabilities
    
    
    31.6
    
    
    
    125.8Long-term debt, less current maturities
    
    
    1,743.8
    
    
    
    2,325.8Commitments and contingenciesEquity:Vanguard Health Systems, Inc. stockholders equity:Common Stock of $0.01 par value; 500,000,000 shares authorized; 44,635,000 and 71,482,000
shares issued and outstanding, respectively
    
    
    0.4
    
    
    
    0.7Additional paid-in capital
    
    
    354.5
    
    
    
    330.5Accumulated other comprehensive income (loss)
    
    
    (2.5
    )
    
    
    20.6Retained deficit
    
    
    (105.9
    )
    
    
    (116.8
    )Total Vanguard Health Systems, Inc. stockholders equity
    
    
    246.5
    
    
    
    235.0Non-controlling interests
    
    
    8.1
    
    
    
    8.1Total equity
    
    
    254.6
    
    
    
    243.1Total liabilities and equity
    
    $
    2,729.6
    
    
    $
    4,568.4
   118




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VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended June 30,2009
    
    
    2010
    
    
    2011(In millions, except share and per share amounts)Patient service revenues
    
    $
    2,507.4
    
    
    $
    2,537.2
    
    
    $
    4,026.5Premium revenues
    
    
    678.0
    
    
    
    839.7
    
    
    
    869.4Total revenues
    
    
    3,185.4
    
    
    
    3,376.9
    
    
    
    4,895.9Costs and Expenses:Salaries and benefits (includes stock compensation
of $4.4, $4.2 and $4.8, respectively)
    
    
    1,233.8
    
    
    
    1,296.2
    
    
    
    2,020.4Health plan claims expense
    
    
    525.6
    
    
    
    665.8
    
    
    
    686.3Supplies
    
    
    455.5
    
    
    
    456.1
    
    
    
    669.9Purchased services
    
    
    163.8
    
    
    
    179.5
    
    
    
    360.9Provision for doubtful accounts
    
    
    210.3
    
    
    
    152.5
    
    
    
    302.3Rents and leases
    
    
    42.6
    
    
    
    43.8
    
    
    
    54.1Other operating expenses
    
    
    255.5
    
    
    
    260.6
    
    
    
    383.8Depreciation and amortization
    
    
    128.9
    
    
    
    139.6
    
    
    
    193.8Interest, net
    
    
    111.6
    
    
    
    115.5
    
    
    
    171.2Monitoring fees and expenses
    
    
    5.2
    
    
    
    5.1
    
    
    
    31.3Acquisition related expenses
    
    
    
    
    
    
    3.1
    
    
    
    12.5Impairment and restructuring charges
    
    
    6.2
    
    
    
    43.1
    
    
    
    6.0Debt extinguishment costs
    
    
    
    
    
    
    73.5
    
    
    
    Other
    
    
    (2.5
    )
    
    
    0.9
    
    
    
    (4.5
    )Income (loss) from continuing operations before income taxes
    
    
    48.9
    
    
    
    (58.4
    )
    
    
    7.9Income tax benefit (expense)
    
    
    (16.8
    )
    
    
    13.8
    
    
    
    (9.3
    )Income (loss) from continuing operations
    
    
    32.1
    
    
    
    (44.6
    )
    
    
    (1.4
    )Loss from discontinued operations, net of taxes
    
    
    (0.3
    )
    
    
    (1.7
    )
    
    
    (5.9
    )Net income (loss)
    
    
    31.8
    
    
    
    (46.3
    )
    
    
    (7.3
    )Less: Net income attributable to non-controlling interests
    
    
    (3.2
    )
    
    
    (2.9
    )
    
    
    (3.6
    )Net income (loss) attributable to Vanguard Health Systems,
Inc. stockholders
    
    $
    28.6
    
    
    $
    (49.2
    )
    
    $
    (10.9
    )Amounts attributable to Vanguard Health Systems, Inc. stockholders:Income (loss) from continuing operations, net of taxes
    
    $
    28.9
    
    
    $
    (47.5
    )
    
    $
    (5.0
    )Loss from discontinued operations, net of taxes
    
    
    (0.3
    )
    
    
    (1.7
    )
    
    
    (5.9
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    28.6
    
    
    $
    (49.2
    )
    
    $
    (10.9
    )Earnings (loss) per share attributable to Vanguard Health
Systems, Inc. stockholders:BasicContinuing operations
    
    $
    0.65
    
    
    $
    (1.06
    )
    
    $
    (0.11
    )Discontinued operations
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.13
    )$
    0.64
    
    
    $
    (1.10
    )
    
    $
    (0.24
    )DilutedContinuing operations
    
    $
    0.64
    
    
    $
    (1.06
    )
    
    $
    (0.11
    )Discontinued operations
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.13
    )$
    0.63
    
    
    $
    (1.10
    )
    
    $
    (0.24
    )Weighted average shares (in thousands):Basic
    
    
    44,661
    
    
    
    44,650
    
    
    
    45,329Diluted
    
    
    45,201
    
    
    
    44,650
    
    
    
    45,329
   119




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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
    
    
    Income/(Loss)
    
    
    Deficit
    
    
    Interests
    
    
    Equity(In millions, except share amounts)Balance at June 30, 2008
    
    
    44,661,000
    
    
    $
    0.4
    
    
    $
    646.7
    
    
    $
    2.8
    
    
    $
    (85.3
    )
    
    $
    9.1
    
    
    $
    573.7Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.4Distributions paid to non-controlling
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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.1
    )
    
    
    
    
    
    
    
    
    
    
    (7.1
    )Change in fair value of
investments in securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    (2.5
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.6
    
    
    
    3.2
    
    
    
    31.8Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.6
    )
    
    
    28.6
    
    
    
    3.2
    
    
    
    22.2Balance at June 30, 2009
    
    
    44,661,000
    
    
    
    0.4
    
    
    
    650.9
    
    
    
    (6.8
    )
    
    
    (56.7
    )
    
    
    8.0
    
    
    
    595.8Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2Repurchase of stock
    
    
    (14,458,000
    )
    
    
    (0.1
    )
    
    
    (300.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300.7
    )Stock split ($.01 par value)
    
    
    14,432,000
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.8
    )
    
    
    (2.8
    )Comprehensive income (loss):Change in fair value of interest
rate swap (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.6Termination of interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49.2
    )
    
    
    2.9
    
    
    
    (46.3
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    (49.2
    )
    
    
    2.9
    
    
    
    (42.0
    )Balance at June 30, 2010
    
    
    44,635,000
    
    
    
    0.4
    
    
    
    354.5
    
    
    
    (2.5
    )
    
    
    (105.9
    )
    
    
    8.1
    
    
    
    254.6Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.8Dividends to equity holders and related
equity payments, net of taxes
    
    
    
    
    
    
    
    
    
    
    (446.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (446.4
    )Issuance of common stock
    
    
    25,000,000
    
    
    
    0.3
    
    
    
    417.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417.6Holdings Merger shares, net
    
    
    1,720,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued for options exercised
    
    
    127,000
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.6
    )
    
    
    (3.6
    )Comprehensive income (loss):Change in fair value of available
for sale investments (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    2.8Change in fair value of pension
plans (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.7
    
    
    
    
    
    
    
    
    
    
    
    19.7Change in fair value of other
benefit plans (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.9
    )
    
    
    3.6
    
    
    
    (7.3
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.1
    
    
    
    (10.9
    )
    
    
    3.6
    
    
    
    15.8Balance at June 30, 2011
    
    
    71,482,000
    
    
    $
    0.7
    
    
    $
    330.5
    
    
    $
    20.6
    
    
    $
    (116.8
    )
    
    $
    8.1
    
    
    $
    243.1
   120




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended June 30,2009
    
    
    2010
    
    
    2011(In millions)Operating activities:Net income (loss)
    
    $
    31.8
    
    
    $
    (46.3
    )
    
    $
    (7.3
    )Adjustments
to reconcile net income (loss) to net cash provided by operating activities:Loss from discontinued operations
    
    
    0.3
    
    
    
    1.7
    
    
    
    5.9Depreciation and amortization
    
    
    128.9
    
    
    
    139.6
    
    
    
    193.8Provision for doubtful accounts
    
    
    210.3
    
    
    
    152.5
    
    
    
    302.3Amortization of loan costs
    
    
    5.4
    
    
    
    5.2
    
    
    
    6.3Accretion of principal on notes
    
    
    21.8
    
    
    
    6.5
    
    
    
    23.1Loss (gain) on disposal of assets
    
    
    (2.3
    )
    
    
    1.8
    
    
    
    (0.2
    )Acquisition related expenses
    
    
    
    
    
    
    3.1
    
    
    
    12.5Stock compensation
    
    
    4.4
    
    
    
    4.2
    
    
    
    4.8Deferred income taxes
    
    
    6.4
    
    
    
    (8.5
    )
    
    
    3.8Impairment loss
    
    
    6.2
    
    
    
    43.1
    
    
    
    0.9Realized loss (gain) on investments
    
    
    0.6
    
    
    
    
    
    
    
    (1.3
    )Debt extinguishment costs
    
    
    
    
    
    
    73.5
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (185.6
    )
    
    
    (148.3
    )
    
    
    (384.5
    )Inventories
    
    
    1.0
    
    
    
    (1.3
    )
    
    
    (1.3
    )Prepaid expenses and other current assets
    
    
    (12.7
    )
    
    
    (80.5
    )
    
    
    56.5Accounts payable
    
    
    (27.5
    )
    
    
    67.1
    
    
    
    30.4Accrued expenses and other liabilities
    
    
    122.7
    
    
    
    102.8
    
    
    
    36.8Net cash provided by operating activities  continuing operations
    
    
    311.7
    
    
    
    316.2
    
    
    
    282.5Net cash provided by (used in) operating activities  discontinued operations
    
    
    1.4
    
    
    
    (1.0
    )
    
    
    (5.9
    )Net cash provided by operating activities
    
    
    313.1
    
    
    
    315.2
    
    
    
    276.6Investing activities:Acquisitions and related expenses, net of cash acquired
    
    
    (4.4
    )
    
    
    (4.6
    )
    
    
    (464.9
    )Capital expenditures
    
    
    (132.0
    )
    
    
    (155.9
    )
    
    
    (206.5
    )Proceeds from asset dispositions
    
    
    4.9
    
    
    
    2.0
    
    
    
    1.6Proceeds from sale of investments in securities
    
    
    
    
    
    
    1.8
    
    
    
    252.7Purchases of investments in securities
    
    
    
    
    
    
    
    
    
    
    (123.7
    )Other
    
    
    (2.0
    )
    
    
    0.3
    
    
    
    (4.1
    )Net cash used in investing activities  continuing operations
    
    
    (133.5
    )
    
    
    (156.4
    )
    
    
    (544.9
    )Net cash used in investing activities  discontinued operations
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    Net cash used in investing activities
    
    
    (133.6
    )
    
    
    (156.5
    )
    
    
    (544.9
    )Financing activities:Payments of long-term debt and capital lease obligations
    
    
    (7.8
    )
    
    
    (1,557.4
    )
    
    
    (10.6
    )Proceeds from debt borrowings
    
    
    
    
    
    
    1,751.3
    
    
    
    1,011.2Dividends and related equity payments to equity holders
    
    
    
    
    
    
    
    
    
    
    (447.2
    )Payments of refinancing costs and fees
    
    
    
    
    
    
    (93.6
    )
    
    
    (25.9
    )Repurchases of stock, equity incentive units and stock options
    
    
    (0.2
    )
    
    
    (300.6
    )
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    450.0Payments of IPO related costs
    
    
    
    
    
    
    
    
    
    
    (26.9
    )Payments related to derivative instrument with financing element
    
    
    
    
    
    
    (6.2
    )
    
    
    Distributions paid to non-controlling interests and other
    
    
    (4.9
    )
    
    
    (2.8
    )
    
    
    (3.3
    )Net cash provided by (used in) financing activities
    
    
    (12.9
    )
    
    
    (209.3
    )
    
    
    947.3Net increase (decrease) in cash and cash equivalents
    
    
    166.6
    
    
    
    (50.6
    )
    
    
    679.0Cash and cash equivalents, beginning of year
    
    
    141.6
    
    
    
    308.2
    
    
    
    257.6Cash and cash equivalents, end of year
    
    $
    308.2
    
    
    $
    257.6
    
    
    $
    936.6
   121




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended June 30,2009
    
    
    2010
    
    
    2011(In millions)Supplemental cash flow information:Net cash paid for interest
    
    $
    86.4
    
    
    $
    71.7
    
    
    $
    126.5Net cash paid (received) for income taxes
    
    $
    17.3
    
    
    $
    (11.1
    )
    
    $
    6.0Supplemental noncash activities:Capitalized interest
    
    $
    2.0
    
    
    $
    2.4
    
    
    $
    5.6Change in fair value of interest rate swap, net of taxes
    
    $
    (7.1
    )
    
    $
    2.6
    
    
    $
    Change in fair value of investments in securities, net of taxes
    
    $
    (2.5
    )
    
    $
    
    
    
    $
    2.8Change in fair value of pension plans, net of taxes
    
    $
    
    
    
    $
    
    
    
    $
    20.3
  122




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2011
 1. BUSINESS AND BASIS OF PRESENTATION
 Initial Public Offering
     Basis of Presentation
  Use of Estimates
   123




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenues and Revenue Deductions
 Patient Service Revenues
   .
    124




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
    Premium Revenue
  Cash and Cash Equivalents
    125




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Restricted Cash
  Accounts Receivable
     Additions
    
    
    AccountsBalance at
    
    
    Charged to
    
    
    Written off,
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    Net of Recoveries
    
    
    End ofof Period
    
    
    Expenses
    
    
    and other
    
    
    PeriodAllowance for doubtful
accounts:Year ended June 30, 2009
    
    $
    117.7
    
    
    $
    210.8
    
    
    $
    207.0
    
    
    $
    121.5Year ended June 30, 2010
    
    $
    121.5
    
    
    $
    152.5
    
    
    $
    198.4
    
    
    $
    75.6Year ended June 30, 2011
    
    $
    75.6
    
    
    $
    302.3
    
    
    $
    172.9
    
    
    $
    205.0
 Inventories
   126




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Property, Plant and Equipment
    June 30, 2010
    
    
    June 30, 2011Class of asset:Land and improvements
    
    $
    161.8
    
    
    $
    199.2Buildings and improvements
    
    
    864.0
    
    
    
    1,405.7Equipment
    
    
    740.5
    
    
    
    953.6Construction in progress
    
    
    88.5
    
    
    
    90.51,854.8
    
    
    
    2,649.0Less: accumulated depreciation
    
    
    (651.0
    )
    
    
    (818.5
    )Net property, plant and equipment
    
    $
    1,203.8
    
    
    $
    1,830.5
 Investments in Securities
  Long-Lived Assets and Goodwill
   127




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Amortization of Intangible Assets
  Pension Plan
     Income Taxes
    128




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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
   129




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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
   130




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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
    
    
    
    30.33
    %Volatility (annual)
    
    
    N/A
    
    
    
    26.39%-37.73
    %Expected option life
    
    10 years
    
    
    6.5 years
  Recently Issued Accounting Pronouncements
 Health Care Entities Presentation and
Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful
Accounts for Certain Health Care Entities
 Other Expenses Fees Paid to the
Federal Government by Health Insurers
 Comprehensive Income Presentation of Comprehensive Income
 Financial ServicesInsurance Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
  131




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Health Care Entities Measuring
Charity Care for Disclosure
  3. BUSINESS COMBINATIONS
 Acquisition of Westlake and West Suburban
    Accounts receivable
    
    $
    14.3Inventories
    
    
    3.7Prepaid expenses and other current assets
    
    
    1.3Property and equipment
    
    
    37.3Other assets
    
    
    1.0Total assets acquired
    
    
    57.6Accounts payable
    
    
    6.4Other current liabilities
    
    
    5.9Total liabilities assumed
    
    
    12.3Net assets acquired
    
    $
    45.3
  132




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Acquisition of Arizona Heart Hospital and Institute
   Acquisition of The Detroit Medical Center
    133




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Cash
    
    $
    6.4Accounts receivable
    
    
    115.1Inventories
    
    
    26.7Prepaid expenses and other current assets
    
    
    95.6Property and equipment
    
    
    524.6Goodwill
    
    
    84.3Other intangible assets
    
    
    10.7Investments in securities
    
    
    166.4Other assets
    
    
    85.2Total assets acquired
    
    
    1,115.0Accounts payable
    
    
    80.9Other current liabilities
    
    
    160.5Pension benefit obligation
    
    
    228.0Other non-current liabilities
    
    
    282.3Total liabilities assumed
    
    
    751.7Net assets acquired
    
    $
    363.3
  Pro Forma Information
  Year ended June 30,2010
    
    
    2011Total revenues
    
    $
    5,698.7
    
    
    $
    5,948.8Income (loss) from continuing operations,
before income taxes
    
    $
    (113.9
    )
    
    $
    28.6
  4. FAIR VALUE MEASUREMENTS
   134




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)United States short-term treasury bills
    
    $
    20.8
    
    
    $
    0.3
    
    
    $
    20.5
    
    
    $
    Auction rate securities
    
    
    8.8
    
    
    
    
    
    
    
    
    
    
    
    8.8Corporate bonds
    
    
    14.1
    
    
    
    
    
    
    
    14.1
    
    
    
    Common stock  domestic
    
    
    9.7
    
    
    
    0.1
    
    
    
    9.6
    
    
    
    Common stock  international
    
    
    9.7
    
    
    
    9.4
    
    
    
    0.3
    
    
    
    Preferred stock  international
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Investments in securities
    
    $
    63.3
    
    
    $
    10.0
    
    
    $
    44.5
    
    
    $
    8.8
 Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Auction rate securities
    
    $
    19.8
    
    
    $
    
    
    
    $
    
    
    
    $
    19.8
  Increase inBalance at
    
    
    
    
    
    
    Realized gain
    
    
    fair value,
    
    
    Balance atJune 30, 2010
    
    
    Redemptions
    
    
    on redemptions
    
    
    pre tax
    
    
    June 30, 2011Auction rate securities
    
    $
    19.8
    
    
    $
    (14.3
    )
    
    $
    0.5
    
    
    $
    2.8
    
    
    $
    8.8
 Increase inBalance at
    
    
    
    
    
    
    Realized loss
    
    
    fair value,
    
    
    Balance atJune 30, 2009
    
    
    Redemptions
    
    
    on redemptions
    
    
    pre tax
    
    
    June 30, 2010Auction rate
securities
    
    $
    21.6
    
    
    $
    (1.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    19.8
 Investments in securities
    135




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Fair value
    
    
    
    
    
    
    
    
    
    
    Realized gain
    
    
    Increase inacquired at
    
    
    Proceeds from
    
    
    Purchases of
    
    
    on sales,
    
    
    fair value,
    
    
    Fair value atJanuary 1, 2011
    
    
    sales
    
    
    securities
    
    
    pre tax
    
    
    pre tax
    
    
    June 30, 2011DMC securities
    
    $
    166.4
    
    
    $
    (238.3
    )
    
    $
    123.7
    
    
    $
    1.0
    
    
    $
    1.7
    
    
    $
    54.5
   Cash and Cash Equivalents and Restricted Cash
  Accounts Receivable and Accounts Payable
  Long-Term Debt
   136




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
  2010
    
    
    2011Prepaid insurance
    
    $
    0.4
    
    
    $
    1.6Prepaid maintenance contracts
    
    
    6.4
    
    
    
    8.2Other prepaid expenses
    
    
    8.8
    
    
    
    17.0Third party settlements
    
    
    6.6
    
    
    
    11.7Health plan receivables
    
    
    81.4
    
    
    
    19.8FICA settlement receivable
    
    
    
    
    
    
    43.5Other receivables
    
    
    15.6
    
    
    
    56.1$
    119.2
    
    
    $
    157.9
  6. IMPAIRMENT AND RESTRUCTURING CHARGES
     137




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 7. GOODWILL AND INTANGIBLE ASSETS
  Gross Carrying Amount
    
    
    Accumulated Amortization2010
    
    
    2011
    
    
    2010
    
    
    2011Class of Intangible AssetAmortized intangible assets:Deferred loan costs
    
    $
    39.1
    
    
    $
    65.0
    
    
    $
    1.9
    
    
    $
    8.2Contracts
    
    
    31.4
    
    
    
    31.4
    
    
    
    18.0
    
    
    
    21.2Physician income and other guarantees
    
    
    31.1
    
    
    
    35.4
    
    
    
    25.0
    
    
    
    29.8Other
    
    
    8.8
    
    
    
    8.9
    
    
    
    2.7
    
    
    
    3.5Subtotal
    
    
    110.4
    
    
    
    140.7
    
    
    
    47.6
    
    
    
    62.7Indefinite-lived intangible assets:License and accreditation
    
    
    3.2
    
    
    
    16.0
    
    
    
    
    
    
    
    Total
    
    $
    113.6
    
    
    $
    156.7
    
    
    $
    47.6
    
    
    $
    62.7
    8. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES
  2010
    
    
    2011Property taxes
    
    $
    13.2
    
    
    $
    16.6Current portion of professional and general liability
and workers compensation insurance
    
    
    24.0
    
    
    
    69.2Accrued income guarantees
    
    
    2.6
    
    
    
    2.7Accrued capital expenditures
    
    
    21.0
    
    
    
    34.9Accrued monitoring and advisory fees
    
    
    
    
    
    
    14.9FICA settlement liability
    
    
    
    
    
    
    21.8Other
    
    
    16.1
    
    
    
    33.7$
    76.9
    
    
    $
    193.8
  138




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 9. FINANCING ARRANGEMENTS
  June 30, 2010
    
    
    June 30, 201110.375% Senior Discount Notes due 2016
    
    $
    
    
    
    $
    465.08.0% Senior Unsecured Notes due 2018
    
    
    937.0
    
    
    
    1,156.37.750% Senior Notes due 2019
    
    
    
    
    
    
    350.0Term loans payable under credit facility due 2016
    
    
    815.0
    
    
    
    806.9Capital leases and other long term debt
    
    
    
    
    
    
    9.41,752.0
    
    
    
    2,787.6Less: current maturities
    
    
    (8.2
    )
    
    
    (461.8
    )$
    1,743.8
    
    
    $
    2,325.8
 8.0% Senior Notes
 pari passu
      139




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 7.750% Senior Notes
  pari passu
  10.375% Senior Discount Notes
     Credit Facility Debt
   140




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
     Future Maturities
  Other Information
   141




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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
    )
    
    
    721.0Property, 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 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
  142




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Balance Sheets
June 30, 2011
 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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    644.1
    
    
    $
    292.5
    
    
    $
    
    
    
    $
    936.6Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    1.6
    
    
    
    
    
    
    
    2.3Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448.1
    
    
    
    36.3
    
    
    
    
    
    
    
    484.4Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83.6
    
    
    
    0.3
    
    
    
    
    
    
    
    83.9Prepaid expenses and other
current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230.9
    
    
    
    9.5
    
    
    
    
    
    
    
    240.4Total current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,407.4
    
    
    
    340.2
    
    
    
    
    
    
    
    1,747.6Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,773.4
    
    
    
    57.1
    
    
    
    
    
    
    
    1,830.5Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    656.1
    
    
    
    83.6
    
    
    
    
    
    
    
    739.7Intangible assets, net
    
    
    
    
    
    
    37.4
    
    
    
    19.3
    
    
    
    25.4
    
    
    
    11.9
    
    
    
    
    
    
    
    94.0Investments in consolidated
subsidiaries
    
    
    608.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (608.8
    )
    
    
    Investments in securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63.3
    
    
    
    
    
    
    
    
    
    
    
    63.3Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84.3
    
    
    
    9.0
    
    
    
    
    
    
    
    93.3Total assets
    
    $
    608.8
    
    
    $
    37.4
    
    
    $
    19.3
    
    
    $
    4,009.9
    
    
    $
    501.8
    
    
    $
    (608.8
    )
    
    $
    4,568.4LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    280.6
    
    
    $
    33.7
    
    
    $
    
    
    
    $
    314.3Accrued expenses and other current
liabilities
    
    
    
    
    
    
    50.5
    
    
    
    11.8
    
    
    
    429.2
    
    
    
    128.4
    
    
    
    
    
    
    
    619.9Current maturities of long-term debt
    
    
    
    
    
    
    
    
    
    
    458.8
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    461.8Total current liabilities
    
    
    
    
    
    
    50.5
    
    
    
    470.6
    
    
    
    712.8
    
    
    
    162.1
    
    
    
    
    
    
    
    1,396.0Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565.5
    
    
    
    38.0
    
    
    
    
    
    
    
    603.5Long-term debt, less current maturities
    
    
    
    
    
    
    2,305.0
    
    
    
    14.4
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    2,325.8Intercompany
    
    
    365.7
    
    
    
    (1,468.8
    )
    
    
    (432.8
    )
    
    
    1,927.2
    
    
    
    (9.4
    )
    
    
    (381.9
    )
    
    
    Total equity (deficit)
    
    
    243.1
    
    
    
    (849.3
    )
    
    
    (32.9
    )
    
    
    798.0
    
    
    
    311.1
    
    
    
    (226.9
    )
    
    
    243.1Total liabilities and equity
    
    $
    608.8
    
    
    $
    37.4
    
    
    $
    19.3
    
    
    $
    4,009.9
    
    
    $
    501.8
    
    
    $
    (608.8
    )
    
    $
    4,568.4
  143




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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 and restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 discontinued
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
  144




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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 and restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    )Loss from discontinued
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
    )
  145




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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, 2011
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,864.3
    
    
    $
    192.0
    
    
    $
    (29.8
    )
    
    $
    4,026.5Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58.5
    
    
    
    815.0
    
    
    
    (4.1
    )
    
    
    869.4Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,922.8
    
    
    
    1,007.0
    
    
    
    (33.9
    )
    
    
    4,895.9Salaries and benefits
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    1,914.0
    
    
    
    101.6
    
    
    
    
    
    
    
    2,020.4Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33.7
    
    
    
    682.4
    
    
    
    (29.8
    )
    
    
    686.3Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636.8
    
    
    
    33.1
    
    
    
    
    
    
    
    669.9Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294.1
    
    
    
    8.2
    
    
    
    
    
    
    
    302.3Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333.1
    
    
    
    27.8
    
    
    
    
    
    
    
    360.9Other operating expenses
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    344.2
    
    
    
    43.4
    
    
    
    (4.1
    )
    
    
    383.8Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47.2
    
    
    
    6.9
    
    
    
    
    
    
    
    54.1Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181.9
    
    
    
    11.9
    
    
    
    
    
    
    
    193.8Interest, net
    
    
    
    
    
    
    145.5
    
    
    
    32.9
    
    
    
    (11.3
    )
    
    
    4.1
    
    
    
    
    
    
    
    171.2Impairment and restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Monitoring fees and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.3
    
    
    
    
    
    
    
    
    
    
    
    31.3Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.4
    )
    
    
    16.4
    
    
    
    
    
    
    
    Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.5
    
    
    
    
    
    
    
    
    
    
    
    12.5Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    0.1
    
    
    
    
    
    
    
    (4.5
    )Total costs and expenses
    
    
    5.1
    
    
    
    145.5
    
    
    
    32.9
    
    
    
    3,802.5
    
    
    
    935.9
    
    
    
    (33.9
    )
    
    
    4,888.0Income (loss) from continuing operations
before income taxes
    
    
    (5.1
    )
    
    
    (145.5
    )
    
    
    (32.9
    )
    
    
    120.3
    
    
    
    71.1
    
    
    
    
    
    
    
    7.9Income tax benefit (expense)
    
    
    (9.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24.0
    )
    
    
    24.0
    
    
    
    (9.3
    )Equity in earnings of subsidiaries
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.5
    )
    
    
    Income (loss) from continuing operations
    
    
    (10.9
    )
    
    
    (145.5
    )
    
    
    (32.9
    )
    
    
    120.3
    
    
    
    47.1
    
    
    
    20.5
    
    
    
    (1.4
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.1
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (5.9
    )Net income (loss)
    
    
    (10.9
    )
    
    
    (145.5
    )
    
    
    (32.9
    )
    
    
    116.2
    
    
    
    45.3
    
    
    
    20.5
    
    
    
    (7.3
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.6
    )
    
    
    
    
    
    
    
    
    
    
    (3.6
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (10.9
    )
    
    $
    (145.5
    )
    
    $
    (32.9
    )
    
    $
    112.6
    
    
    $
    45.3
    
    
    $
    20.5
    
    
    $
    (10.9
    )
  146




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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 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
  147




---



##### 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
    
    
    Guarantors
    
    
    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 increase 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
  148




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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
  149




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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
    
    
    Guarantors
    
    
    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
  150




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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, 2011
 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)
    
    $
    (10.9
    )
    
    $
    (145.5
    )
    
    $
    (32.9
    )
    
    $
    116.2
    
    
    $
    45.3
    
    
    $
    20.5
    
    
    $
    (7.3
    )Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.1
    
    
    
    1.8
    
    
    
    
    
    
    
    5.9Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181.9
    
    
    
    11.9
    
    
    
    
    
    
    
    193.8Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294.1
    
    
    
    8.2
    
    
    
    
    
    
    
    302.3Deferred income taxes
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.8Amortization of loan costs
    
    
    
    
    
    
    5.5
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.3Accretion of principal on notes
    
    
    
    
    
    
    2.8
    
    
    
    20.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.1Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Realized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (1.3
    )Stock compensation
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.8Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.5
    
    
    
    
    
    
    
    
    
    
    
    12.5Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    (3.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361.0
    )
    
    
    (23.5
    )
    
    
    
    
    
    
    (384.5
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    (3.3
    )
    
    
    
    
    
    
    (1.3
    )Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.1
    )
    
    
    73.6
    
    
    
    
    
    
    
    56.5Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33.3
    
    
    
    (2.9
    )
    
    
    
    
    
    
    30.4Accrued expenses and other liabilities
    
    
    5.8
    
    
    
    9.1
    
    
    
    11.8
    
    
    
    74.6
    
    
    
    (44.5
    )
    
    
    (20.0
    )
    
    
    36.8Net cash provided by (used in) operating
activities  continuing operations
    
    
    
    
    
    
    (128.1
    )
    
    
    
    
    
    
    340.5
    
    
    
    66.1
    
    
    
    4.0
    
    
    
    282.5Net cash used in operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.1
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (5.9
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (128.1
    )
    
    
    
    
    
    
    336.4
    
    
    
    64.3
    
    
    
    4.0
    
    
    
    276.6
  151




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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, 2011
(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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (197.4
    )
    
    $
    (9.1
    )
    
    $
    
    
    
    $
    (206.5
    )Acquisitions and related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (464.9
    )
    
    
    
    
    
    
    
    
    
    
    (464.9
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Net sales of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.7
    
    
    
    14.3
    
    
    
    
    
    
    
    129.0Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.1
    )
    
    
    
    
    
    
    
    
    
    
    (4.1
    )Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (550.1
    )
    
    
    5.2
    
    
    
    
    
    
    
    (544.9
    )Financing activities:Payments of long-term debt
    
    
    
    
    
    
    (8.1
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    (10.6
    )Proceeds from debt borrowings
    
    
    
    
    
    
    566.6
    
    
    
    444.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,011.2Proceeds from issuance of common
stock
    
    
    450.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450.0Payments of IPO related costs
    
    
    (26.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26.9
    )Payments of refinancing costs and fees
    
    
    
    
    
    
    (5.5
    )
    
    
    (20.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25.9
    )Dividends and related equity payments to equity holders
    
    
    (447.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (447.2
    )Cash provided by (used in) intercompany
activity
    
    
    23.7
    
    
    
    (424.9
    )
    
    
    (424.2
    )
    
    
    661.9
    
    
    
    172.1
    
    
    
    (8.6
    )
    
    
    Other financing activities
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (8.1
    )
    
    
    4.6
    
    
    
    (3.3
    )Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    128.1
    
    
    
    
    
    
    
    659.2
    
    
    
    164.0
    
    
    
    (4.0
    )
    
    
    947.3Net increase in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445.5
    
    
    
    233.5
    
    
    
    
    
    
    
    679.0Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198.6
    
    
    
    59.0
    
    
    
    
    
    
    
    257.6Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    644.1
    
    
    $
    292.5
    
    
    $
    
    
    
    $
    936.6
  152




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 10. DMC PENSION PLAN
  Year EndedJune 30, 2011Reconciliation of benefit obligation:Projected benefit obligation at January 1, 2011
    
    $
    974.8Interest cost
    
    
    25.5Actuarial gain
    
    
    (24.5
    )Benefits paid
    
    
    (19.2
    )Projected benefit obligation and accumulated benefit obligation at June 30, 2011
    
    
    956.6Reconciliation of fair value of plan assets:Fair value of plan assets at January 1, 2011
    
    
    746.7Actual gain on plan assets
    
    
    34.9Employer contributions
    
    
    6.2Benefits paid
    
    
    (19.2
    )Fair value of plan assets at June 30, 2011
    
    
    768.6Funded status at June 30, 2011
    
    $
    188.0
  Accumulated other comprehensive income, net of tax
    
    $
    19.7Pension benefit obligation
    
    
    188.0$
    207.7Assumptions used to determine the plan benefit obligation at June 30, 2011:Discount rate
    
    
    5.57
    %Compensation increase rate
    
    Frozen at 2003 level
  Interest cost on projected benefit obligation
    
    $
    25.5Expected return on assets
    
    
    (27.6
    )Total net pension plan expense (credit)
    
    $
    (2.1
    )Assumptions
used to determine the net periodic pension plan expense (credit) for the year ended June 30, 2011 were as follows:Discount rate
    
    
    5.35
    %Expected long-term rate of return on plan assets
    
    
    7.50
    %
   153




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Target
    
    
    ActualAsset category:Cash and cash equivalents
    
    
    0
    %
    
    
    1
    %Equity securities
    
    
    56
    %
    
    
    69
    %Debt securities
    
    
    25
    %
    
    
    11
    %Alternatives and other
    
    
    19
    %
    
    
    19
    %
    154




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash and cash equivalents
    
    $
    11.5
    
    
    $
    11.5
    
    
    $
    
    
    
    $
    United States government obligations
    
    
    54.3
    
    
    
    
    
    
    
    54.3
    
    
    
    Foreign obligations
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Asset and mortgage-backed securities
    
    
    25.8
    
    
    
    
    
    
    
    25.8
    
    
    
    Corporate bonds
    
    
    8.4
    
    
    
    
    
    
    
    8.4
    
    
    
    Equity securities
    
    
    527.7
    
    
    
    139.7
    
    
    
    388.0
    
    
    
    Alternative investments
    
    
    140.8
    
    
    
    
    
    
    
    
    
    
    
    140.8$
    768.6
    
    
    $
    151.2
    
    
    $
    476.6
    
    
    $
    140.8
  Fiscal years ending June 30,Five yearsTotal
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016
    
    
    thereafterExpected benefit payments
    
    $
    577.0
    
    
    $
    44.9
    
    
    $
    48.1
    
    
    $
    51.1
    
    
    $
    54.0
    
    
    $
    56.8
    
    
    $
    322.1
 11. INCOME TAXES
  Year ended June 30,2009
    
    
    2010
    
    
    2011Current:Federal
    
    $
    8.2
    
    
    $
    (7.3
    )
    
    $
    2.4State
    
    
    2.2
    
    
    
    2.0
    
    
    
    3.1Total current
    
    
    10.4
    
    
    
    (5.3
    )
    
    
    5.5Deferred:Federal
    
    
    8.6
    
    
    
    (10.0
    )
    
    
    3.0State
    
    
    (0.9
    )
    
    
    (2.3
    )
    
    
    (4.9
    )Total deferred
    
    
    7.7
    
    
    
    (12.3
    )
    
    
    (1.9
    )Change in valuation allowance
    
    
    (1.3
    )
    
    
    3.8
    
    
    
    5.7Total income tax expense (benefit)
    
    $
    16.8
    
    
    $
    (13.8
    )
    
    $
    9.3
  155




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Year ended June 30,2009
    
    
    2010
    
    
    2011Continuing operations
    
    $
    16.8
    
    
    $
    (13.8
    )
    
    $
    9.3Discontinued operations
    
    
    (0.2
    )
    
    
    (1.0
    )
    
    
    (3.6
    )Total
    
    $
    16.6
    
    
    $
    (14.8
    )
    
    $
    5.7
  Year ended June 30,2009
    
    
    2010
    
    
    2011Income tax at federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Income tax at state statutory rate
    
    
    1.0
    
    
    
    1.6
    
    
    
    (37.6
    )Nondeductible transaction cost
    
    
    
    
    
    
    
    
    
    
    50.6Nondeductible meals and entertainment
    
    
    
    
    
    
    
    
    
    
    7.3Nondeductible compensation
    
    
    
    
    
    
    
    
    
    
    5.6Nondeductible expenses and other
    
    
    3.3
    
    
    
    (1.0
    )
    
    
    0.9attributable to non-controlling interests
    
    
    (2.3
    )
    
    
    1.6
    
    
    
    (15.8
    )Nondeductible impairment loss
    
    
    
    
    
    
    (7.2
    )
    
    
    Change in valuation allowance
    
    
    (2.6
    )
    
    
    (6.4
    )
    
    
    72.1Effective income tax rate
    
    
    34.4
    %
    
    
    23.6
    %
    
    
    118.1
    %
  2010
    
    
    2011Deferred tax assets:Net operating loss carryover
    
    $
    82.6
    
    
    $
    49.5Excess tax basis over book basis of accounts receivable
    
    
    3.8
    
    
    
    24.4Accrued expenses and other
    
    
    47.1
    
    
    
    76.5Deferred loan costs
    
    
    5.6
    
    
    
    3.4Professional and general liability reserves
    
    
    30.6
    
    
    
    34.6Benefit Plans
    
    
    14.1
    
    
    
    98.8Alternative minimum tax credit and other credits
    
    
    4.1
    
    
    
    6.4Total deferred tax assets
    
    
    187.9
    
    
    
    293.6Valuation allowance
    
    
    (32.4
    )
    
    
    (38.1
    )Total deferred tax assets, net of valuation allowance
    
    
    155.5
    
    
    
    255.5Deferred tax liabilities:Depreciation, amortization and fixed assets basis differences
    
    
    59.7
    
    
    
    121.7Excess book basis over tax basis of prepaid assets and other
    
    
    23.9
    
    
    
    10.8Investments
    
    
    
    
    
    
    13.0Total deferred tax liabilities
    
    
    83.6
    
    
    
    145.5Net deferred tax assets
    
    $
    71.9
    
    
    $
    110.0
  156




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Accounting for Uncertainty in Income Taxes
  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
    
    
    11.9Additions based on tax positions related to the current year
    
    
    0.9Additions for tax positions of prior years
    
    
    0.7Reductions for tax positions of prior years
    
    
    (0.3
    )Settlements
    
    
    Balance at June 30, 2011
    
    $
    13.2
     157




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   12. EARNINGS PER SHARE
   Year Ended June 30,2009
    
    
    2010
    
    
    2011Numerator for basic and diluted earnings (loss per share):Income (loss) from continuing operations
    
    $
    28.9
    
    
    $
    (47.5
    )
    
    $
    (5.0
    )Loss from discontinued operations
    
    
    (0.3
    )
    
    
    (1.7
    )
    
    
    (5.9
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    28.6
    
    
    $
    (49.2
    )
    
    $
    (10.9
    )Denominator (in thousands):Weighted average common shares outstanding
    
    
    44,661
    
    
    
    44,650
    
    
    
    45,329Effect of dilutive securities
    
    
    540
    
    
    
    
    
    
    
    Shares used for diluted earnings per share
    
    
    45,201
    
    
    
    44,650
    
    
    
    45,329Basic net earnings (loss) per share:Basic earnings (loss) from continuing operations
    
    $
    0.65
    
    
    $
    (1.06
    )
    
    $
    (0.11
    )Basic loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.13
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    0.64
    
    
    $
    (1.10
    )
    
    $
    (0.24
    )Diluted net earnings (loss) per share:Diluted earnings (loss) from continuing operations
    
    $
    0.64
    
    
    $
    (1.06
    )
    
    $
    (0.11
    )Diluted loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.13
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    0.63
    
    
    $
    (1.10
    )
    
    $
    (0.24
    )
  158




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 13. STOCKHOLDERS EQUITY
  Common Stock of Vanguard and Class A Membership Units of Holdings
  Equity Incentive Membership Units of Holdings and Holdings Merger
   Put and Call Features of Acquisition Subsidiary Stock
   159




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Refinancing Transactions
   14. COMPREHENSIVE INCOME (LOSS)
  Year ended June 30,2009
    
    
    2010
    
    
    2011Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    28.6
    
    
    $
    (49.2
    )
    
    $
    (10.9
    )Change in fair value of interest rate swap
    
    
    (11.5
    )
    
    
    5.2
    
    
    
    Change in unrealized holding gains (losses) on
investments in securities
    
    
    (4.1
    )
    
    
    
    
    
    
    4.5Change in fair value of pension plan
    
    
    
    
    
    
    
    
    
    
    31.8Change in fair value of other postretirement benefit plans
    
    
    
    
    
    
    
    
    
    
    0.9Change in income tax (expense) benefit
    
    
    6.0
    
    
    
    (2.6
    )
    
    
    (14.1
    )Termination of interest rate swap reclassification
adjustment, net of taxes
    
    
    
    
    
    
    1.7
    
    
    
    Net income attributable to non-controlling interests
    
    
    3.2
    
    
    
    2.9
    
    
    
    3.6Comprehensive income (loss)
    
    $
    22.2
    
    
    $
    (42.0
    )
    
    $
    15.8
  June 30, 2010
    
    
    June 30, 2011Unrealized holding gain (loss) on investments in securities
    
    $
    (4.1
    )
    
    $
    0.5Defined benefit pension plan
    
    
    
    
    
    
    31.8Post-employment defined benefit plan
    
    
    
    
    
    
    0.9Income tax benefit (expense)
    
    
    1.6
    
    
    
    (12.6
    )Accumulated other comprehensive income (loss)
    
    $
    (2.5
    )
    
    $
    20.6
  160




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 15. STOCK BASED COMPENSATION
  Stock Incentive Plans
        161




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Stock Options
  # of
    
    
    Wtd AvgOptions
    
    
    Exercise PriceOptions outstanding at June 30, 2010
    
    
    6,740,914
    
    
    $
    20.84Options exercised
    
    
    (126,914
    )
    
    
    2.85Options cancelled
    
    
    (674,733
    )
    
    
    11.62Options issued in connection with Holdings Merger
    
    
    1,245,086
    
    
    
    33.67Options outstanding at June 30, 2011
    
    
    7,184,353
    
    
    $
    16.01Options available for grant at June 30, 2011
    
    
    11,070,181Options exercisable at June 30, 2011
    
    
    4,039,239
    
    
    $
    22.25
  Year ended June 30,2009
    
    
    2010
    
    
    2011Weighted average fair value of options granted during each year
    
    $
    5.29
    
    
    $
    5.74
    
    
    $
    Intrinsic value of options exercised during each year (in millions)
    
    $
    
    
    
    $
    
    
    
    $
    1.7
  Additional
    
    
    TotalCurrently
    
    
    Expected
    
    
    ExpectedVested
    
    
    to Vest
    
    
    to VestNumber of options at June 30, 2011
    
    
    4,039,239
    
    
    
    2,738,128
    
    
    
    6,777,367Weighted average exercise price
    
    $
    22.25
    
    
    $
    7.74
    
    
    $
    16.39Intrinsic value at June 30, 2011 (in millions)
    
    $
    21.5
    
    
    $
    33.0
    
    
    $
    54.5Weighted average remaining contractual term
    
    4.5 years
    
    
    6.0 years
    
    
    5.1 years
   Options Outstanding
    
    
    Options ExercisableWeighted AverageNumber of
    
    
    Remaining
    
    
    Number ofExercise Prices
    
    
    
    
    Options
    
    
    Contractual Life
    
    
    Options$
    2.80
    
    
    
    
    
    3,966,981
    
    
    
    5.8
    
    
    
    1,440,878$
    2.91
    
    
    
    
    
    142,405
    
    
    
    5.7
    
    
    
    53,024$
    33.67
    
    
    
    
    
    3,074,968
    
    
    
    2.0
    
    
    
    2,545,3377,184,354
    
    
    
    
    
    
    
    4,039,239
  162




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Restricted Stock Units
  Restricted
    
    
    Wtd Avg Grant DateStock Units
    
    
    Fair Value Per UnitUnvested as of June 30, 2010
    
    
    
    
    
    $
    Granted
    
    
    610,736
    
    
    
    18.18Vested
    
    
    
    
    
    
    Forfeited
    
    
    (32,774
    )
    
    
    21.14Unvested as of June 30, 2011
    
    
    577,962
    
    
    $
    18.01
  16. DEFINED CONTRIBUTION PLAN
   17. LEASES
  OperatingLeases2011
    
    $
    47.02012
    
    
    37.32013
    
    
    30.72014
    
    
    24.32015
    
    
    19.3Thereafter
    
    
    43.6$
    202.2
   163




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 18. CONTINGENCIES AND HEALTHCARE REGULATION
 Contingencies
  Professional and General Liability Insurance
  Governmental Regulation
  Reimbursement
   Acquisitions
   164




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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
  19. RELATED PARTY TRANSACTIONS
    165




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
    TotalMetalmark SA
    
    
    Blackstone
    
    
    ExpenseAnnual monitoring fees and expenses
    
    $
    0.6
    
    
    $
    4.3
    
    
    $
    4.9Acceleration of transaction and monitoring fees
due under transaction and monitoring fee agreement
    
    
    1.9
    
    
    
    13.0
    
    
    
    14.9Financial advisory services fee
    
    
    1.5
    
    
    
    10.0
    
    
    
    11.5Total monitoring fees and expenses for the year
ended June 30, 2011
    
    $
    4.0
    
    
    $
    27.3
    
    
    $
    31.3
  20. SEGMENT INFORMATION
   166




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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 and restructuring charges
    
    
    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 gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt extinguishment
costs, impairment and restructuring charges, and pension expense (credits). 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.  167




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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 and restructuring charges
    
    
    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 gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt extinguishment
costs, impairment and restructuring charges, and pension expense (credits). 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.  168




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Year ended June 30, 2011Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    4,026.5
    
    
    $
    
    
    
    $
    
    
    
    $
    4,026.5Premium revenues
    
    
    
    
    
    
    869.4
    
    
    
    
    
    
    
    869.4Inter-segment revenues
    
    
    41.3
    
    
    
    
    
    
    
    (41.3
    )
    
    
    Total revenues
    
    
    4,067.8
    
    
    
    869.4
    
    
    
    (41.3
    )
    
    
    4,895.9Salaries and benefits
(excludes stock compensation)
    
    
    1,981.9
    
    
    
    33.7
    
    
    
    
    
    
    
    2,015.6Health plan claims expense (1)
    
    
    
    
    
    
    686.3
    
    
    
    
    
    
    
    686.3Supplies
    
    
    669.8
    
    
    
    0.1
    
    
    
    
    
    
    
    669.9Provision for doubtful accounts
    
    
    302.3
    
    
    
    
    
    
    
    
    
    
    
    302.3Other operating expenses-external
    
    
    758.1
    
    
    
    40.7
    
    
    
    
    
    
    
    798.8Operating expenses-intersegment
    
    
    
    
    
    
    41.3
    
    
    
    (41.3
    )
    
    
    Total operating expenses
    
    
    3,712.1
    
    
    
    802.1
    
    
    
    (41.3
    )
    
    
    4,472.9Segment EBITDA (2)
    
    
    355.7
    
    
    
    67.3
    
    
    
    
    
    
    
    423.0Less:Interest, net
    
    
    173.1
    
    
    
    (1.9
    )
    
    
    
    
    
    
    171.2Depreciation and amortization
    
    
    189.3
    
    
    
    4.5
    
    
    
    
    
    
    
    193.8Gain on disposal of assets
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Equity method income
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Stock compensation
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    4.8Monitoring fees and expenses
    
    
    31.3
    
    
    
    
    
    
    
    
    
    
    
    31.3Realized gains on investments
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    (1.3
    )Acquisition related expenses
    
    
    12.5
    
    
    
    
    
    
    
    
    
    
    
    12.5Impairment and restructuring charges
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Pension credits
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Income (loss) from continuing
operations before income taxes
    
    $
    (56.8
    )
    
    $
    64.7
    
    
    $
    
    
    
    $
    7.9Segment assets
    
    $
    4,170.6
    
    
    $
    397.8
    
    
    $
    
    
    
    $
    4,568.4Capital expenditures
    
    $
    206.1
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    206.5
 
 (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 gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt extinguishment
costs, impairment and restructuring charges, and pension expense (credits). 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.  169




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 21. UNAUDITED QUARTERLY OPERATING RESULTS
  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
    )
    
    $
    2.8Basic earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.46
    )
    
    $
    (0.73
    )
    
    $
    0.06Diluted earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.46
    )
    
    $
    (0.73
    )
    
    $
    0.06
 September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,2010
    
    
    2010
    
    
    2011
    
    
    2011Total revenues
    
    $
    913.9
    
    
    $
    960.6
    
    
    $
    1,519.6
    
    
    $
    1,501.8Net income (loss)
    
    $
    2.2
    
    
    $
    (4.2
    )
    
    $
    3.6
    
    
    $
    (8.9
    )(1)Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    1.2
    
    
    $
    (5.0
    )
    
    $
    2.8
    
    
    $
    (9.9
    )(1)Basic earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.11
    )
    
    $
    0.06
    
    
    $
    (0.21
    )Diluted earnings (loss) per share
    
    $
    0.02
    
    
    $
    (0.11
    )
    
    $
    0.06
    
    
    $
    (0.21
    )
 
 (1)
    
    This amount includes a pre-tax charge of $27.6 million ($21.4
million or $0.45 per diluted share net of taxes) related to the termination of Vanguards
transaction and monitoring fee agreement with its equity sponsors and financial
advisory fees paid under the transaction and monitoring fee agreement during the
quarter ended June 30, 2011 (see Note 19). 22. SUBSEQUENT EVENTS
 Exercise of Over-Allotment
  Redemption of Senior Discount Notes
   170




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Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A.
    
    Controls and Procedures.
 Evaluation of Disclosure Control and Procedures
   171




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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    Internal Control  Integrated Framework
 Dodd-Frank Wall Street Reform and Consumer Protection Act
  172




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Changes in Internal Control Over Financial Reporting
  
 Item 9B.
    
    Other Information.
   173




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PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance.
 Executive Officers
  Directors
  Code of Ethics
 www.vanguardhealth.com
 Compliance with Section 16(a) of the Exchange Act
  Stockholder Nominees
  Audit and Compliance Committee
  
 Item 11.
    
    Executive Compensation.
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 Equity Compensation Plan Information
  Equity Compensation Plan InformationNumber of securitiesremaining available forfuture issuance underNumber of securities to
    
    
    Weighted-average
    
    
    equity compensationbe issued upon exercise
    
    
    exercise price of
    
    
    plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected inwarrants and rights
    
    
    warrants and rights
    
    
    column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by security holders
    
    
    7,762,315
    (1)
    
    $
    16.01
    (2)
    
    
    11,070,181
    (1)Equity compensation plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    7,762,315
    
    
    $
    16.01
    
    
    
    11,070,181
 
 (1)
    
    The material features of the equity compensation plans under which these options and share
rights were issued will be set forth in our Proxy Statement for our 2011 Annual Stockholders
meeting.(2)
    
    Restricted stock units have been excluded for purposes of
computing the weighted-average exercise price.  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accounting Fees and Services
   174




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules.
          175




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

Charles N. Martin, Jr.
    
    August 25, 2011Chairman 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 25, 2011/s/ Phillip W. Roe

Phillip W. Roe
    
    Executive Vice President, Chief Financial Officer & Treasurer (Principal
Financial Officer)
    
    August 25, 2011/s/ Gary D. Willis

Gary D. Willis
    
    Senior Vice President, Controller & Chief Accounting Officer (Principal
Accounting Officer)
    
    August 25, 2011/s/ Stephen DArcy

Stephen DArcy
    
    Director
    
    August 25, 2011/s/ Michael A. Dal Bello

Michael A. Dal Bello
    
    Director
    
    August 25, 2011/s/ Robert Galvin, MD

Robert Galvin, MD
    
    Director
    
    August 25, 2011/s/ M. Fazle Husain

M. Fazle Husain
    
    Director
    
    August 25, 2011Director
    
    August 25, 2011James A. Quella/s/ Neil P. Simpkins

Neil P. Simpkins
    
    Director
    
    August 25, 2011
  176




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##### Table of Contents



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)2.5
    
    
    Letter Agreement dated July 16, 2010, amending Section 5.2(b) of that certain 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. (28)2.6
    
    
    Amendment No. 1 to Purchase and Sale Agreement, dated as of October 29, 2010, by and
among The Detroit Medical Center, DMC Primary Care Services II, Healthsource, Vanguard
Health Systems, Inc., VHS Physicians of Michigan, CRNAs of Michigan and VHS University
Laboratories, Inc. (29)2.7
    
    
    Letter Agreement, dated as of October 29, 2010, between The Detroit Medical Center (on
behalf of each Seller and DMC) and Vanguard Health Systems, Inc. (on behalf of each Buyer
and Vanguard) (29)2.8
    
    
    Amendment No. 2 to Purchase and Sale Agreement, dated as of November 13, 2010, by and
among The Detroit Medical Center and Vanguard Health Systems, Inc. (27)2.9
    
    
    Enforcement Agreement dated November 17, 2010, between The Detroit Medical Center (on
behalf of each Seller and DMC), VHS of Michigan, Inc. (on behalf of each Buyer), Vanguard
Health Systems, Inc. and the Michigan Department of Attorney General (27)2.10
    
    
    Monitoring and Compliance Agreement dated November 17, 2010, between The Detroit Medical
Center (on behalf of each Seller and DMC), VHS of Michigan, Inc. (on behalf of each
Buyer), Vanguard Health Systems, Inc. and the Michigan Department of Attorney General
(27)
  177




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Exhibit No.
    
    Description2.11
    
    
    Amendment No. 3 to Purchase and Sale Agreement, dated as of December 31, 2010, by and
among The Detroit Medical Center and Vanguard Health Systems, Inc. (30)2.12
    
    
    Amendment No. 4 to Purchase and Sale Agreement, dated as of December 31, 2010, by and
among The Detroit Medical Center and Vanguard Health Systems, Inc. (30)2.13
    
    
    Settlement Agreement effective as of December 31, 2010, by and among The Detroit Medical
Center, Vanguard Health Systems, Inc. and the United States of America, acting though the
United States Department of Justice and on behalf of the Office of Inspector General of
the Department of Health and Human Services (30)2.14
    
    
    Agreement and Plan of Merger Between VHS Holdings LLC and Vanguard Health Systems,
Inc.(34)3.1
    
    
    Second Amended and Restated Certificate of Incorporation of Vanguard Health Systems,
Inc.(34)3.2
    
    
    Amended and Restated By-Laws of Vanguard Health Systems, Inc.(34)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
    
    
    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)4.3
    
    
    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)4.4
    
    
    Third Supplemental Indenture, dated as of August 18, 2010, relating to the 8% Senior
Notes due 2018, among VHS Westlake Hospital, Inc., VHS West Suburban Medical Center,
Inc., VHS Acquisition Subsidiary Number 4, Inc., Midwest Pharmacies, Inc., 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 (28)4.5
    
    
    Fourth Supplemental Indenture, dated as of November 1, 2010, among Vanguard Health
Holding Company II, LLC, Vanguard Holding Company II, Inc., the Guarantors party thereto
and the Trustee (31)4.6
    
    
    Fifth Supplemental Indenture, dated as of January 11, 2011, among Vanguard Health Holding
Company II, LLC, Vanguard Holding Company II, Inc., the Guarantors party thereto and the
Trustee (31)4.7
    
    
    Indenture, dated as of January 26, 2011, relating to the 7.750% Senior Notes due 2019,
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, including the form of 7.750% Senior Notes due 2019 (26)4.8
    
    
    Indenture, dated as of January 26, 2011, relating to the 10.375% Senior Discount Notes
due 2016, between Vanguard Health Systems, Inc. and U.S. Bank National Association, as
Trustee, including the form of 10.375% Senior Discount Notes due 2016 (26)
  178




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Exhibit No.
    
    Description4.9
    
    
    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)4.10
    
    
    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)4.11
    
    
    Registration Rights Agreement, dated as of January 26, 2011, relating to the 7.750%
Senior Notes due 2019, among Vanguard Health Holding Company II, LLC, Vanguard Holding
Company II, Inc., Vanguard Health Systems, Inc. and the other guarantors named therein
and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Barclays Capital Inc. on
behalf of themselves and as representatives of the several initial purchasers listed on
Schedule I thereto (26)4.12
    
    
    Registration Rights Agreement, dated as of January 26, 2011 relating to the 10.375%
Senior Discount Notes due 2016, between Vanguard Health Systems, Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Barclays Capital Inc. on behalf of themselves and
as representatives of the several initial purchasers listed on Schedule I thereto (26)4.13
    
    
    Registration Rights Agreement, concerning Vanguard Health Systems, Inc., dated as of
September 23, 2004 (1)4.14
    
    
    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)10.1
    
    
    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. Annual Incentive Plan(3)(34)
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Exhibit No.
    
    Description10.11
    
    
    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
    
    
    Letter dated March 16, 2010, from Vanguard Health Systems Inc., Detroit Medical Center(32)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)10.21
    
    
    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)(33)10.29
    
    
    Form of Restricted Stock Unit Agreement (Liquidity Event RSUs) used under Vanguard Health
Systems, Inc. 2004 Stock Incentive Plan (3)(33)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)
  180




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Exhibit No.
    
    Description10.31
    
    
    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)10.40
    
    
    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)
  181




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Exhibit No.
    
    Description10.49
    
    
    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)10.55
    
    
    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)
  182




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Exhibit No.
    
    Description10.63
    
    
    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)10.72
    
    
    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)
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Exhibit No.
    
    Description10.78
    
    
    Contract Amendment Number 10, executed on September 9, 2010, but effective as of October
1, 2010, 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 (28)10.79
    
    
    Contract Amendment Number 11, executed on October 25, 2010, 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 (31)10.80
    
    
    Contract Amendment Number 12, executed on November 5, 2010, 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 (31)10.81
    
    
    Contract Amendment Number 13, executed on January 17, 2011, but effective as of October
1, 2010, 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 (31)10.82
    
    
    Vanguard Health Systems, Inc. 2011 Stock Incentive Plan (3)(34)10.83
    
    
    Contract Amendment Number 14, executed on February 9, 2011, but effective as of April 1,
2011, 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 (32)10.84
    
    
    Vanguard Health Systems, Inc. 2001 Annual Incentive Plan (2)(3)10.85
    
    
    Vanguard Health Systems, Inc. 2009 Long Term Incentive Plan (3)(23)10.86
    
    
    Form of Nonqualified Stock Option Agreement (Conversion Replacement Award) Under 2011
Stock Incentive Plan(34)10.87
    
    
    Form of Restricted Share Award Agreement (Conversion Replacement Award) Under 2011 Stock
Incentive Plan(34)10.88
    
    
    Form of Amendment to Employment Agreement(3)(34)10.89
    
    
    Form of Amendment to Severance Protection Agreement(3)(34)10.90
    
    
    2011 Stockholders Agreement of Vanguard Health Systems, Inc. among Blackstone, MSCP,
Vanguard Health Systems, Inc. and the other parties thereto (3)(34)10.91
    
    
    Letter Agreement dated as of May 26, 2011, related to the Transaction and Monitoring Fee
Agreement(34)10.92
    
    
    Form of Amendment and Termination Agreement dated as of June 17, 2011 by and among
Vanguard Health Systems, Inc., Blackstone Management Partners IV L.L.C. and Metalmark
Management LLC(34)10.93
    
    
    Amendment No. 5 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Charles N. Martin, Jr., dated as of May 31, 2011 (3)10.94
    
    
    Amendment No. 5 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Keith B. Pitts, dated as of May 31, 2011 (3)
  184




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Exhibit No.
    
    Description10.95
    
    
    Amendment No. 5 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Ronald P. Soltman, dated as of May31, 2011 (3)10.96
    
    
    Amendment No. 2 to Employment Agreement between Vanguard Health Systems, Inc. and Kent H.
Wallace, dated as of May 31, 2011 (3)10.97
    
    
    Amendment No. 2 to Employment Agreement between Vanguard Health Systems, Inc. and Phillip
W. Roe, dated as of May 31, 2011 (3)10.98
    
    
    Amendment No. 6 to Amended and Restated Employment Agreement between Vanguard Health
Systems, Inc. and Joseph D. Moore, dated as of May 31, 2011(3)10.99
    
    
    Amendment No. 2 to Employment Agreement between Vanguard Health Systems, Inc. and Mark R.
Montoney, M.D. dated as of May 31, 2011 (3)10.100
    
    
    Amendment No. 1 to Employment Agreement between Vanguard Health Systems, Inc. and Bradley
A. Perkins dated as of May 31, 2011 (3)10.101
    
    
    Contract Amendment Number 15, executed on May 2, 2011, but effective as of October 1,
2010, 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 System10.102
    
    
    Vanguard Health Systems, Inc. Amended and Restated 2009 Long Term Incentive Plan, dated
as of May 3, 2011 (3)(34)12.1
    
    
    Computation of Ratios of Earnings to Fixed Charges21.1
    
    
    Subsidiaries of Vanguard Health Systems, Inc.23
    
    
    Consent of Ernst & Young, LLP.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)
 
 (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).  185




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(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.(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.  186




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(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).(26)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Current Report on
Form 8-K, dated January 28, 2011, File No. 333-71934.(27)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Current Report on
Form 8-K, dated November 18, 2010, File No. 333-71934.(28)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2010, File No. 333-71934.(29)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Current Report on
Form 8-K, dated November 4, 2010, File No. 333-71934.(30)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Current Report on
Form 8-K dated January 5, 2011, File No. 333-71934.(31)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Quarterly Report
on Form 10-Q, for the quarterly period ended December 31, 2010, File No. 333-71934.(32)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Registration
Statement on Form S-4 first filed on April 8, 2011 (Registration No. 333-173401).(33)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Annual Report on
Form 10-K for the annual period ended June 30, 2010, File No. 333-71934.(34)
    
    Incorporated by reference from exhibits to Vanguard Health Systems, Inc.s Registration
Statement on Form S-1 first filed on April 15, 2011 (Registration No. 333-173547).  187