##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-71934
 
 
 VANGUARD HEALTH SYSTEMS, INC.
  Delaware(State or other jurisdiction of incorporation or organization)
    
    62-1698183(I.R.S. Employer Identification No.)
 20 Burton Hills Boulevard, Suite 100
Nashville, TN 37215
 (615) 665-6000
 o þ
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



VANGUARD HEALTH SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of June 30, 2010
and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three and
six months ended December 31, 2009 and 2010
    
    
    4Condensed Consolidated Statements of Equity for the six months
ended December 31, 2010
    
    
    5Condensed Consolidated Statements of Cash Flows for the six
months ended December 31, 2009 and 2010
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    37Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    56Item 4. Controls and Procedures
    
    
    56PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    57Item 1A. Risk Factors
    
    
    58Item 6. Exhibits
    
    
    80Signature
    
    
    81Exhibit Index
    
    
    82Exhibit 4.1Exhibit 4.2Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements.
 VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 30, 2010
    
    
    December 31, 2010(In millions, except share andper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    257.6
    
    
    $
    58.3Restricted cash
    
    
    2.3
    
    
    
    3.0Accounts receivable, net of allowance for doubtful accounts of approximately
$75.6 and $87.2, respectively
    
    
    270.4
    
    
    
    321.5Inventories
    
    
    49.6
    
    
    
    56.6Deferred tax assets
    
    
    21.9
    
    
    
    18.1Prepaid expenses and other current assets
    
    
    119.2
    
    
    
    83.5Total current assets
    
    
    721.0
    
    
    
    541.0Property, plant and equipment, net of accumulated depreciation
    
    
    1,203.8
    
    
    
    1,264.5Goodwill
    
    
    649.1
    
    
    
    650.2Intangible assets, net of accumulated amortization
    
    
    66.0
    
    
    
    67.7Deferred tax assets, noncurrent
    
    
    50.0
    
    
    
    48.2Investments in auction rate securities
    
    
    19.8
    
    
    
    15.7Deposit for acquisition
    
    
    
    
    
    
    368.1Other assets
    
    
    19.9
    
    
    
    19.9Total assets
    
    $
    2,729.6
    
    
    $
    2,975.3LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    194.8
    
    
    $
    187.3Accrued salaries and benefits
    
    
    144.9
    
    
    
    148.7Accrued health plan claims and settlements
    
    
    149.8
    
    
    
    157.3Accrued interest
    
    
    41.4
    
    
    
    40.5Other accrued expenses and current liabilities
    
    
    76.9
    
    
    
    89.4Current maturities of long-term debt and capital leases
    
    
    8.2
    
    
    
    8.3Total current liabilities
    
    
    616.0
    
    
    
    631.5Professional and general liability and workers compensation reserves
    
    
    83.6
    
    
    
    93.8Other liabilities
    
    
    31.6
    
    
    
    35.4Long-term debt and capital leases, less current maturities
    
    
    1,743.8
    
    
    
    1,959.2Commitments and contingenciesEquity:Vanguard Health Systems, Inc. stockholders equity:Common Stock of $.01 par value; 1,000,000 shares authorized; 749,104
issued and outstanding at June 30, 2010 and December 31, 2010
    
    
    
    
    
    
    Additional paid-in capital
    
    
    354.9
    
    
    
    357.8Accumulated other comprehensive loss
    
    
    (2.5
    )
    
    
    (0.6
    )Retained deficit
    
    
    (105.9
    )
    
    
    (109.7
    )Total Vanguard Health Systems, Inc. stockholders equity
    
    
    246.5
    
    
    
    247.5Non-controlling interests
    
    
    8.1
    
    
    
    7.9Total equity
    
    
    254.6
    
    
    
    255.4Total liabilities and equity
    
    $
    2,729.6
    
    
    $
    2,975.3
   3




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended December 31,
    
    
    Six months ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010(In millions)Patient service revenues
    
    $
    628.2
    
    
    $
    748.8
    
    
    $
    1,243.8
    
    
    $
    1,442.1Premium revenues
    
    
    212.3
    
    
    
    211.8
    
    
    
    416.6
    
    
    
    432.4Total revenues
    
    
    840.5
    
    
    
    960.6
    
    
    
    1,660.4
    
    
    
    1,874.5Costs and Expenses:Salaries and benefits (includes stock compensation
of $1.0, $1.7, $2.9 and $2.9, respectively)
    
    
    322.9
    
    
    
    375.5
    
    
    
    635.6
    
    
    
    730.3Health plan claims expense
    
    
    170.8
    
    
    
    164.8
    
    
    
    331.8
    
    
    
    338.9Supplies
    
    
    114.6
    
    
    
    133.5
    
    
    
    225.4
    
    
    
    254.5Provision for doubtful accounts
    
    
    35.0
    
    
    
    51.2
    
    
    
    72.2
    
    
    
    103.0Purchased services
    
    
    43.8
    
    
    
    62.5
    
    
    
    90.5
    
    
    
    113.5Non-income taxes
    
    
    10.7
    
    
    
    17.0
    
    
    
    24.9
    
    
    
    33.2Rents and leases
    
    
    11.0
    
    
    
    11.7
    
    
    
    21.9
    
    
    
    22.7Other operating expenses
    
    
    48.4
    
    
    
    59.7
    
    
    
    107.8
    
    
    
    117.2Depreciation and amortization
    
    
    34.0
    
    
    
    38.6
    
    
    
    67.6
    
    
    
    75.8Interest, net
    
    
    27.6
    
    
    
    35.1
    
    
    
    54.8
    
    
    
    69.9Impairment loss
    
    
    43.1
    
    
    
    0.9
    
    
    
    43.1
    
    
    
    0.9Other
    
    
    1.5
    
    
    
    2.3
    
    
    
    2.6
    
    
    
    7.1Income (loss) from continuing operations before
income taxes
    
    
    (22.9
    )
    
    
    7.8
    
    
    
    (17.8
    )
    
    
    7.5Income tax benefit (expense)
    
    
    3.8
    
    
    
    (9.7
    )
    
    
    1.7
    
    
    
    (7.3
    )Income (loss) from continuing operations
    
    
    (19.1
    )
    
    
    (1.9
    )
    
    
    (16.1
    )
    
    
    0.2Loss from discontinued operations, net of taxes
    
    
    (0.8
    )
    
    
    (2.3
    )
    
    
    (1.4
    )
    
    
    (2.2
    )Net loss
    
    
    (19.9
    )
    
    
    (4.2
    )
    
    
    (17.5
    )
    
    
    (2.0
    )Less: Net income attributable to non-controlling interests
    
    
    (0.8
    )
    
    
    (0.8
    )
    
    
    (1.7
    )
    
    
    (1.8
    )Net loss
attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    (20.7
    )
    
    $
    (5.0
    )
    
    $
    (19.2
    )
    
    $
    (3.8
    )Amounts attributable to Vanguard Health Systems, Inc.
stockholders:Loss from continuing operations, net of taxes
    
    $
    (19.9
    )
    
    $
    (2.7
    )
    
    $
    (17.8
    )
    
    $
    (1.6
    )Loss from discontinued operations, net of taxes
    
    
    (0.8
    )
    
    
    (2.3
    )
    
    
    (1.4
    )
    
    
    (2.2
    )Net loss
attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    (20.7
    )
    
    $
    (5.0
    )
    
    $
    (19.2
    )
    
    $
    (3.8
    )
   4




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VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
 Six months ended December 31, 2010
 (Unaudited)
 Vanguard Health Systems, Inc. StockholdersAccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    Non-Common Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    Controlling
    
    
    TotalShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    Interests
    
    
    Equity(In millions, except share amounts)Balance at June 30, 2010
    
    
    749,104
    
    
    $
    
    
    
    $
    354.9
    
    
    $
    (2.5
    )
    
    $
    (105.9
    )
    
    $
    8.1
    
    
    $
    254.6Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.0
    )
    
    
    (2.0
    )Comprehensive income (loss):Change in fair value of auction
rate securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.8
    )
    
    
    1.8
    
    
    
    (2.0
    )Total comprehenive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    (3.8
    )
    
    
    1.8
    
    
    
    (0.1
    )Balance at December 31, 2010
    
    
    749,104
    
    
    $
    
    
    
    $
    357.8
    
    
    $
    (0.6
    )
    
    $
    (109.7
    )
    
    $
    7.9
    
    
    $
    255.4
   5




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six months ended December 31,2009
    
    
    2010(In millions)Operating activities:Net loss
    
    $
    (17.5
    )
    
    $
    (2.0
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Loss from discontinued operations
    
    
    1.4
    
    
    
    2.2Depreciation and amortization
    
    
    67.6
    
    
    
    75.8Provision for doubtful accounts
    
    
    72.2
    
    
    
    103.0Amortization of loan costs
    
    
    2.9
    
    
    
    2.5Accretion of principal on notes
    
    
    5.8
    
    
    
    1.4Loss on disposal of assets
    
    
    0.4
    
    
    
    0.1Acquisition related expenses
    
    
    
    
    
    
    5.0Stock compensation
    
    
    2.9
    
    
    
    2.9Deferred income taxes
    
    
    (7.7
    )
    
    
    5.7Impairment loss
    
    
    43.1
    
    
    
    0.9Realized loss on investments
    
    
    
    
    
    
    0.1Changes in operating assets and liabilities, net of the impact
of acquisitions:Accounts receivable
    
    
    (85.5
    )
    
    
    (139.5
    )Inventories
    
    
    (1.8
    )
    
    
    (1.0
    )Prepaid expenses and other current assets
    
    
    5.2
    
    
    
    32.9Accounts payable
    
    
    20.6
    
    
    
    (11.2
    )Accrued expenses and other liabilities
    
    
    41.4
    
    
    
    50.5Net cash provided by operating activities  continuing operations
    
    
    151.0
    
    
    
    129.3Net cash used in operating activities  discontinued operations
    
    
    (1.4
    )
    
    
    (2.2
    )Net cash provided by operating activities
    
    
    149.6
    
    
    
    127.1Investing activities:Acquisitions and related expenses
    
    
    (1.5
    )
    
    
    (457.9
    )Capital expenditures
    
    
    (68.4
    )
    
    
    (79.4
    )Proceeds from asset dispositions
    
    
    1.4
    
    
    
    0.1Sales of auction rate securities
    
    
    
    
    
    
    7.0Increase in restricted cash
    
    
    (20.0
    )
    
    
    Other
    
    
    (0.3
    )
    
    
    (1.1
    )Net cash used in investing activities
    
    
    (88.8
    )
    
    
    (531.3
    )Financing activities:Payments of long-term debt and capital lease obligations
    
    
    (3.8
    )
    
    
    (4.1
    )Proceeds from debt borrowings
    
    
    
    
    
    
    216.6Payments of refinancing costs and fees
    
    
    
    
    
    
    (5.6
    )Payments related to derivative instrument with financing element
    
    
    (5.4
    )
    
    
    Distributions paid to non-controlling interests and other
    
    
    (1.8
    )
    
    
    (2.0
    )Net cash provided by (used in) financing activities
    
    
    (11.0
    )
    
    
    204.9Net increase (decrease) in cash and cash equivalents
    
    
    49.8
    
    
    
    (199.3
    )Cash and cash equivalents, beginning of period
    
    
    308.2
    
    
    
    257.6Cash and cash equivalents, end of period
    
    $
    358.0
    
    
    $
    58.3
   6




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
 Six months ended December 31,2009
    
    
    2010(In millions)Supplemental cash flow information:Net cash paid for interest
    
    $
    41.9
    
    
    $
    69.6Net cash received for income taxes
    
    $
    (13.2
    )
    
    $
    (0.3
    )Supplemental noncash activities:Capital lease obligations resulting from acquisitions
    
    $
    
    
    
    $
    1.7Capitalized interest
    
    $
    1.3
    
    
    $
    2.1Change in fair value of auction rate securities, net of taxes
    
    $
    
    
    
    $
    1.9
   7




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010
 (Unaudited)
 1. BUSINESS AND BASIS OF PRESENTATION
 Business
  Basis of Presentation
   Use of Estimates
   8




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 2. BUSINESS COMBINATIONS
 Acquisition of Westlake and West Suburban
    Accounts receivable
    
    $
    14.6Inventories
    
    
    3.7Prepaid expenses and other current assets
    
    
    2.8Property and equipment
    
    
    34.6Other assets
    
    
    1.0Total assets acquired
    
    
    56.7Accounts payable
    
    
    3.6Other current liabilities
    
    
    7.8Total liabilities assumed
    
    
    11.4Net assets acquired
    
    $
    45.3
 Acquisition of Arizona Heart Hospital and Institute
    9




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Pro Forma Information
  Six months ended December 31,2009
    
    
    2010Total revenues
    
    $
    1,802.6
    
    
    $
    1,897.4Income (loss) from continuing operations,
before income taxes
    
    $
    (30.3
    )
    
    $
    5.0
  Acquisition In-Process
     10




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 3. FAIR VALUE MEASUREMENTS
  Level 1
    
    Unadjusted quoted prices in active markets for identical assets and liabilities.Level 2
    
    Directly or indirectly observable inputs, other than quoted prices included in
Level 1. Level 2 inputs may include, among others, interest rates and yield
curves observable at commonly quoted intervals, volatilities, loss severities,
credit risks and other inputs that are derived principally from or corroborated
by observable market data by correlation or other means.Level 3
    
    Unobservable inputs used when there is little, if any, market activity for the
asset or liability at the measurement date. These inputs represent the entitys
own assumptions about the assumptions that market participants would use to
price the asset or liability developed using the best information available.
   Fair
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Value
    
    
    Inputs
    
    
    Inputs
    
    
    InputsAssets:Investments in auction rate securities
    
    $
    15.7
    
    
    $
    
    
    
    $
    
    
    
    $
    15.7
  Add Increase inBalance at
    
    
    
    
    
    
    Realized loss
    
    
    Fair Value,
    
    
    Balance atJune 30, 2010
    
    
    Redemptions
    
    
    on redemptions
    
    
    pre tax
    
    
    December 31, 2010Investments in auction
rate securities
    
    $
    19.8
    
    
    $
    (7.0
    )
    
    $
    (0.1
    )
    
    $
    3.0
    
    
    $
    15.7
 Auction Rate Securities
   11




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Cash and Cash Equivalents and Restricted Cash
  Accounts Receivable and Accounts Payable
  Long-Term Debt
  4. STOCK BASED COMPENSATION
     5. IMPAIRMENT OF LONG-LIVED ASSET
   12




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 6. GOODWILL AND INTANGIBLE ASSETS
  Gross Carrying Amount
    
    
    Accumulated AmortizationJune 30, 2010
    
    
    December 31, 2010
    
    
    June 30, 2010
    
    
    December 31, 2010Class of Intangible AssetAmortized intangible assets:Deferred loan costs
    
    $
    39.1
    
    
    $
    44.5
    
    
    $
    1.9
    
    
    $
    4.4Contracts
    
    
    31.4
    
    
    
    31.4
    
    
    
    18.0
    
    
    
    19.6Physician income and
other guarantees
    
    
    31.1
    
    
    
    33.3
    
    
    
    25.0
    
    
    
    27.5Other
    
    
    8.8
    
    
    
    9.9
    
    
    
    2.7
    
    
    
    3.1Subtotal
    
    
    110.4
    
    
    
    119.1
    
    
    
    47.6
    
    
    
    54.6Indefinite-lived intangible assets:License and accreditation
    
    
    3.2
    
    
    
    3.2
    
    
    
    
    
    
    
    Total
    
    $
    113.6
    
    
    $
    122.3
    
    
    $
    47.6
    
    
    $
    54.6
    7. FINANCING ARRANGEMENTS
  June 30, 2010
    
    
    December 31, 20108.0% Senior Unsecured Notes
    
    $
    937.0
    
    
    $
    1,154.9Term loans payable under credit facility due 2016
    
    
    815.0
    
    
    
    810.9Capital leases -varying maturity dates
    
    
    
    
    
    
    1.71,752.0
    
    
    
    1,967.5Less: current maturities
    
    
    (8.2
    )
    
    
    (8.3
    )$
    1,743.8
    
    
    $
    1,959.2
  13




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VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 8.0% Notes
 pari passu
    Credit Facility Debt
     14




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Future Maturities
  8. INCOME TAXES
  Six months ended December 31,2009
    
    
    2010Current:Federal
    
    $
    5.1
    
    
    $
    0.8State
    
    
    0.9
    
    
    
    0.8Total current
    
    
    6.0
    
    
    
    1.6Deferred:Federal
    
    
    (8.0
    )
    
    
    1.6State
    
    
    (1.6
    )
    
    
    (0.5
    )Total deferred
    
    
    (9.6
    )
    
    
    1.1Change in valuation allowance
    
    
    1.9
    
    
    
    4.6Total income tax expense (benefit)
    
    $
    (1.7
    )
    
    $
    7.3
   15




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   
    
    Cumulative losses in recent years;
 
    
    Income/losses expected in future years;
 
    
    Unsettled circumstances that, if unfavorably resolved, would adversely affect future
operations and profit levels;
 
    
    The availability, or lack thereof, of taxable income in prior carryback periods that would
limit realization of tax benefits;
 
    
    The carryforward period associated with the deferred tax assets and liabilities; and
 
    
    Prudent and feasible tax-planning strategies.
   9. COMPREHENSIVE INCOME
  Three months ended December 31,
    
    
    Six months ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Net income
(loss) attributable to Vanguard Health Systems, Inc. stockholders
    
    $
    (20.7
    )
    
    $
    (5.0
    )
    
    $
    (19.2
    )
    
    $
    (3.8
    )Change in fair value of interest rate swap
    
    
    2.6
    
    
    
    
    
    
    
    4.3
    
    
    
    Change in fair value of auction rate securities
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    3.0Change in income tax expense
    
    
    (1.0
    )
    
    
    (1.1
    )
    
    
    (1.6
    )
    
    
    (1.1
    )Net income attributabe to non-controlling interests
    
    
    0.8
    
    
    
    0.8
    
    
    
    1.7
    
    
    
    1.8Comprehensive income (loss)
    
    $
    (18.3
    )
    
    $
    (2.3
    )
    
    $
    (14.8
    )
    
    $
    (0.1
    )
  16




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  June 30, 2010
    
    
    December 31, 2010Unrealized holding loss on investments in auction rate securities
    
    $
    (4.1
    )
    
    $
    (1.1
    )Income tax benefit
    
    
    1.6
    
    
    
    0.5Accumulated other comprehensive loss
    
    $
    (2.5
    )
    
    $
    (0.6
    )
 10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Business Combinations Disclosure
of Supplementary Pro Forma Information for Business Combinations
 IntangiblesGoodwill and Other When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts
 Financial Services Insurance Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
 Health Care Entities Measuring
Charity Care for Disclosure
 Health Care Entities Presentation of Insurance Claims and Related Insurance Recoveries
  17




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 11. SEGMENT INFORMATION
   18




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Three months ended December 31, 2009Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    628.2
    
    
    $
    
    
    
    $
    
    
    
    $
    628.2Premium revenues
    
    
    
    
    
    
    212.3
    
    
    
    
    
    
    
    212.3Intersegment revenues
    
    
    10.4
    
    
    
    
    
    
    
    (10.4
    )
    
    
    Total revenues
    
    
    638.6
    
    
    
    212.3
    
    
    
    (10.4
    )
    
    
    840.5Salaries and benefits
(excludes stock compensation)
    
    
    313.6
    
    
    
    8.3
    
    
    
    
    
    
    
    321.9Health plan claims expense (1)
    
    
    
    
    
    
    170.8
    
    
    
    
    
    
    
    170.8Supplies
    
    
    114.5
    
    
    
    0.1
    
    
    
    
    
    
    
    114.6Provision for doubtful accounts
    
    
    35.0
    
    
    
    
    
    
    
    
    
    
    
    35.0Other operating expenses-external
    
    
    105.9
    
    
    
    8.0
    
    
    
    
    
    
    
    113.9Operating expenses-intersegment
    
    
    
    
    
    
    10.4
    
    
    
    (10.4
    )
    
    
    Total operating expenses
    
    
    569.0
    
    
    
    197.6
    
    
    
    (10.4
    )
    
    
    756.2Segment EBITDA (2)
    
    
    69.6
    
    
    
    14.7
    
    
    
    
    
    
    
    84.3Less:Interest, net
    
    
    27.7
    
    
    
    (0.1
    )
    
    
    
    
    
    
    27.6Depreciation and amortization
    
    
    32.8
    
    
    
    1.2
    
    
    
    
    
    
    
    34.0Equity method income
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Stock compensation
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Impairment loss
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Loss on disposal of assets
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Monitoring fees and expenses
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Income (loss) from continuing
operations before income taxes
    
    $
    (36.5
    )
    
    $
    13.6
    
    
    $
    
    
    
    $
    (22.9
    )Capital expenditures
    
    $
    34.2
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    34.6
 
 (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 and unrealized gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt
extinguishment costs, impairment losses and pension expense. 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.  19




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Three months ended December 31, 2010Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    748.8
    
    
    $
    
    
    
    $
    
    
    
    $
    748.8Premium revenues
    
    
    
    
    
    
    211.8
    
    
    
    
    
    
    
    211.8Intersegment revenues
    
    
    11.0
    
    
    
    
    
    
    
    (11.0
    )
    
    
    Total revenues
    
    
    759.8
    
    
    
    211.8
    
    
    
    (11.0
    )
    
    
    960.6Salaries and benefits
(excludes stock compensation)
    
    
    365.5
    
    
    
    8.3
    
    
    
    
    
    
    
    373.8Health plan claims expense (1)
    
    
    
    
    
    
    164.8
    
    
    
    
    
    
    
    164.8Supplies
    
    
    133.4
    
    
    
    0.1
    
    
    
    
    
    
    
    133.5Provision for doubtful accounts
    
    
    51.2
    
    
    
    
    
    
    
    
    
    
    
    51.2Other operating expenses-external
    
    
    140.7
    
    
    
    10.2
    
    
    
    
    
    
    
    150.9Operating expenses-intersegment
    
    
    
    
    
    
    11.0
    
    
    
    (11.0
    )
    
    
    Total operating expenses
    
    
    690.8
    
    
    
    194.4
    
    
    
    (11.0
    )
    
    
    874.2Segment EBITDA (2)
    
    
    69.0
    
    
    
    17.4
    
    
    
    
    
    
    
    86.4Less:Interest, net
    
    
    36.0
    
    
    
    (0.9
    )
    
    
    
    
    
    
    35.1Depreciation and amortization
    
    
    37.5
    
    
    
    1.1
    
    
    
    
    
    
    
    38.6Equity method income
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Stock compensation
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Loss on disposal of assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Monitoring fees and expenses
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    1.1Realized loss on investments
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Acquisition related expenses
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Impairment loss
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Income (loss) from continuing
operations before income taxes
    
    $
    (9.4
    )
    
    $
    17.2
    
    
    $
    
    
    
    $
    7.8Capital expenditures
    
    $
    34.7
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    34.8
 
 (1)
    
    Vanguard eliminates in consolidation those patient
service revenues earned by its healthcare facilities attributable to services
provided to members in its owned health plans and eliminates the corresponding
medical claims expenses incurred by the health plans for those
services.(2)
    
    Segment EBITDA is defined as income (loss) from
continuing operations before income taxes less interest expense (net of
interest income), depreciation and amortization, equity method income, stock
compensation, gain or loss on disposal of assets, realized and unrealized gains
or losses on investments, monitoring fees and expenses, acquisition related
expenses, debt extinguishment costs, impairment losses and pension expense.
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.  20




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Six months ended December 31 2009Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    1,243.8
    
    
    $
    
    
    
    $
    
    
    
    $
    1,243.8Premium revenues
    
    
    
    
    
    
    416.6
    
    
    
    
    
    
    
    416.6Intersegment revenues
    
    
    21.0
    
    
    
    
    
    
    
    (21.0
    )
    
    
    Total revenues
    
    
    1,264.8
    
    
    
    416.6
    
    
    
    (21.0
    )
    
    
    1,660.4Salaries and benefits
(excludes stock compensation)
    
    
    615.9
    
    
    
    16.8
    
    
    
    
    
    
    
    632.7Health plan claims expense (1)
    
    
    
    
    
    
    331.8
    
    
    
    
    
    
    
    331.8Supplies
    
    
    225.3
    
    
    
    0.1
    
    
    
    
    
    
    
    225.4Provision for doubtful accounts
    
    
    72.2
    
    
    
    
    
    
    
    
    
    
    
    72.2Other operating expenses-external
    
    
    227.3
    
    
    
    17.8
    
    
    
    
    
    
    
    245.1Operating expenses-intersegment
    
    
    
    
    
    
    21.0
    
    
    
    (21.0
    )
    
    
    Total operating expenses
    
    
    1,140.7
    
    
    
    387.5
    
    
    
    (21.0
    )
    
    
    1,507.2Segment EBITDA (2)
    
    
    124.1
    
    
    
    29.1
    
    
    
    
    
    
    
    153.2Less:Interest, net
    
    
    55.1
    
    
    
    (0.3
    )
    
    
    
    
    
    
    54.8Depreciation and amortization
    
    
    65.4
    
    
    
    2.2
    
    
    
    
    
    
    
    67.6Equity method income
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Stock compensation
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    2.9Impairment loss
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Loss on disposal of assets
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Monitoring fees and expenses
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    2.7Income (loss) from continuing
operations before income taxes
    
    $
    (45.0
    )
    
    $
    27.2
    
    
    $
    
    
    
    $
    (17.8
    )Segment assets
    
    $
    2,559.9
    
    
    $
    199.7
    
    
    $
    
    
    
    $
    2,759.6Capital expenditures
    
    $
    68.0
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    68.4
 
 (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 and unrealized gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt
extinguishment costs, impairment losses and pension expense. 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.  21




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Six months ended December 31, 2010Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    1,442.1
    
    
    $
    
    
    
    $
    
    
    
    $
    1,442.1Premium revenues
    
    
    
    
    
    
    432.4
    
    
    
    
    
    
    
    432.4Intersegment revenues
    
    
    21.8
    
    
    
    
    
    
    
    (21.8
    )
    
    
    Total revenues
    
    
    1,463.9
    
    
    
    432.4
    
    
    
    (21.8
    )
    
    
    1,874.5Salaries and benefits
(excludes stock compensation)
    
    
    710.9
    
    
    
    16.5
    
    
    
    
    
    
    
    727.4Health plan claims expense (1)
    
    
    
    
    
    
    338.9
    
    
    
    
    
    
    
    338.9Supplies
    
    
    254.4
    
    
    
    0.1
    
    
    
    
    
    
    
    254.5Provision for doubtful accounts
    
    
    103.0
    
    
    
    
    
    
    
    
    
    
    
    103.0Other operating expenses-external
    
    
    265.9
    
    
    
    20.7
    
    
    
    
    
    
    
    286.6Operating expenses-intersegment
    
    
    
    
    
    
    21.8
    
    
    
    (21.8
    )
    
    
    Total operating expenses
    
    
    1,334.2
    
    
    
    398.0
    
    
    
    (21.8
    )
    
    
    1,710.4Segment EBITDA (2)
    
    
    129.7
    
    
    
    34.4
    
    
    
    
    
    
    
    164.1Less:Interest, net
    
    
    71.1
    
    
    
    (1.2
    )
    
    
    
    
    
    
    69.9Depreciation and amortization
    
    
    73.6
    
    
    
    2.2
    
    
    
    
    
    
    
    75.8Equity method income
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Stock compensation
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    2.9Loss on disposal of assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Monitoring fees and expenses
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    2.5Realized loss on investments
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Acquisition related expenses
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    5.0Impairment loss
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Income (loss) from continuing
operations before income taxes
    
    $
    (25.9
    )
    
    $
    33.4
    
    
    $
    
    
    
    $
    7.5Segment assets
    
    $
    2,816.6
    
    
    $
    158.7
    
    
    $
    
    
    
    $
    2,975.3Capital expenditures
    
    $
    79.3
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    79.4
 
 (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 and unrealized gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt
extinguishment costs, impairment losses and pension expense. 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.  22




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 12.
    
    CONTINGENCIES AND HEALTHCARE REGULATION
 Contingencies
  Capital Expenditure Commitments
  Professional and General Liability Insurance
  Patient Service Revenues
  Governmental Regulation
   23




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Reimbursement
   Acquisitions
   24




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Guarantees
 Physician Guarantees
  Other Guarantees
  13.
    
    FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND
NON-GUARANTOR SUBSIDIARIES
   25




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED 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 auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.8
    
    
    
    
    
    
    
    19.8Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69.7
    
    
    
    0.2
    
    
    
    
    
    
    
    69.9Total assets
    
    $
    608.8
    
    
    $
    37.2
    
    
    $
    
    
    
    $
    2,353.2
    
    
    $
    346.5
    
    
    $
    (616.1
    )
    
    $
    2,729.6LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    158.2
    
    
    $
    36.6
    
    
    $
    
    
    
    $
    194.8Accrued expenses and other current
liabilities
    
    
    
    
    
    
    41.4
    
    
    
    
    
    
    
    212.9
    
    
    
    158.7
    
    
    
    
    
    
    
    413.0Current maturities of long-term debt
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    
    
    
    
    8.2Total current liabilities
    
    
    
    
    
    
    49.6
    
    
    
    
    
    
    
    370.9
    
    
    
    195.5
    
    
    
    
    
    
    
    616.0Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70.3
    
    
    
    52.2
    
    
    
    (7.3
    )
    
    
    115.2Long-term debt, less current maturities
    
    
    
    
    
    
    1,743.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,743.8Intercompany
    
    
    354.2
    
    
    
    (1,052.4
    )
    
    
    
    
    
    
    1,177.0
    
    
    
    (182.0
    )
    
    
    (296.8
    )
    
    
    Total equity (deficit)
    
    
    254.6
    
    
    
    (703.8
    )
    
    
    
    
    
    
    735.0
    
    
    
    280.8
    
    
    
    (312.0
    )
    
    
    254.6Total liabilities and equity
    
    $
    608.8
    
    
    $
    37.2
    
    
    $
    
    
    
    $
    2,353.2
    
    
    $
    346.5
    
    
    $
    (616.1
    )
    
    $
    2,729.6
  26




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Balance Sheets
December 31, 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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19.8
    
    
    $
    38.5
    
    
    $
    
    
    
    $
    58.3Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.3
    
    
    
    1.7
    
    
    
    
    
    
    
    3.0Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285.5
    
    
    
    36.0
    
    
    
    
    
    
    
    321.5Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52.7
    
    
    
    3.9
    
    
    
    
    
    
    
    56.6Prepaid expenses and other
current assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    95.5
    
    
    
    9.6
    
    
    
    (3.6
    )
    
    
    101.6Total current assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    454.8
    
    
    
    89.7
    
    
    
    (3.6
    )
    
    
    541.0Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,209.9
    
    
    
    54.6
    
    
    
    
    
    
    
    1,264.5Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565.4
    
    
    
    84.8
    
    
    
    
    
    
    
    650.2Intangible assets, net
    
    
    
    
    
    
    40.2
    
    
    
    
    
    
    
    15.1
    
    
    
    12.4
    
    
    
    
    
    
    
    67.7Investments in consolidated
subsidiaries
    
    
    608.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (608.8
    )
    
    
    Investments in auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.7
    
    
    
    
    
    
    
    15.7Deposit for acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368.1
    
    
    
    
    
    
    
    
    
    
    
    368.1Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.9
    
    
    
    0.2
    
    
    
    
    
    
    
    68.1Total assets
    
    $
    608.9
    
    
    $
    40.2
    
    
    $
    
    
    
    $
    2,681.2
    
    
    $
    257.4
    
    
    $
    (612.4
    )
    
    $
    2,975.3LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    162.4
    
    
    $
    24.9
    
    
    $
    
    
    
    $
    187.3Accrued expenses and other current
liabilities
    
    
    
    
    
    
    40.5
    
    
    
    
    
    
    
    224.8
    
    
    
    170.6
    
    
    
    
    
    
    
    435.9Current maturities of long-term debt
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    8.3Total current liabilities
    
    
    
    
    
    
    48.7
    
    
    
    
    
    
    
    387.3
    
    
    
    195.5
    
    
    
    
    
    
    
    631.5Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86.9
    
    
    
    45.9
    
    
    
    (3.6
    )
    
    
    129.2Long-term debt, less current maturities
    
    
    
    
    
    
    1,957.7
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1,959.2Intercompany
    
    
    353.5
    
    
    
    (1,189.8
    )
    
    
    
    
    
    
    1,420.9
    
    
    
    (280.1
    )
    
    
    (304.5
    )
    
    
    Total equity (deficit)
    
    
    255.4
    
    
    
    (776.4
    )
    
    
    
    
    
    
    784.6
    
    
    
    296.1
    
    
    
    (304.3
    )
    
    
    255.4Total liabilities and equity
    
    $
    608.9
    
    
    $
    40.2
    
    
    $
    
    
    
    $
    2,681.2
    
    
    $
    257.4
    
    
    $
    (612.4
    )
    
    $
    2,975.3
  27




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the three months ended December 31, 2009
 Issuers ofIssuers of
    
    
    11.25%Senior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    589.7
    
    
    $
    45.4
    
    
    $
    (6.9
    )
    
    $
    628.2Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.2
    
    
    
    204.9
    
    
    
    (7.8
    )
    
    
    212.3Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    604.9
    
    
    
    250.3
    
    
    
    (14.7
    )
    
    
    840.5Salaries and benefits
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    297.7
    
    
    
    24.2
    
    
    
    
    
    
    
    322.9Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.2
    
    
    
    169.5
    
    
    
    (6.9
    )
    
    
    170.8Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105.9
    
    
    
    8.7
    
    
    
    
    
    
    
    114.6Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33.3
    
    
    
    1.7
    
    
    
    
    
    
    
    35.0Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.1
    
    
    
    5.7
    
    
    
    
    
    
    
    43.8Other operating expenses
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    51.8
    
    
    
    15.0
    
    
    
    (7.8
    )
    
    
    59.1Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.2
    
    
    
    1.8
    
    
    
    
    
    
    
    11.0Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.0
    
    
    
    3.0
    
    
    
    
    
    
    
    34.0Interest, net
    
    
    
    
    
    
    22.3
    
    
    
    6.3
    
    
    
    (1.9
    )
    
    
    0.9
    
    
    
    
    
    
    
    27.6Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    4.2
    
    
    
    
    
    
    
    Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Total costs and expenses
    
    
    1.1
    
    
    
    22.3
    
    
    
    6.3
    
    
    
    613.7
    
    
    
    234.7
    
    
    
    (14.7
    )
    
    
    863.4Income (loss) from continuing operations
before income taxes
    
    
    (1.1
    )
    
    
    (22.3
    )
    
    
    (6.3
    )
    
    
    (8.8
    )
    
    
    15.6
    
    
    
    
    
    
    
    (22.9
    )Income tax benefit (expense)
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.1
    )
    
    
    6.1
    
    
    
    3.8Equity in earnings of subsidiaries
    
    
    (23.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.4
    
    
    
    Income (loss) from continuing operations
    
    
    (20.7
    )
    
    
    (22.3
    )
    
    
    (6.3
    )
    
    
    (8.8
    )
    
    
    9.5
    
    
    
    29.5
    
    
    
    (19.1
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net income (loss)
    
    
    (20.7
    )
    
    
    (22.3
    )
    
    
    (6.3
    )
    
    
    (9.6
    )
    
    
    9.5
    
    
    
    29.5
    
    
    
    (19.9
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (20.7
    )
    
    $
    (22.3
    )
    
    $
    (6.3
    )
    
    $
    (10.4
    )
    
    $
    9.5
    
    
    $
    29.5
    
    
    $
    (20.7
    )
  28




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the three months ended December 31, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    709.6
    
    
    $
    46.9
    
    
    $
    (7.7
    )
    
    $
    748.8Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.4
    
    
    
    198.2
    
    
    
    0.2
    
    
    
    211.8Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    723.0
    
    
    
    245.1
    
    
    
    (7.5
    )
    
    
    960.6Salaries and benefits
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    348.1
    
    
    
    25.7
    
    
    
    
    
    
    
    375.5Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.4
    
    
    
    165.1
    
    
    
    (7.7
    )
    
    
    164.8Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125.5
    
    
    
    8.0
    
    
    
    
    
    
    
    133.5Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48.9
    
    
    
    2.3
    
    
    
    
    
    
    
    51.2Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55.5
    
    
    
    7.0
    
    
    
    
    
    
    
    62.5Other operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64.8
    
    
    
    11.7
    
    
    
    0.2
    
    
    
    76.7Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.8
    
    
    
    1.9
    
    
    
    
    
    
    
    11.7Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35.8
    
    
    
    2.8
    
    
    
    
    
    
    
    38.6Interest, net
    
    
    
    
    
    
    36.4
    
    
    
    
    
    
    
    (2.3
    )
    
    
    1.0
    
    
    
    
    
    
    
    35.1Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.1
    )
    
    
    4.1
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    2.3Total costs and expenses
    
    
    1.7
    
    
    
    36.4
    
    
    
    
    
    
    
    692.6
    
    
    
    229.6
    
    
    
    (7.5
    )
    
    
    952.8Income (loss) from continuing operations
before income taxes
    
    
    (1.7
    )
    
    
    (36.4
    )
    
    
    
    
    
    
    30.4
    
    
    
    15.5
    
    
    
    
    
    
    
    7.8Income tax benefit (expense)
    
    
    (9.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.9
    )
    
    
    5.9
    
    
    
    (9.7
    )Equity in earnings of subsidiaries
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.4
    )
    
    
    Income (loss) from continuing operations
    
    
    (5.0
    )
    
    
    (36.4
    )
    
    
    
    
    
    
    30.4
    
    
    
    9.6
    
    
    
    (0.5
    )
    
    
    (1.9
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (2.3
    )Net income (loss)
    
    
    (5.0
    )
    
    
    (36.4
    )
    
    
    
    
    
    
    29.9
    
    
    
    7.8
    
    
    
    (0.5
    )
    
    
    (4.2
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (5.0
    )
    
    $
    (36.4
    )
    
    $
    
    
    
    $
    29.1
    
    
    $
    7.8
    
    
    $
    (0.5
    )
    
    $
    (5.0
    )
  29




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the six months ended December 31, 2009
 Issuers ofIssuers of
    
    
    11.25%Senior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,166.6
    
    
    $
    90.6
    
    
    $
    (13.4
    )
    
    $
    1,243.8Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.6
    
    
    
    401.5
    
    
    
    (15.5
    )
    
    
    416.6Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,197.2
    
    
    
    492.1
    
    
    
    (28.9
    )
    
    
    1,660.4Salaries and benefits
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    584.4
    
    
    
    48.3
    
    
    
    
    
    
    
    635.6Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.3
    
    
    
    328.9
    
    
    
    (13.4
    )
    
    
    331.8Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208.2
    
    
    
    17.2
    
    
    
    
    
    
    
    225.4Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68.1
    
    
    
    4.1
    
    
    
    
    
    
    
    72.2Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79.5
    
    
    
    11.0
    
    
    
    
    
    
    
    90.5Other operating expenses
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    115.6
    
    
    
    32.5
    
    
    
    (15.5
    )
    
    
    132.7Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.2
    
    
    
    3.7
    
    
    
    
    
    
    
    21.9Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.9
    
    
    
    6.7
    
    
    
    
    
    
    
    67.6Interest, net
    
    
    
    
    
    
    44.6
    
    
    
    12.1
    
    
    
    (3.5
    )
    
    
    1.6
    
    
    
    
    
    
    
    54.8Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.5
    )
    
    
    8.5
    
    
    
    
    
    
    
    Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.6Total costs and expenses
    
    
    3.0
    
    
    
    44.6
    
    
    
    12.1
    
    
    
    1,184.9
    
    
    
    462.5
    
    
    
    (28.9
    )
    
    
    1,678.2Income (loss) from continuing operations
before income taxes
    
    
    (3.0
    )
    
    
    (44.6
    )
    
    
    (12.1
    )
    
    
    12.3
    
    
    
    29.6
    
    
    
    
    
    
    
    (17.8
    )Income tax benefit (expense)
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.4
    )
    
    
    10.4
    
    
    
    1.7Equity in earnings of subsidiaries
    
    
    (17.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.9
    
    
    
    Income (loss) from continuing operations
    
    
    (19.2
    )
    
    
    (44.6
    )
    
    
    (12.1
    )
    
    
    12.3
    
    
    
    19.2
    
    
    
    28.3
    
    
    
    (16.1
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )Net income (loss)
    
    
    (19.2
    )
    
    
    (44.6
    )
    
    
    (12.1
    )
    
    
    10.9
    
    
    
    19.2
    
    
    
    28.3
    
    
    
    (17.5
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (19.2
    )
    
    $
    (44.6
    )
    
    $
    (12.1
    )
    
    $
    9.2
    
    
    $
    19.2
    
    
    $
    28.3
    
    
    $
    (19.2
    )
  30




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the six months ended December 31, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,362.1
    
    
    $
    95.0
    
    
    $
    (15.0
    )
    
    $
    1,442.1Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.2
    
    
    
    404.9
    
    
    
    (0.7
    )
    
    
    432.4Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,390.3
    
    
    
    499.9
    
    
    
    (15.7
    )
    
    
    1,874.5Salaries and benefits
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    676.5
    
    
    
    50.9
    
    
    
    
    
    
    
    730.3Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.3
    
    
    
    338.6
    
    
    
    (15.0
    )
    
    
    338.9Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238.3
    
    
    
    16.2
    
    
    
    
    
    
    
    254.5Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98.6
    
    
    
    4.4
    
    
    
    
    
    
    
    103.0Purchased services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.1
    
    
    
    13.4
    
    
    
    
    
    
    
    113.5Other operating expenses
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    126.5
    
    
    
    24.5
    
    
    
    (0.7
    )
    
    
    150.4Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.0
    
    
    
    3.7
    
    
    
    
    
    
    
    22.7Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70.1
    
    
    
    5.7
    
    
    
    
    
    
    
    75.8Interest, net
    
    
    
    
    
    
    72.6
    
    
    
    
    
    
    
    (4.7
    )
    
    
    2.0
    
    
    
    
    
    
    
    69.9Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.2
    )
    
    
    8.2
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.1
    
    
    
    
    
    
    
    
    
    
    
    7.1Total costs and expenses
    
    
    3.0
    
    
    
    72.6
    
    
    
    
    
    
    
    1,339.5
    
    
    
    467.6
    
    
    
    (15.7
    )
    
    
    1,867.0Income (loss) from continuing operations
before income taxes
    
    
    (3.0
    )
    
    
    (72.6
    )
    
    
    
    
    
    
    50.8
    
    
    
    32.3
    
    
    
    
    
    
    
    7.5Income tax benefit (expense)
    
    
    (7.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.4
    )
    
    
    11.4
    
    
    
    (7.3
    )Equity in earnings of subsidiaries
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.5
    )
    
    
    Income (loss) from continuing operations
    
    
    (3.8
    )
    
    
    (72.6
    )
    
    
    
    
    
    
    50.8
    
    
    
    20.9
    
    
    
    4.9
    
    
    
    0.2Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (2.2
    )Net income (loss)
    
    
    (3.8
    )
    
    
    (72.6
    )
    
    
    
    
    
    
    50.4
    
    
    
    19.1
    
    
    
    4.9
    
    
    
    (2.0
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (1.8
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (3.8
    )
    
    $
    (72.6
    )
    
    $
    
    
    
    $
    48.6
    
    
    $
    19.1
    
    
    $
    4.9
    
    
    $
    (3.8
    )
  31




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the six months ended December 31, 2009
 Issuers ofIssuers of
    
    
    11.25%Senior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Operating activities:Net income (loss)
    
    $
    (19.2
    )
    
    $
    (44.6
    )
    
    $
    (12.1
    )
    
    $
    10.9
    
    
    $
    19.2
    
    
    $
    28.3
    
    
    $
    (17.5
    )Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activitiesLoss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.9
    
    
    
    6.7
    
    
    
    
    
    
    
    67.6Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68.1
    
    
    
    4.1
    
    
    
    
    
    
    
    72.2Deferred income taxes
    
    
    (7.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.7
    )Amortization of loan costs
    
    
    
    
    
    
    2.7
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9Accretion of principal on senior discount
notes
    
    
    
    
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.8Loss on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Stock compensation
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    17.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.9
    )
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79.6
    )
    
    
    (5.9
    )
    
    
    
    
    
    
    (85.5
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (1.8
    )Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.9
    )
    
    
    9.1
    
    
    
    
    
    
    
    5.2Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.5
    
    
    
    7.1
    
    
    
    
    
    
    
    20.6Accrued expenses and other liabilities
    
    
    6.1
    
    
    
    (4.3
    )
    
    
    6.1
    
    
    
    36.0
    
    
    
    7.8
    
    
    
    (10.3
    )
    
    
    41.4Net cash provided by (used in) operating
activities  continuing operations
    
    
    
    
    
    
    (46.2
    )
    
    
    
    
    
    
    149.2
    
    
    
    47.9
    
    
    
    0.1
    
    
    
    151.0Net cash used in operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (46.2
    )
    
    
    
    
    
    
    147.8
    
    
    
    47.9
    
    
    
    0.1
    
    
    
    149.6
  32




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the six months ended December 31, 2009
(Continued)
 Issuers ofIssuers of
    
    
    11.25%Senior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Gurantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (64.8
    )
    
    $
    (3.6
    )
    
    $
    
    
    
    $
    (68.4
    )Acquisitions and related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Increase in restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.0
    )
    
    
    
    
    
    
    
    
    
    
    (20.0
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85.2
    )
    
    
    (3.6
    )
    
    
    
    
    
    
    (88.8
    )Financing activities:Payments of long-term debt
    
    
    
    
    
    
    (3.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.8
    )Financing portion of hedge interest
payments
    
    
    (5.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.4
    )Cash provided by (used in) intercompany
activity
    
    
    5.4
    
    
    
    50.0
    
    
    
    
    
    
    
    26.1
    
    
    
    (78.6
    )
    
    
    (2.9
    )
    
    
    Distributions paid to non-controlling
interests and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    2.8
    
    
    
    (1.8
    )Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    46.2
    
    
    
    
    
    
    
    26.1
    
    
    
    (83.2
    )
    
    
    (0.1
    )
    
    
    (11.0
    )Net increase (decrease) in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88.7
    
    
    
    (38.9
    )
    
    
    
    
    
    
    49.8Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168.3
    
    
    
    139.9
    
    
    
    
    
    
    
    308.2Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    257.0
    
    
    $
    101.0
    
    
    $
    
    
    
    $
    358.0
  33




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the six months ended December 31, 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)
    
    $
    (3.8
    )
    
    $
    (72.6
    )
    
    $
    
    
    
    $
    50.4
    
    
    $
    19.1
    
    
    $
    4.9
    
    
    $
    (2.0
    )Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    1.8
    
    
    
    
    
    
    
    2.2Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70.1
    
    
    
    5.7
    
    
    
    
    
    
    
    75.8Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98.6
    
    
    
    4.4
    
    
    
    
    
    
    
    103.0Deferred income taxes
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.7Amortization of loan costs
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Accretion of principal on senior discount
notes
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Stock compensation
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    5.0Realized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    (6.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.5
    
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120.2
    )
    
    
    (19.3
    )
    
    
    
    
    
    
    (139.5
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (1.0
    )Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40.4
    )
    
    
    73.3
    
    
    
    
    
    
    
    32.9Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    (11.7
    )
    
    
    
    
    
    
    (11.2
    )Accrued expenses and other liabilities
    
    
    0.8
    
    
    
    (0.9
    )
    
    
    
    
    
    
    63.4
    
    
    
    7.2
    
    
    
    (20.0
    )
    
    
    50.5Net cash provided by (used in) operating
activities  continuing operations
    
    
    (0.9
    )
    
    
    (69.6
    )
    
    
    
    
    
    
    128.1
    
    
    
    80.3
    
    
    
    (8.6
    )
    
    
    129.3Net cash used in operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (2.2
    )Net cash provided by (used in)
operating activities
    
    
    (0.9
    )
    
    
    (69.6
    )
    
    
    
    
    
    
    127.7
    
    
    
    78.5
    
    
    
    (8.6
    )
    
    
    127.1
  34




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the six months ended December 31, 2010
(Continued)
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Gurantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Acquisitions and related expenses
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (457.9
    )
    
    $
    
    
    
    $
    
    
    
    $
    (457.9
    )Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77.2
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    (79.4
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Sales of auction rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.0
    
    
    
    
    
    
    
    7.0Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Net cash provided by (used in)
investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (536.1
    )
    
    
    4.8
    
    
    
    
    
    
    
    (531.3
    )Financing activities:Payments of long-term debt and
capital lease obligations
    
    
    
    
    
    
    (4.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.1
    )Proceeds from debt borrowings
    
    
    
    
    
    
    216.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216.6Payments of refinancing costs and fees
    
    
    
    
    
    
    (5.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.6
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.8
    )
    
    
    2.8
    
    
    
    (2.0
    )Cash provided by (used in) intercompany
activity
    
    
    0.9
    
    
    
    (137.3
    )
    
    
    
    
    
    
    229.6
    
    
    
    (99.0
    )
    
    
    5.8
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    0.9
    
    
    
    69.6
    
    
    
    
    
    
    
    229.6
    
    
    
    (103.8
    )
    
    
    8.6
    
    
    
    204.9Net decrease in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178.8
    )
    
    
    (20.5
    )
    
    
    
    
    
    
    (199.3
    )Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198.6
    
    
    
    59.0
    
    
    
    
    
    
    
    257.6Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19.8
    
    
    $
    38.5
    
    
    $
    
    
    
    $
    58.3
  35




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 14.
    
    SUBSEQUENT EVENT
     36




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 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
 
    
    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 successfully integrate The Detroit Medical Center (DMC) acquired
effective January 1, 2011, two hospitals in metropolitan Chicago, Illinois acquired on
August 1, 2010 and future acquisitions
 
    
    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
 
    
    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
 
    
    Potential federal or state reform of healthcare, implementation of existing reform
legislation and potential modifications to such legislation
 
    
    Future governmental investigations
 
    
    Our ability to adequately enhance our facilities with technologically advanced equipment
 
    
    The availability of capital to fund our corporate growth strategy
 
    
    Potential lawsuits or other claims asserted against us
 
    
    Our ability to maintain or increase patient membership and control costs of our managed
healthcare plans
 
    
    Changes in general economic conditions
 
    
    Our exposure to the increased amounts of and collection risks associated with uninsured
accounts and the co-pay and deductible portions of insured accounts
 
    
    Dependence on our senior management team and local management personnel
 
    
    Volatility of professional and general liability insurance for us and the physicians who
practice at our hospitals and increases in the quantity and severity of professional
liability claims
 
    
    Our ability to maintain and increase patient volumes and control the costs of providing
services, including salaries and benefits, supplies and bad debts
 
    
    Increased costs from further government regulation of healthcare and our failure to
comply, or allegations of our failure to comply, with applicable laws and regulations
 
    
    The geographic concentration of our operations
 
    
    Technological and pharmaceutical improvements that increase the cost of providing, or
reduce the demand for, healthcare services and shift demand for inpatient services to
outpatient settings
 
    
    A failure of our information systems would adversely impact our ability to manage our
operations
 
    
    Costs and compliance risks associated with Section 404 of the Sarbanes-Oxley Act of 2002
 
  37




---



##### Table of Contents




    
    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
   38




---



##### Table of Contents



Executive Overview
  MembershipHealth Plan
    
    Location
    
    2009
    
    
    2010Phoenix Health Plan (PHP)  managed Medicaid
    
    Arizona
    
    
    198,400
    
    
    
    204,000Abrazo Advantage Health Plan (AAHP)  managed Medicare and Dual Eligible
    
    Arizona
    
    
    2,700
    
    
    
    2,700MacNeal Health Providers (MHP)  capitated outpatient and physician services
    
    Illinois
    
    
    38,700
    
    
    
    36,000239,800
    
    
    
    242,700
   The Acquisitions
 The Detroit Medical Center
    39




---



##### Table of Contents



The Resurrection Facilities
  Arizona Heart Hospital and Arizona Heart Institute
  Operating Environment
  Payer Mix Shifts
  Health Reform Law
   40




---



##### Table of Contents



Physician Alignment
  Cost pressures
 nd
 Implementation of our Clinical Quality Initiatives
  Sources of Revenues
   41




---



##### Table of Contents




    
    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
  Three months ended December 31,
    
    
    Six months ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Medicare
    
    
    26.2
    %
    
    
    25.8
    %
    
    
    25.3
    %
    
    
    25.6
    %Medicaid
    
    
    6.7
    %
    
    
    8.5
    %
    
    
    7.2
    %
    
    
    8.0
    %Managed Medicare
    
    
    15.1
    %
    
    
    14.3
    %
    
    
    14.9
    %
    
    
    14.5
    %Managed Medicaid
    
    
    9.2
    %
    
    
    8.5
    %
    
    
    9.8
    %
    
    
    9.0
    %Managed care
    
    
    35.0
    %
    
    
    33.8
    %
    
    
    34.9
    %
    
    
    33.9
    %Self pay
    
    
    6.7
    %
    
    
    8.0
    %
    
    
    6.8
    %
    
    
    7.9
    %Other
    
    
    1.1
    %
    
    
    1.1
    %
    
    
    1.1
    %
    
    
    1.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Volumes by Payer
  Three months ended December 31,
    
    
    Six months ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Medicare
    
    
    11,593
    
    
    
    27.6
    %
    
    
    13,193
    
    
    
    28.2
    %
    
    
    22,700
    
    
    
    27.1
    %
    
    
    25,632
    
    
    
    27.9
    %Medicaid
    
    
    3,672
    
    
    
    8.7
    %
    
    
    4,966
    
    
    
    10.6
    %
    
    
    7,264
    
    
    
    8.7
    %
    
    
    9,571
    
    
    
    10.4
    %Managed Medicare
    
    
    6,769
    
    
    
    16.1
    %
    
    
    7,605
    
    
    
    16.2
    %
    
    
    13,455
    
    
    
    16.0
    %
    
    
    14,447
    
    
    
    15.7
    %Managed Medicaid
    
    
    6,552
    
    
    
    15.6
    %
    
    
    6,741
    
    
    
    14.4
    %
    
    
    12,953
    
    
    
    15.4
    %
    
    
    13,448
    
    
    
    14.7
    %Managed care
    
    
    11,286
    
    
    
    26.8
    %
    
    
    11,611
    
    
    
    24.8
    %
    
    
    22,928
    
    
    
    27.3
    %
    
    
    23,265
    
    
    
    25.3
    %Self pay
    
    
    1,999
    
    
    
    4.8
    %
    
    
    2,464
    
    
    
    5.3
    %
    
    
    4,263
    
    
    
    5.1
    %
    
    
    5,028
    
    
    
    5.5
    %Other
    
    
    166
    
    
    
    0.4
    %
    
    
    223
    
    
    
    0.5
    %
    
    
    355
    
    
    
    0.4
    %
    
    
    389
    
    
    
    0.5
    %Total
    
    
    42,037
    
    
    
    100.0
    %
    
    
    46,803
    
    
    
    100.0
    %
    
    
    83,918
    
    
    
    100.0
    %
    
    
    91,780
    
    
    
    100.0
    %
  42




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##### Table of Contents



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
    %
 December 31, 2010
    
    0-90 days
    
    
    91-180 days
    
    
    Over 180 days
    
    
    TotalMedicare
    
    
    19.0
    %
    
    
    0.7
    %
    
    
    0.2
    %
    
    
    19.9
    %Medicaid
    
    
    6.5
    %
    
    
    1.0
    %
    
    
    0.6
    %
    
    
    8.1
    %Managed Medicare
    
    
    11.3
    %
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    12.2
    %Managed Medicaid
    
    
    7.2
    %
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    7.9
    %Managed care
    
    
    27.1
    %
    
    
    1.9
    %
    
    
    1.1
    %
    
    
    30.1
    %Self pay(1)
    
    
    9.8
    %
    
    
    3.3
    %
    
    
    1.0
    %
    
    
    14.1
    %Self pay after primary(2)
    
    
    1.9
    %
    
    
    2.5
    %
    
    
    0.6
    %
    
    
    5.0
    %Other
    
    
    2.0
    %
    
    
    0.5
    %
    
    
    0.2
    %
    
    
    2.7
    %Total
    
    
    84.8
    %
    
    
    10.8
    %
    
    
    4.4
    %
    
    
    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.    43




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Governmental and Managed Care Payer Reimbursement
     Premium Revenues
    44




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##### Table of Contents



Critical Accounting Policies
  
    
    Revenues and revenue deductions
 
    
    Allowance for doubtful accounts and provision for doubtful accounts
 
    
    Insurance reserves
 
    
    Health plan claims reserves and settlements
 
    
    Income taxes
 
    
    Long-lived assets and goodwill
   45




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##### Table of Contents



Selected Operating Statistics
  Three months ended December 31,
    
    
    Six months ended December 31,CONSOLIDATED:
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Number of hospitals at end of period
    
    
    15
    
    
    
    18
    
    
    
    15
    
    
    
    18Licensed beds at end of period
    
    
    4,135
    
    
    
    4,534
    
    
    
    4,135
    
    
    
    4,534Discharges (a)
    
    
    42,037
    
    
    
    46,803
    
    
    
    83,918
    
    
    
    91,780Adjusted discharges (a)
    
    
    72,725
    
    
    
    83,330
    
    
    
    146,651
    
    
    
    164,176Adjusted discharges  hospitals (a)
    
    
    69,022
    
    
    
    78,948
    
    
    
    139,123
    
    
    
    155,618Average length of stay (a)
    
    
    4.19
    
    
    
    4.19
    
    
    
    4.15
    
    
    
    4.17Patient days (a)
    
    
    176,233
    
    
    
    195,929
    
    
    
    348,205
    
    
    
    382,377Adjusted patient days (a)
    
    
    304,887
    
    
    
    348,841
    
    
    
    608,506
    
    
    
    683,996Adjusted patient days-hospitals (a)
    
    
    289,364
    
    
    
    330,497
    
    
    
    577,270
    
    
    
    648,343Patient revenue per adjusted discharge (a)
    
    $
    8,458
    
    
    $
    8,765
    
    
    $
    8,302
    
    
    $
    8,580Patient revenue per adjusted
discharge-hospitals (a)
    
    $
    8,533
    
    
    $
    8,836
    
    
    $
    8,384
    
    
    $
    8,638Inpatient surgeries (a)
    
    
    9,380
    
    
    
    9,826
    
    
    
    18,888
    
    
    
    19,583Outpatient surgeries (a)
    
    
    19,143
    
    
    
    19,488
    
    
    
    38,460
    
    
    
    38,891Emergency room visits (a)
    
    
    155,818
    
    
    
    178,198
    
    
    
    310,727
    
    
    
    351,363Occupancy rate (a)
    
    
    46.3
    %
    
    
    47.0
    %
    
    
    45.8
    %
    
    
    45.8
    %Member lives (a)
    
    
    239,800
    
    
    
    242,700
    
    
    
    239,800
    
    
    
    242,700Health plan claims expense percentage (a)
    
    
    80.5
    %
    
    
    77.8
    %
    
    
    79.6
    %
    
    
    78.4
    %
 Three months ended December 31,
    
    
    Six months ended December 31,SAME HOSPITAL (b):
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Number of hospitals at end of period
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Licensed beds at end of period
    
    
    4,135
    
    
    
    4,017
    
    
    
    4,135
    
    
    
    4,017Patient service revenues (in millions)
    
    $
    628.2
    
    
    $
    653.4
    
    
    $
    1,243.8
    
    
    $
    1,300.8Discharges
    
    
    42,037
    
    
    
    41,864
    
    
    
    83,918
    
    
    
    83,869Adjusted discharges
    
    
    72,725
    
    
    
    74,754
    
    
    
    146,651
    
    
    
    150,342Adjusted discharges  hospitals
    
    
    69,022
    
    
    
    70,808
    
    
    
    139,123
    
    
    
    142,376Average length of stay
    
    
    4.19
    
    
    
    4.14
    
    
    
    4.15
    
    
    
    4.13Patient days
    
    
    176,233
    
    
    
    173,497
    
    
    
    348,205
    
    
    
    346,473Adjusted patient days
    
    
    304,887
    
    
    
    309,803
    
    
    
    608,506
    
    
    
    621,081Adjusted patient days  hospitals
    
    
    289,364
    
    
    
    293,449
    
    
    
    577,270
    
    
    
    588,173Patient revenue per adjusted discharge
    
    $
    8,458
    
    
    $
    8,552
    
    
    $
    8,302
    
    
    $
    8,473Patient revenue per adjusted discharge  hospitals
    
    $
    8,533
    
    
    $
    8,656
    
    
    $
    8,384
    
    
    $
    8,554Inpatient surgeries
    
    
    9,380
    
    
    
    8,618
    
    
    
    18,888
    
    
    
    17,746Outpatient surgeries
    
    
    19,143
    
    
    
    17,910
    
    
    
    38,460
    
    
    
    36,253Emergency room visits
    
    
    155,818
    
    
    
    160,055
    
    
    
    310,727
    
    
    
    320,935Occupany rate
    
    
    46.3
    %
    
    
    46.9
    %
    
    
    45.8
    %
    
    
    46.9
    %
 
 (a)
    
    The definitions for the statistics included above are set forth in Part 2, Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations, Selected Operating Statistics in our June 30, 2010 10-K.(b)
    
    Same hospital results exclude those facilities that we did not own for the respective full three-month comparative periods or the full six-month comparative periods of both years.  46




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Results of Operations
  Three months ended December 31,2009
    
    
    2010Patient service revenues
    
    $
    628.2
    
    
    
    74.7
    %
    
    $
    748.8
    
    
    
    78.0
    %Premium revenues
    
    
    212.3
    
    
    
    25.3
    %
    
    
    211.8
    
    
    
    22.0
    %Total revenues
    
    
    840.5
    
    
    
    100.0
    %
    
    
    960.6
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits (includes stock
compensation of $1.0 and $1.7,
respectively)
    
    
    322.9
    
    
    
    38.4
    %
    
    
    375.5
    
    
    
    39.1
    %Health plan claims expense
    
    
    170.8
    
    
    
    20.3
    %
    
    
    164.8
    
    
    
    17.2
    %Supplies
    
    
    114.6
    
    
    
    13.6
    %
    
    
    133.5
    
    
    
    13.9
    %Provision for doubtful accounts
    
    
    35.0
    
    
    
    4.2
    %
    
    
    51.2
    
    
    
    5.3
    %Other operating expenses
    
    
    113.9
    
    
    
    13.6
    %
    
    
    150.9
    
    
    
    15.7
    %Depreciation and amortization
    
    
    34.0
    
    
    
    4.0
    %
    
    
    38.6
    
    
    
    4.0
    %Interest, net
    
    
    27.6
    
    
    
    3.3
    %
    
    
    35.1
    
    
    
    3.7
    %Impairment loss
    
    
    43.1
    
    
    
    5.1
    %
    
    
    0.9
    
    
    
    0.1
    %Other
    
    
    1.5
    
    
    
    0.2
    %
    
    
    2.3
    
    
    
    0.2
    %Income (loss) from continuing operations
before income taxes
    
    
    (22.9
    )
    
    
    (2.7
    )%
    
    
    7.8
    
    
    
    0.8
    %Income tax benefit (expense)
    
    
    3.8
    
    
    
    0.5
    %
    
    
    (9.7
    )
    
    
    (1.0
    )%Loss from continuing operations
    
    
    (19.1
    )
    
    
    (2.3
    )%
    
    
    (1.9
    )
    
    
    (0.2
    )%Loss from discontinued operations
net of taxes
    
    
    (0.8
    )
    
    
    (0.1
    )%
    
    
    (2.3
    )
    
    
    (0.2
    )%Net loss
    
    
    (19.9
    )
    
    
    (2.4
    )%
    
    
    (4.2
    )
    
    
    (0.4
    )%Less: Net income attributable to
non-controlling interests
    
    
    (0.8
    )
    
    
    (0.1
    )%
    
    
    (0.8
    )
    
    
    (0.1
    )%Net loss attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (20.7
    )
    
    
    (2.5
    )%
    
    $
    (5.0
    )
    
    
    (0.5
    )%
  47




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##### Table of Contents



Six months ended December 31,2009
    
    
    2010Patient service revenues
    
    $
    1,243.8
    
    
    
    74.9
    %
    
    $
    1,442.1
    
    
    
    76.9
    %Premium revenues
    
    
    416.6
    
    
    
    25.1
    %
    
    
    432.4
    
    
    
    23.1
    %Total revenues
    
    
    1,660.4
    
    
    
    100.0
    %
    
    
    1,874.5
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits (includes stock
compensation of $2.9 and $2.9, respectively)
    
    
    635.6
    
    
    
    38.3
    %
    
    
    730.3
    
    
    
    39.0
    %Health plan claims expense
    
    
    331.8
    
    
    
    20.0
    %
    
    
    338.9
    
    
    
    18.1
    %Supplies
    
    
    225.4
    
    
    
    13.6
    %
    
    
    254.5
    
    
    
    13.6
    %Provision for doubtful accounts
    
    
    72.2
    
    
    
    4.3
    %
    
    
    103.0
    
    
    
    5.5
    %Other operating expenses
    
    
    245.1
    
    
    
    14.8
    %
    
    
    286.6
    
    
    
    15.3
    %Depreciation and amortization
    
    
    67.6
    
    
    
    4.1
    %
    
    
    75.8
    
    
    
    4.0
    %Interest, net
    
    
    54.8
    
    
    
    3.3
    %
    
    
    69.9
    
    
    
    3.7
    %Impairment loss
    
    
    43.1
    
    
    
    2.6
    %
    
    
    0.9
    
    
    
    0.0
    %Other
    
    
    2.6
    
    
    
    0.2
    %
    
    
    7.1
    
    
    
    0.4
    %Income (loss) from continuing operations
before income taxes
    
    
    (17.8
    )
    
    
    (1.1
    )%
    
    
    7.5
    
    
    
    0.4
    %Income tax benefit (expense)
    
    
    1.7
    
    
    
    0.1
    %
    
    
    (7.3
    )
    
    
    (0.4
    )%Income (loss) from continuing operations
    
    
    (16.1
    )
    
    
    (1.0
    )%
    
    
    0.2
    
    
    
    0.0
    %Loss from discontinued operations
net of taxes
    
    
    (1.4
    )
    
    
    (0.1
    )%
    
    
    (2.2
    )
    
    
    (0.1
    )%Net loss
    
    
    (17.5
    )
    
    
    (1.1
    )%
    
    
    (2.0
    )
    
    
    (0.1
    )%Less: Net income attributable to
non-controlling interests
    
    
    (1.7
    )
    
    
    (0.1
    )%
    
    
    (1.8
    )
    
    
    (0.1
    )%Net loss attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (19.2
    )
    
    
    (1.2
    )%
    
    $
    (3.8
    )
    
    
    (0.2
    )%
  48




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##### Table of Contents



Three months ended December 31, 2010 compared to three months ended December 31, 2009
 Revenues
   Costs and expenses
 
    
    Salaries and benefits. Salaries and benefits as a percentage of
total revenues increased to 39.1% during the current year
quarter compared to 38.4% for the prior year quarter. 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 three months ended December 31, 2010
compared to the prior year quarter. As of December 31, 2010, we
had approximately 23,000 full-time and part-time employees
compared to approximately 19,600 as of December 31, 2009. On a
same hospital basis, the number of full-time and part-time
employees increased approximately 3.2% 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 0.7% for the three months ended December 31, 2010
compared to 1.3% for the prior year quarter.
 
    
    Health plan claims. Health plan claims expense as a percentage
of premium revenues was 77.8% for the three months ended
December 31, 2010 compared to 80.5% for the prior year quarter.
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. We may experience negative
trending in this ratio if our membership mix becomes more acute
or AHCCCS implements further limits on profitability for certain
member groups during the remaining term of the AHCCCS contract.
Revenues and expenses between the health plans and our hospitals
and related outpatient service providers of approximately $11.0
million, or 6.3% of gross health plan claims expense, were
eliminated in consolidation during the current year quarter.
  49




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##### Table of Contents




    
    Supplies. Supplies as a percentage of acute care services
segment revenues decreased to 17.8% during the current year
quarter compared to 18.2% during the prior year quarter. This
decrease was positively impacted by the lower surgery volumes
experienced during the current year quarter compared to the
prior year quarter. We also continued our focus on supply chain
efficiencies including reduction in physician commodity
variation and improved pharmacy formulary management during the
current year quarter. 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 acute care services segment revenues
increased to 6.8% during the current year quarter from 5.6%
during the prior year quarter. 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 15.1%
and 16.5% for the three months ended December 31, 2009 and 2010,
respectively. The quarter over quarter increases in these ratios
resulted from increases in self pay discharges as a percentage
of total discharges and price increases implemented during the
current year quarter compared to the prior year quarter.
 Other operating expenses
 Other
 Income taxes
 Net loss attributable to Vanguard Health Systems, Inc. stockholders
 Six months ended December 31, 2010 compared to six months ended December 31, 2009
 Revenues
  50




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##### Table of Contents



Costs and expenses
 
    
    Salaries and benefits. Salaries and benefits as a percentage of
total revenues increased to 39.0% during the current year six
months compared to 38.3% for the prior 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
six months ended December 31, 2010 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 0.8% for the six months ended December 31, 2010
compared to 1.3% for the prior year.
 
    
    Health plan claims. Health plan claims expense as a percentage
of premium revenues was 78.4% for the six months ended December
31, 2010 compared to 79.6% for the prior year period. Revenues
and expenses between the health plans and our hospitals and
related outpatient service providers of approximately $21.8
million, or 6.0% of gross health plan claims expense, were
eliminated in consolidation during the current year period.
 
    
    Supplies. Supplies as a percentage of acute care services
segment revenues decreased to 17.6% during the current year
compared to 18.1% during the prior year. This decrease was
positively impacted by the lower surgery volumes experienced
during the current year.
 
    
    Provision for doubtful accounts. The provision for doubtful
accounts as a percentage of acute care services segment revenues
increased to 7.1% during the current year from 5.8% during the
prior year. On a combined basis, the provision for doubtful
accounts, charity care deductions and uninsured discounts as a
percentage of acute care services segment revenues (prior to
these revenue deductions) was 16.0% and 17.0% for the six months
ended December 31, 2009 and 2010, respectively. The period over
period increases in these ratios resulted from increases in self
pay discharges as a percentage of total discharges and price
increases implemented during the current year compared to the
prior year.
 Other operating expenses
 Other
 Income taxes
  51




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##### Table of Contents



Net loss attributable to Vanguard Health Systems, Inc. stockholders
 Liquidity and Capital Resources
 Operating Activities
  Investing Activities
  Financing Activities
    52




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##### Table of Contents



Debt Covenants
  Debt
    
    
    ActualCovenant Ratio
    
    
    RatioInterest coverage ratio requirement
    
    
    2.00x
    
    
    
    3.75xTotal leverage ratio limit
    
    
    6.25x
    
    
    
    3.65x
  Capital Resources
    53




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##### Table of Contents




    
    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 $368.1 million. We also assumed a frozen defined
benefit pension liability (estimated at approximately $293.0 million as of September 30,
2010 that we expect to fund over 15 years based upon actuarial assumptions and estimates,
as adjusted periodically by actuaries) as part of the acquisition. Additionally, we
committed to make $350.0 million in routine capital expenditures and $500.0 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.
  54




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##### Table of Contents



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)
    
    $
    166.9
    
    
    $
    331.9
    
    
    $
    329.3
    
    
    $
    2,218.3
    
    
    $
    3,046.4Operating leases (2)
    
    
    30.0
    
    
    
    49.5
    
    
    
    33.0
    
    
    
    30.8
    
    
    
    143.3Purchase obligations (2)
    
    
    38.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.9Health plan claims and settlements payable (3)
    
    
    157.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157.3Estimated self-insurance liabilities (4)
    
    
    42.4
    
    
    
    39.9
    
    
    
    26.0
    
    
    
    27.9
    
    
    
    136.2Subtotal
    
    $
    435.5
    
    
    $
    421.3
    
    
    $
    388.3
    
    
    $
    2,277.0
    
    
    $
    3,522.1Payments due by periodWithin
    
    
    During
    
    
    During
    
    
    After1 year
    
    
    Years 2-3
    
    
    Years 4-5
    
    
    5 Years
    
    
    Total(In millions)Other Commitments:Construction and capital improvements (5)
    
    $
    57.2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    57.2Guarantees of surety bonds (6)
    
    
    55.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55.0Letters of credit (7)
    
    
    
    
    
    
    
    
    
    
    37.1
    
    
    
    
    
    
    
    37.1Physician commitments (8)
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.8Estimated liability for uncertain tax positions (9)
    
    
    11.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.9Subtotal
    
    $
    127.9
    
    
    $
    
    
    
    $
    37.1
    
    
    $
    
    
    
    $
    165.0Total obligations and commitments
    
    $
    563.4
    
    
    $
    421.3
    
    
    $
    425.4
    
    
    $
    2,277.0
    
    
    $
    3,687.1
 
 (1)
    
    Includes both principal and interest payments. The interest portion of our debt outstanding at December 31, 2010 assumes an
average interest rate of 8.0%. These payments adjusted to reflect the impact of the offerings of the 2011 senior notes and the
2011 discount notes would have been the following: $196.0 million due within one year; $390.1 million due within two to three
years; $387.5 million due within four to five years and $3,313.0 million due after five years.(2)
    
    These obligations are not reflected in our condensed consolidated balance sheets.(3)
    
    Represents health claims incurred by members of PHP, AAHP and MHP, including incurred but not reported claims, and net amounts
payable for program settlements to AHCCCS and CMS for certain programs for which profitability is limited. Accrued health
plan claims and settlements are separately stated on our condensed consolidated balance sheets.(4)
    
    Includes the current and long-term portions of our professional and general liability, workers compensation and employee
health reserves.(5)
    
    Represents our estimate of amounts we are committed to fund in future periods through executed agreements to complete projects
included as property, plant and equipment on our condensed consolidated balance sheets. The construction and capital
improvements obligations, adjusted to reflect capital commitments under the executed DMC Purchase Agreement (as previously
discussed) would be increased by the following as of December 31, 2010: $150.0 million committed within one year; $300.0
million committed within two to three years and $400.0 million committed within four to five years.(6)
    
    Represents performance bonds we have purchased related to health claims liabilities of PHP.(7)
    
    Amounts relate primarily to instances in which we have letters of credit outstanding with the third party administrator of our
self-insured workers compensation program.(8)
    
    Includes physician guarantee liabilities recognized in our condensed consolidated balance sheets under the guidance of
accounting for guarantees and liabilities for other fixed expenses under physician relocation agreements not yet paid.(9)
    
    Represents expected future tax liabilities recognized in our condensed consolidated balance sheets determined under the
guidance of accounting for income taxes.  55




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
      
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Control and Procedures
  Changes in Internal Control Over Financial Reporting
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PART II
OTHER INFORMATION
 
 Item 1. 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)
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New DOJ Enforcement Initiative: Medicare Billing for Implantable Cardioverter Defibrillators
(ICDs)
     
 Item 1A. Risk Factors
  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.
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
    
    our high level of indebtedness could make it more difficult for us to
satisfy our obligations with respect to our existing notes and the notes
offered hereby;
 
    
    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.
   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.
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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. The 2010 Credit
Facilities and the indentures under which the 8.0% Notes, the 2011 senior notes
and the 2011 senior discount notes were issued contain a number of significant
covenants that, among other things, restrict our ability to:  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. In addition, under the
2010 Credit Facilities, we are required to satisfy and maintain specified
financial ratios and tests. Events beyond our control may affect our ability to
comply with those provisions, and we may not be able to meet those ratios and
tests. The breach of any of these covenants would result in a default under the
2010 Credit Facilities. In the event of default, the lenders could elect to
declare all amounts borrowed under the 2010 Credit Facilities, together with
accrued interest, to be due and payable and could proceed against the
collateral securing that indebtedness. Borrowings under the 2010 Credit
Facilities are senior in right of payment to our existing notes. If any of our
indebtedness were to be accelerated, our assets may not be sufficient to repay
in full that indebtedness and the notes. Our capital
expenditure and acquisition strategies require substantial capital resources.
The building of new hospitals and the operations of our existing hospitals and
newly acquired hospitals require ongoing capital expenditures for construction,
renovation, expansion and the addition of medical equipment and technology.
More specifically, we are contractually obligated to make significant capital
expenditures relating to the newly acquired facilities of the Detroit Medical
Center (“DMC”). Also, construction costs to build new hospitals are
substantial and continue to increase. Our debt agreements may restrict our
ability to incur additional indebtedness to fund these expenditures. A breach of any of the
restrictions or covenants in our debt agreements could cause a cross-default
under other debt agreements. A significant portion of our indebtedness then may
become immediately due and payable. We are not certain whether we would have,
or be able to obtain, sufficient funds to make these accelerated payments. If
any debt is accelerated, our assets may not be sufficient to repay in full such
indebtedness and our other indebtedness. We may not be able to generate
sufficient cash to service all of our indebtedness, including our existing
notes, and may be forced to take other actions to satisfy our obligations under
our indebtedness, which may not be successful. Our ability to make
scheduled payments or to refinance our debt obligations depends on our
financial and operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business and other factors
beyond our control. We may not be able to maintain a level of cash flows from
operating activities sufficient to permit us to pay the principal, premium, if
any, and interest on our indebtedness. In addition, the indentures governing
our existing notes allow us to make significant dividend payments, investments
and other restricted payments. The making of these payments could decrease
available cash and adversely affect our ability to make principal and interest
payments on our indebtedness. If our cash flows and
capital resources are insufficient to fund our debt service obligations, we may
be forced to reduce or delay capital expenditures, seek additional capital or
seek to restructure or refinance our indebtedness, including our existing
notes. These alternative measures may not be successful and may not permit us
to meet our scheduled debt service obligations. In the absence of such
operating results and resources, we could face substantial liquidity problems
and might be required to sell material assets or operations in an attempt to
meet our debt service and other obligations. The 2010 Credit Facilities and the
indentures governing our existing notes restrict our ability to use the
proceeds from asset sales. We may not be able to consummate those asset sales
to raise capital or sell assets at prices that we believe are fair and proceeds
that we do receive may not be adequate to meet any debt service obligations
then due. VHS Holdco II, VHS Holdco I and
Vanguard must rely on payments from their subsidiaries to fund payments on our
existing notes and the guarantees thereof. Such funds may not be available in
certain circumstances. Vanguard Health
Holding Company II, LLC (“VHS Holdco II”), Vanguard Health Holding
Company I, LLC (“VHS Holdco I”) and Vanguard are holding companies
and all of their operations are conducted through their subsidiaries.
Therefore, VHS Holdco II, VHS Holdco I and Vanguard depend on the cash flows of
their subsidiaries to meet their obligations, including their respective
obligations under our existing notes and the guarantees thereof. The ability of these
subsidiaries to distribute to VHS Holdco II, VHS Holdco I and Vanguard by way
of dividends, distributions, interest, return on investments, or other payments
(including loans) is subject to various restrictions, including restrictions
imposed by the 2010 Credit Facilities and the indentures relating to our
existing notes; and future debt may also limit such payments. Holders of our
existing notes do not have any direct claim on the cash flows of the operating
subsidiaries of VHS Holdco II other than the guarantees of the senior notes and
such subsidiaries have no obligation other than the guarantees of the senior
notes, contingent or otherwise, to pay amounts due under our existing notes, to
make any mandatory redemptions, repurchases or principal or accreted value
payments in respect of the existing notes or to make funds available to VHS
Holdco II or to Vanguard. Holders of the 2011 senior discount notes do not have
any direct claim on the cash flows of the operating subsidiaries of Vanguard
with respect to the 2011 senior discount notes because none of Vanguard’s
subsidiaries have guaranteed the 2011 senior discount notes. Because Vanguard is the sole
obligor of the 2011 senior discount notes, and its subsidiaries have not
guaranteed its obligations under the 2011 senior discount notes or have any
obligations with respect to the 2011 senior discount notes, the 2011 senior
discount notes are structurally subordinated to all of the indebtedness and
liabilities of Vanguard’s subsidiaries. In addition, our existing senior
notes are structurally subordinated to all of the indebtedness and liabilities
of any of our subsidiaries that did not guarantee the senior notes. The right
of holders to receive payments on our senior notes or 2011 senior discount
notes, as applicable, could be adversely affected if Vanguard’s or the
senior notes issuers’, as applicable, non-guarantor subsidiaries declare
bankruptcy, liquidate or reorganize. The 2011 senior
discount notes have not been guaranteed by any of Vanguard’s
subsidiaries. Our senior notes have not been guaranteed by all subsidiaries of
the issuers of the senior notes. All of VHS Holdco II’s domestic
restricted subsidiaries that guaranteed the obligations of any borrower under
the 2010 Credit Facilities have guaranteed our senior notes. The 2011 senior
discount notes are structurally subordinated to any existing and future
preferred stock, indebtedness and other liabilities of Vanguard’s
subsidiaries. Our senior notes are structurally subordinated to any existing
and future preferred stock, indebtedness and other liabilities of any of VHS
Holdco II’s subsidiaries that did not guarantee the senior notes, even if
such obligations do not constitute senior indebtedness. In the event of a
foreclosure, dissolution, winding-up, liquidation, reorganization, bankruptcy
or similar proceeding of one of the non-guarantor subsidiaries of the issuers
of the senior notes or Vanguard, as applicable, holders of such non-guarantor
subsidiary’s indebtedness and trade creditors will generally be entitled
to payment of their claims from the assets of that subsidiary before any assets
are made available for distribution to the issuers of our senior notes or
Vanguard, as applicable. VHS Holdco II’s
non-guarantor subsidiaries accounted for $1,001.3 million, or 27.9%, of
our total revenues for the twelve months ended December 31, 2010,
$257.4 million, or 8.7%, of our assets (excluding intercompany
receivables) as of December 31, 2010 and $241.4 million, or 8.9%, of
our liabilities (excluding intercompany liabilities) as of December 31,
2010. VHS Holdco II’s
non-guarantor subsidiaries may also be subject to restrictions on their ability
to distribute cash to the issuers of the senior notes in their financing or
other agreements and, as a result, the issuers of our senior notes may not be
able to access their cash flows to service their respective debt obligations,
including in respect of the senior notes. If we default on our obligations
to pay our other indebtedness, we may not be able to make payments on our
existing notes. Any default under the
agreements governing our indebtedness, including a default under our 2010
Credit Facilities that is not waived by the required lenders, and the remedies
sought by the holders of such indebtedness could make us unable to pay
principal, premium, if any, and interest on our existing notes and
substantially decrease the market value of our existing notes. If we are unable
to generate sufficient cash flows and are otherwise unable to obtain funds
necessary to meet required payments of principal, premium, if any, and interest
on our indebtedness, or if we otherwise fail to comply with the various
covenants, including financial and operating covenants, in the instruments
governing our indebtedness (including our 2010 Credit Facilities), we could be
in default under the terms of the agreements governing such indebtedness. In
the event of such default, the holders of such indebtedness could elect to
declare all the funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest, the lenders under our 2010 Revolving Facility
could elect to terminate their commitments, cease making further loans and
institute foreclosure proceedings against our assets, and we could be forced
into bankruptcy or liquidation. If our operating
performance declines, we may in the future need to seek to obtain waivers from
the required lenders under our 2010 Credit Facilities to avoid being in
default. If we breach our covenants under our 2010 Credit Facilities and seek a
waiver, we may not be able to obtain a waiver from the required lenders. If
this occurs, we would be in default under our 2010 Credit Facilities, the
lenders could exercise their rights as described above, and we could be forced
into bankruptcy or liquidation. We are controlled by a small
number of stockholders and they may have conflicts of interest with us in the
future. We are controlled by
our principal equity sponsors, and they have the ability to control our
policies and operations. The interests of our principal equity sponsors may not
in all cases be aligned with our interests. For example, our principal equity
sponsors could cause us to make acquisitions, divestitures and other
transactions that, in their judgment, could enhance their equity investment in
us, even though such transactions might reduce cash flows or capital reserves
available to fund our debt service obligations. Additionally, our principal
equity sponsors are in the business of making investments in companies and may
from time to time acquire and hold interests in businesses that compete
directly or indirectly with us. Accordingly, our principal equity sponsors may
also pursue acquisitions that may be complementary to our business, and as a
result, those acquisition opportunities may not be available to us. So long as
our principal equity sponsors continue to own a significant amount of our
equity interests, even if such amount is less than 50%, they will continue to
be able to strongly influence or effectively control our
decisions.
 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.
 The U.S. economy and global credit markets remain volatile. Instability in consumer confidence and
increased unemployment have increased concerns of prolonged economic weakness. While certain
healthcare spending is considered non-discretionary and may not be significantly impacted by
economic downturns, other types of healthcare spending may be significantly adversely impacted by
such conditions. When patients are experiencing personal financial difficulties or have concerns
about general economic conditions, they may choose to defer or forego elective surgeries and other
non-emergent procedures, which are generally more profitable lines of business for hospitals. We
are unable to determine the specific impact of the current economic conditions on our business at
this time, but we believe that further deterioration or a prolonged period of economic weakness
will have an adverse impact on our operations. Other risk factors discussed herein describe some
significant risks that may be magnified by the current economic conditions such as the following: 
    
    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
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
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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 Congressional Budget Office (CBO) estimates 32 million, the Centers for Medicare & Medicaid
Services (CMS) estimates almost 34 million; both agencies made a number of assumptions to derive that
figure, including how many individuals will ignore substantial subsidies and decide to pay the penalty
rather than obtain health insurance and what percentage of people in the future will meet the new
Medicaid income eligibility requirements);
 
    
    what percentage of the newly insured patients will be covered under the Medicaid program and what
percentage will be covered by private health insurers;
 
    
    the extent to which states will enroll new Medicaid participants in managed care programs;
 
    
    the pace at which insurance coverage expands, including the pace of different types of coverage expansion;
 
    
    the change, if any, in the volume of inpatient and outpatient hospital services that are sought by and
provided to previously uninsured individuals;
 
    
    the rate paid 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; 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. More than twenty challenges to the Health Reform Law have been filed in federal courts.
Although some federal district courts have upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds, on December 13, 2010, a Virginia federal district court held the
requirement that individuals maintain health insurance or pay a penalty to be unconstitutional, while
leaving the remainder of the Health Reform Law intact. On January 18, 2011, both the government and
Virginia Attorney General Ken Cuccinelli filed notices of appeal in the Virginia federal district court
case and it is uncertain how the case will ultimately be resolved. Also, on January 31, 2011, U.S.
District Judge Roger Vinson ruled that the entire Health Reform Law was unconstitutional due to the fact
that the mandate in the law requiring individuals to purchase health insurance is not severable from the
remainder of the law. These lawsuits are subject to appeal.
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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 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.
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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.
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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.
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qui tam
   65




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Some of our hospitals will be required to submit to CMS information on their relationships with
physicians and this submission could subject such hospitals and us to liability.
     Providers in the healthcare industry have been the subject of federal and state investigations,
whistleblower lawsuits and class action litigation, and we may become subject to investigations,
whistleblower lawsuits or class action litigation in the future.
  
    
    cost reporting and billing practices;
 
    
    laboratory and home healthcare services;
 
    
    physician ownership of, and joint ventures with, hospitals;
 
    
    physician recruitment activities; and
 
    
    other financial arrangements with referral sources.
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qui tam qui tam from . . .
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Competition from other hospitals or healthcare providers (especially specialty hospitals) may
reduce our patient volumes and profitability.
    We may be subject to liabilities from claims brought against our facilities.
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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.
   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.
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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.
    We may not be able to successfully integrate our acquisition of DMC or realize the potential
benefits of the acquisition, which could cause our business to suffer.
  Future acquisitions or joint ventures may use significant resources, may be unsuccessful and could
expose us to unforeseen liabilities.
  
    
    difficulty and expense of integrating acquired personnel into our business;
 
    
    diversion of managements time from existing operations;
 
    
    potential loss of key employees or customers of acquired companies; and
 
    
    assumption of the liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for failure to comply with
healthcare regulations.
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The cost of our malpractice insurance and the malpractice insurance of physicians who practice at
our facilities remains volatile. Successful malpractice or tort claims asserted against us, our
physicians or our employees could materially adversely affect our financial condition and
profitability.
    Our facilities are concentrated in a small number of regions. If any one of the regions in which we
operate experiences a regulatory change, economic downturn or other material change, our overall
business results may suffer.
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Pro FormaSix Months
    
    
    Six MonthsEnded
    
    
    EndedYear Ended June 30,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2010San Antonio
    
    
    32.1
    %
    
    
    29.6
    %
    
    
    26.8
    %
    
    
    26.5
    %
    
    
    16.8
    %PHP and AAHP
    
    
    14.1
    %
    
    
    19.3
    %
    
    
    23.1
    %
    
    
    21.5
    %
    
    
    13.4
    %Massachusetts
    
    
    19.7
    %
    
    
    18.3
    %
    
    
    18.2
    %
    
    
    16.2
    %
    
    
    10.2
    %Metropolitan Phoenix, excluding PHP and AAHP
    
    
    18.8
    %
    
    
    17.9
    %
    
    
    17.5
    %
    
    
    16.1
    %
    
    
    10.2
    %Metropolitan Chicago (1)
    
    
    14.9
    %
    
    
    14.6
    %
    
    
    14.1
    %
    
    
    19.4
    %
    
    
    12.3
    %Metropolitan Detroit
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    36.9
    %Other
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.2
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 (1)
    
    Includes MHP.  If we are unable to control our healthcare costs at Phoenix Health Plan and Abrazo Advantage Health
Plan, if the health plans should lose their governmental contracts or if budgetary cuts reduce the
scope of Medicaid or dual-eligibility coverage, our profitability may be adversely affected.
  
    
    our ability to contract with cost-effective healthcare providers;
 
    
    the increased cost of individual healthcare services;
 
    
    the type and number of individual healthcare services delivered; and
 
    
    the occurrence of catastrophes, epidemics or other unforeseen occurrences.
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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.
  The industry trend towards value-based purchasing may negatively impact our revenues.
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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.
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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.
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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.
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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.
  If the costs for construction materials and labor continue to rise, such increased costs could have
an adverse impact on the return on investment relating to our expansion projects.
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State efforts to regulate the construction or expansion of hospitals could impair our ability to
operate and expand our operations.
  
    
    the purchase, construction or expansion of healthcare facilities;
 
    
    capital expenditures exceeding a prescribed amount; or
 
    
    changes in services or bed capacity.
  If the fair value of our reporting units declines, a material non-cash charge to earnings from
impairment of our goodwill could result.
  Our hospitals are subject to potential responsibilities and costs under environmental laws that
could lead to material expenditures or liability.
   
 Item 6. Exhibits.
   80




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##### Table of Contents



SIGNATURE
  DATE:      February 8, 2011
    VANGUARD HEALTH SYSTEMS, INC.By:
    /s/ Gary D. WillisGary D. WillisSenior Vice President, Controller and
Chief Accounting Officer
(Authorized Officer and
Chief Accounting Officer)  81




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    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. (Incorporated by
reference from Exhibit 2.1 to the Registrants Current Report
on Form 8-K, dated November 4, 2010, File No. 333-71934)2.2
    
    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). (Incorporated by reference from Exhibit 2.2 to the
Registrants Current Report on Form 8-K, dated November 4,
2010, File No. 333-71934)2.3
    
    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.(Incorporated by reference from
Exhibit 2.1 to the Registrants Current Report on Form 8-K,
dated November 18, 2010, File No. 333-71934)2.4
    
    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.
(Incorporated by reference from Exhibit 2.2 to the
Registrants Current Report on Form 8-K, dated November 18,
2010, File No. 333-71934)2.5
    
    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. (Incorporated by reference from Exhibit 2.3
to the Registrants Current Report on Form 8-K, dated November
18, 2010, File No. 333-71934)2.6
    
    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. (Incorporated by reference from
Exhibit 2.4 to the Registrants Current Report on Form 8-K,
dated January 5, 2011, File No. 333-71934)2.7
    
    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. (Incorporated by reference from
Exhibit 2.5 to the Registrants Current Report on Form 8-K,
dated January 5, 2011, File No. 333-71934)2.8.
    
    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. (Incorporated by reference from Exhibit 2.6 to
the Registrants Current Report on Form 8-K, dated January 5,
2011, File No. 333-71934)4.1
    
    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.4.2
    
    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.10.1
    
    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 System10.2
    
    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 System10.3
    
    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 System31.1
    
    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
2002
  82