Why one small hospital system stands pat while others bulk up

Loyola Medicine has reached a strategic crossroads in a consolidating market. Anchored by an academic medical center, Maywood-based Loyola has long stood out in the local market by providing more advanced care than other hospitals in the western suburbs. But its future is less clear as behemoths like Advocate Aurora Health, NorthShore University HealthSystem and Northwestern Medicine build sprawling regional networks with more than three times as many hospitals.

Three-hospital Loyola, by contrast, has been far less acquisitive. Despite access to the deep pockets of parent company Trinity Health—a Michigan-based chain with 89 hospitals around the country—Loyola has acquired only one hospital in the past decade. 

“Being in a market this size with only three hospitals is becoming a rarity,” says Tim Classen, an associate professor of economics at Loyola University Chicago's Quinlan School of Business. 

Loyola’s relatively small size is a disadvantage against expanding competitors with wider referral bases. For example, Northwestern’s acquisition of Palos Health will end Loyola’s partnership with the southwest suburban hospital, an important source of referrals. 

Smaller hospital groups also have less leverage in price negotiations with health insurers. The increasing geographic reach of competitors makes Loyola’s locations less important to insurers seeking access to convenient hospitals for their members. 

“Trinity is used to having the upper hand in payer negotiations. Here, that’s just not the case,” says Jim Watson, principal at healthcare advisory firm BDO USA. 

Loyola could regain some bargaining power and boost referrals by adding hospitals to its network, a possibility CEO Shawn Vincent isn’t ruling in or out. 

“Can you survive like we are right now, with three (hospitals) locally? Yes,” he says. “But that doesn’t mean you stop looking. You always keep your options open for the right fit.”   

For now, Loyola aims to compete by adding digital and home health services, and opening multispecialty ambulatory care centers that treat patients closer to where they live in less expensive outpatient settings. But the strategy itself isn’t inexpensive. Nor is it unique to Loyola. 

“Chicagoland has enough inpatient bed capacity. The question is, where is healthcare going and are you responding to the needs of the community in the areas where healthcare is expanding,” says Trinity CEO Mike Slubowski. “We’re putting a lot of investment into digital health, home health, in-home monitoring and creating accessible ambulatory locations—everything from urgent care to multispecialty group practice.” 

As part of that strategy, Loyola is consolidating its smaller clinics into large multispecialty ambulatory care centers, Vincent says. 

Loyola plans to spend $70 million to build such a center in southwest suburban Tinley Park, pending state approval. The nearly 72,000-square-foot center is intended to serve the more than 15,000 patients being treated at Loyola sites in the area, as well as others who currently travel farther for care. 

The project comes nearly a year after Northwestern acquired Palos. As a result of the union, Loyola’s lease at the Palos Health South Campus will end by April 1, 2022. 

Since many of the patients treated on that campus historically were Loyola patients, Vincent says he expects to maintain a strong patient base in the area. But industry observers say Loyola could lose future referrals from Palos doctors if patients with complex needs are willing to travel to Northwestern Memorial Hospital in Chicago’s Streeterville neighborhood.   

“They’re going to be challenged if they don’t figure out a way to create either a partnership to support their primary care feeder system,” thereby increasing referrals, “or identify a way to expand their reach and drive more patients into the system,” says Dan Marino, managing partner at consultancy Lumina Health Partners. Marino suggests that Loyola could look to partner with another faith-based hospital chain in the area. 

Loyola has shown a willingness to do acquisitions in the past. It purchased MacNeal Hospital in Berwyn in 2018 and 10 years earlier acquired Gottlieb Memorial Hospital in Melrose Park. Merger talks with Palos Health in 2019 ended without a deal. 

If Loyola is looking for deals, the planned breakup of a Chicago-area joint venture between two out-of-state chains may create opportunities. Amita Health includes 15 local Catholic hospitals owned by St. Louis-based Ascension and four Chicago-area hospitals owned by Florida-based AdventHealth. Any of those hospitals could be targets for Loyola.   

A growing Catholic chain like 15-hospital OSF HealthCare represents another possibility. The Peoria-based chain entered the local market last year when it merged with Little Company of Mary Hospital in south suburban Evergreen Park. Loyola could make an attractive merger partner for OSF if it’s looking for more Chicago-area hospitals. 

“We’re always exploring potential opportunities to expand our mission and provide the highest quality of care for our patients and the communities we serve, but we’re not actively having conversations” with the local faith-based hospital chains, Vincent says. 

Representatives for Ascension and AdventHealth’s Chicago-area hospitals did not respond to a request for comment. OSF says it’s “always open to collaborative discussions when it makes sense.”  

Short-term financial pressures aren’t likely to force Loyola’s hand. The chain is profitable, posting nearly $2 billion in operating revenue and $199 million in net income for the fiscal year ended June 30. 

“Whether Trinity wants to grow in this market is the question,” Classen says. “It’s a unique market with so many academic medical centers so the margins are probably somewhat challenging relative to Trinity’s other markets.” 

Trinity has shown it’s not willing to suffer losses in this market. It sold Mercy Hospital & Medical Center for $1 earlier this year, after the state denied its application to shutter the historic safety-net hospital. Trinity plans to open a $13 million outpatient center in Bronzeville under the Mercy brand. 

“We’re very committed to Illinois,” Slubowski says, vowing to expand Loyola “across the continuum of care—not just acute care.” 

This story first appeared in our sister publication, Crain's Chicago Business.