The COVID-19 pandemic is threatening to postpone, derail or force a restructuring of hospital deals in the works, but an unusual four-hospital, two-system deal is still intact.
Advocate Aurora Health’s Advocate Trinity Hospital, Trinity Health’s Mercy Hospital & Medical Center, South Shore Hospital and St. Bernard Hospital would join forces to downsize aging, underutilized facilities and create a new hospital and several community centers. It would require a $1.1 billion infusion of capital from the hospitals and their parent companies, private donations and the government.
Hospital executives say the merger is still on track, but declined to elaborate if or how COVID-19 has changed timing or strategy.
Initial plans didn’t call for any facilities to close until new ones were opened, but the COVID-19 pandemic may accelerate that, said Michael Buchanio, a principal in West Monroe Partners’ healthcare practice.
“This may expedite closures, especially of hospitals that relied on outpatient elective procedures,” he said, adding that could dent revenue by 40% to 60%. “The CARES Act and short-term relief would likely not be enough to offset that.”
Prior to the onslaught of an unprecedented pandemic that spiked labor and supply costs, the deal was already complicated. It calls for Advocate Trinity and Mercy Hospital to be divested by their respective parent companies and St. Bernard to separate from its sponsor, Catholic Health International, as the institutions look to blend cultures, reposition, revamp decades-old facilities and turn around years of operating losses.
The four not-for-profit South Side Chicago hospitals are within a 20-minute drive of each other, predominantly serving Medicaid beneficiaries, many of whom are battling chronic illnesses. They recorded a collective $84.3 million operating loss in 2018 as they have struggled to maintain hospitals that are too old and too big, executives said.
“Developing a transition plan to carve out three hospitals from their parents and sponsors is complex and requires significant time and resources,” Buchanio said.
Typically, these divestitures include temporary service agreements, which grant access to the parent company’s infrastructure as the new entity gets its footing.
The hospitals’ average inpatient occupancy levels are 45%, and none are leading their respective service areas in market share, according to HMP Metrics data compiled from Medicare cost reports.
“If a larger system’s smaller hospitals don’t support its referral network and fit well, they are taking a more critical look at them,” said Gregory Eli, shareholder at consultancy LBMC. “I don’t know how you sustain the number of hospitals and beds in this country at these census levels.”
Oftentimes, the emotion and optics of maintaining a small community hospital can trump business and financial aspects, he added.