How Mercy Hospital's closure could hobble Chicago's South Side healthcare

Mercy Hospital & Medical Center's plan to close in the midst of a public health crisis is a stark sign that the healthcare industry is evolving—with or without hospitals.

Mercy is among hospitals struggling to stay afloat in the face of rising expenses, declining reimbursements and competition from expanding local systems. If the hospital shutters as planned in the first half of 2021, there will be roughly 300 fewer beds on Chicago's South Side, where residents have long been disproportionately affected by chronic conditions and, now, COVID-19.

Meanwhile, the pandemic has further strained the precarious finances of safety nets like Mercy, which treat large numbers of low-income patients on Medicaid. And other hospitals are expected to hit a financial breaking point sooner or later. Those that can afford to will invest in new technology and push services into less expensive outpatient settings. Those that can't will close, forcing some patients to seek care farther from home.

"Anyone who was right on the edge going into this may find themselves pushed over that edge," said Ben Umansky, a healthcare expert at the Advisory Board, a Washington, D.C.-based consultancy. "You will see other hospitals close, but you would have seen that even without COVID. This is a push in a direction we were already moving."

For Mercy, Chicago's oldest hospital, the writing was on the wall before COVID-19 started spreading. Owned by Catholic giant Trinity Health, the hospital has been in the red for years, posting an operating loss of $30 million in 2019—not including write-downs on the value of Mercy's assets—compared with $27 million a year earlier.

Talk of closing the facility last year is what led four financially struggling institutions on the South Side to explore a combination that could eliminate redundant expenses and improve bargaining power with insurers—some of the essential elements in "hospital transformation," an industrywide move toward cost-efficient outpatient care, preventive services and neighborhood clinics. But the deal fell apart after state legislators declined to help fund the merger, citing a lack of specifics about where any new facilities would be located and which existing facilities might close.

Illinois House Majority Leader Greg Harris of Chicago said a legislative working group is exploring how government funds could be used to support hospital transformation in the future.

"We know there are a number of other safety net hospitals both on the South Side and the West Side, Metro East and other parts of the state where there's an interest in transformation. ... We're trying to complete our work by fall when we would go back to Springfield for the veto session."

Asked whether a merger of Mercy, Advocate Trinity Hospital, South Shore Hospital and St. Bernard Hospital could still come to fruition if funds are made available in the fall, Harris said, "This will certainly be one of the topics on the front burner for us."

Mercy declined an interview request, but the four hospitals said in a May letter to the Illinois Department of Healthcare & Family Services—the agency that oversees Medicaid in the state—that, "without transformation, there is no path to financial stability for hospitals on the South Side."

Industry sources and some government officials say transformation is the best way to prevent healthcare deserts in vulnerable communities. But some state legislators and community members were concerned the four-hospital merger would erode medical services in certain neighborhoods and eliminate jobs.

"The plan was half-baked," state Rep. Lamont Robinson, a Chicago Democrat, said. "You want to close hospitals in African American communities, and you cannot tell me if the (new) hospital is ... going to be in an affluent area? Will seniors in my district who don't have cars, who are on Medicare and Medicaid, have to travel to Beverly? How could I, in good faith, support their plan and share this information with my constituents?"

With an estimated $1.1 billion investment—including government dollars—the plan was to build at least one new hospital and open up to six new community health centers that would expand access to preventive services and address social determinants of health, such as food insecurity. Beyond that, details were scarce.

"There were antitrust regulatory issues that we had to abide by in our discussions, which prohibited us from being more specific about certain things that people wanted specificity around—particularly locations," St. Bernard Hospital CEO Charles Holland said. "It wasn't our role to decide where a new facility would be built. In fact, we couldn't make that determination yet because we were still four independent organizations."

State legislators say it wasn't clear to them that Mercy would close if the funds were not made available for the merger.

Meanwhile, mounting expenses and dwindling inpatient volumes have already led hospitals serving Black and Brown communities, like MetroSouth Medical Center in Blue Island, to shutter. Even some hospitals that have managed to stay afloat have been forced to cut services. Jackson Park Hospital & Medical Center in South Shore closed its obstetrics unit last year, and St. Bernard in Englewood suspended labor and delivery services in April to focus on treating COVID-19 patients. St. Bernard has directed expectant mothers to deliver their babies at Mercy.

The move is troubling as Black women in Illinois are nearly three times as likely to die from complications of childbirth as white women, according to the state's Department of Public Health.

"With the closing of Mercy, we are in a sense continuing to increase these numbers"—from maternal mortality to COVID-19 complications, Robinson said.

The shift away from pricey hospital-based care was in motion before COVID-19, sources say, noting that the pandemic is expected to accelerate hospital closures across the country. And, unlike Mercy, most institutions don't have the wherewithal of the nation's fifth-largest not-for-profit hospital chain.

While many of the safety nets on Chicago's South Side are independent, Mercy is owned by Livonia, Mich.-based Trinity—the $19 billion-revenue system that also owns three-hospital Loyola Medicine.

Robinson wants Trinity to dig deep to keep the hospital open. But monthly operating losses of $4 million are no longer sustainable, Mercy said last month when it announced it would close between Feb. 1 and May 31, pending state approval. Since purchasing the Near South Side hospital in 2012, Trinity has provided hundreds of millions of dollars to fund infrastructure improvements and meet operating needs.

Instead of continuing to incur steep losses, Mercy said it's planning to open an outpatient center that would offer diagnostics, urgent care and care coordination to prevent emergency room visits and hospitalizations among residents.

"Ultimately," it said, "change needs to happen on the South Side of Chicago in delivering healthcare and Mercy can't do it alone."