Chicago’s Mercy Hospital Fights to Close Amid Care Concerns

(Bloomberg) -- It isn’t the pandemic that may kill Chicago’s Mercy Hospital and Medical Center.

The oldest chartered hospital in the city has had financial problems since the 1990s, culminating in a bankruptcy filing Wednesday. Its story is emblematic of the challenges facing its patients and a large swathe of U.S. hospitals also struggling to survive.

“The history of Mercy Hospital is literally the history of Chicago,” Edward Green, a bankruptcy attorney with Foley & Lardner, said on behalf of the hospital at a hearing Friday. He noted that it’s treated mayors, presidents, and survivors of the Great Chicago Fire in 1871.

Mercy, a fixture on Chicago’s South Side, takes on sicker people than some of its competitors, and many of its patients lack private insurance that reimburses at higher rates. It’s also suffered as more treatment moves outside hospitals. Mercy sought court protection after Illinois health officials rejected a plan to close the hospital and replace it with an outpatient center.

Financial Woes

Even before the pandemic slammed hospitals, forcing them to pay up for protective equipment and cancel many profitable elective procedures, the divide between centers like Mercy and richer facilities was widening.

“Hospitals in surrounding areas have made investments in outpatient services, which, along with new and updated facilities, allowed them to dominate positive consumer opinions in the market and siphon off commercial patients, Medicare patients and outpatients,” Chief Executive Officer Carol Garikes Schneider, who’s run the hospital since 2013, said in a court filing Thursday.

Felicia Gerber Perlman, who co-heads the bankruptcy and restructuring group at law firm McDermott Will & Emery in Chicago and isn’t involved in the case, said Mercy’s bankruptcy could herald a wave of similar filings among providers in lower-income, urban areas. Those hospitals share some challenges with rural facilities that have seen revenues and patient bases shrink.

Mercy’s patients suffer “disproportionately” from chronic diseases that would benefit from early detection and monitoring in an outpatient setting, Schneider said in the filing that detailed years-long efforts to save the institution.

But politicians and a coalition of labor and community groups have decried its plan to close the hospital by May and open an outpatient center.

‘Human Cost’

An outpatient center would accommodate only a fraction of the 300,000 visits the hospital handled in 2019, said Anne Igoe, vice president for hospitals at labor union SEIU Healthcare Illinois. Its shutdown would mean patients could have to travel 20 minutes for emergency care. It would also reduce intensive care beds and leave one less labor and delivery provider on the South Side, she said. “We’re going to see increased mortality.”

Hospitals like Mercy that serve densely-populated communities treat traumatic injuries as well as chronic diseases, Perlman said, and “there’s a real human cost” if people need to travel further for emergency care. “But if that’s going to be a public policy decision, then the public has to provide the economic solution.”

Mercy’s history dates back to 1852 when the Sisters of Mercy converted an old boarding house into Chicago’s first chartered hospital. The facility stayed independent for more than a century until joining Trinity Health Corp. in 2012. Trinity isn’t part of the bankruptcy filing.

In 2016, Trinity and its board of directors began studying options to save Mercy, concluding that “no scenario was financially viable,” Schneider said. They then explored a sale or new affiliation, but got no interest after speaking with more than 20 potential partners.

Mercy later joined with three other institutions to form the South Side Coalition, and the group signed an agreement in January 2020 to create a new health system that would replace the four hospitals with one or two new facilities and three to six outpatient centers, according to the filing. The group expected to receive $1.1 billion in public and private funds for the project over a decade. But in May, the state declined to provide a $520 million commitment for the project, and the group dissolved.

Mercy decided to close in 2021 and in August sought permission from the state’s health review board to do so. It proposed converting to an outpatient center that could serve 50,000 patients annually and “help local residents avoid expensive emergency room visits and hospitalizations.”

The state said in December that it intended to deny the closure request. Mercy will reappear before the review board on March 16.

Igoe said an outpatient center won’t be a sufficient replacement for the hospital.

“Acute-care hospitals have really important roles that they play in the community,” she said.

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