Plans are afoot to consolidate financially struggling hospitals that serve Chicago's poorest residents on the South Side.
Crain's has learned that at least four hospitals—Advocate Trinity Hospital, Mercy Hospital & Medical Center, South Shore Hospital and St. Bernard Hospital—are in talks with the state to create a single system with one leadership team that includes some combination of inpatient, outpatient and emergency care, as well as skilled nursing. Separately, a private health care consultancy has agreed to buy recently shuttered MetroSouth Medical Center as the first step in a hoped-for combination with other so-called safety-net hospitals.
Both proposals aim to bolster the precarious finances of hospitals that treat large numbers of uninsured and low-income patients on Medicaid. Consolidation could enable the institutions to generate economies of scale, improve bargaining power with insurers, eliminate redundant expenses and cut back duplicative or underutilized capabilities. Bringing the hospitals together also could lead to the centralization of certain services, forcing some patients to seek care farther from home.
Talks are at an early stage and may not lead to a transaction. But all the hospitals are under pressure to transform as inpatient volumes fall and expenses rise. A combination could help the hospitals adapt. Some might become ambulatory centers, professional buildings or skilled nursing facilities. Services like orthopedics and obstetrics could be centralized at certain locations to improve care and save money on surgical equipment, space and staff. It's unclear whether some facilities would close in the process.
Representatives for Advocate Aurora Health, Mercy—which is owned by Catholic giant Trinity Health—South Shore and St. Bernard did not respond to requests for comment.
All four hospitals are operating in the red, with 2018 net losses ranging from $1.3 million at South Shore to $68.3 million at Mercy, according to data compiled by Modern Healthcare Metrics. The hospitals treat a large number of patients on Medicaid, which pays less than Medicare and commercial insurance. Meanwhile, they're getting less money from various federal and state programs intended to offset the cost of treating patients who can't pay for care.
St. Bernard CEO Charles Holland Jr. told Crain's in July that without additional government funding, "we're going to have to make some difficult decisions. … We just cannot continue to go on the way we are."
Joining forces would enable the hospitals to pool the money they get from various state and federal programs to fund costly transformative initiatives.
The state-led initiative is being driven by the Illinois Department of Healthcare & Family Services, which oversees Medicaid. A representative for the department declined to comment.
Driving a separate, private initiative is Third Horizon Strategies, which has agreed to buy MetroSouth in Blue Island from Brentwood, Tenn.-based Quorum Health for $1.
Third Horizon CEO David Smith said he filed articles of incorporation Monday to create an entity called South Side Health, funded by private investors, and—he hopes—government dollars intended for hospital transformation.
"As we build out South Side Health, if other hospitals are successful (in coming together), it will be important to integrate into one system," Smith said. "At the end of the day, there needs to be one integrated system on the South Side that acts as a financially self-sustaining utility whose sole function is to improve the health that community."
This article was originally published in Crain's Chicago Business.
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