Four fiscally strained hospitals on Chicago’s South Side would join forces to form a new system under a proposal that calls for $1.1 billion in capital spending on new facilities before any existing facilities close.
The announcement marks a twist in the ongoing consolidation of the not-for-profit healthcare sector. Big systems have swallowed up struggling individual hospitals, and larger systems merge, both with the goal of expanding footprints and profitable services while saving on administration expenses and gaining leverage in negotiations with suppliers and insurers.
One of the four hospitals — South Shore Hospital — is independent. St. Bernard Hospital is a stand-alone hospital also, but it’s sponsored by Catholic Health International. The other two hospitals in the proposed new system are part of large, multi-state systems.
Mercy Hospital and Medical Center is part of Michigan-based Trinity Health, which has steadily grown in size through acquisitions. Advocate Trinity Hospital is part of Advocate Aurora Health, created by a merger of Illinois-based Advocate and Wisconsin-based Aurora in 2018. Advocate Aurora previously said it intended to shed the hospital.
“Working individually, our hospitals will not be able to provide sustained, quality care on the South Side,” Charles Holland, chief executive officer of St. Bernard Hospital, said in a statement announcing that the four had signed a non-binding agreement. “By forging a system that can better respond to and manage the chronic illnesses that are so pervasive in our communities, we can truly achieve greater health equity and narrow significant disparities in access to quality care and the resulting outcomes.”
The four said their goal is to expand access to quality primary and preventive care services by building community health centers as well as “at least one new, state-of-the-art, destination hospital, thereby replacing outmoded, aging facilities.”
The capital plan carries a price tag of $1.1 billion. The group anticipates the new hospital, or possibly two smaller hospitals, would cost $920 million with the community health centers costing about $190 million.
“This money will come from myriad sources: the state of Illinois, the founding health organizations and philanthropic donations,” said an Advocate Aurora spokesman.
Some facilities would eventually be shuttered but whether all four existing hospitals would eventually close is unclear. The statement reports that no facilities would close until new facilities are built and no jobs lost. Closures could run afoul of local residents who consider all four hospitals to be community stalwarts and complain of insufficient services or trauma centers.
Healthcare consolidation has been underway for years as a result of changes imposed by the Affordable Care Act and later by changing demographics and service demands. All four hospitals, which rely heavily on Medicaid reimbursements, are struggling financially and have lost money in recent years. The plan allows Trinity and Advocate Aurora — both of which carry bond ratings in the double-A category — to shed struggling hospitals while avoiding backlash that could occur if shuttered or sold given the new investment promised.
Under the agreement announced Thursday, each provider will contribute or transfer existing hospital assets to and help capitalize the new system. The new system will have independent leadership and an independent board of directors, which will include a delegate from each of the providers. A chief executive officer and leadership team will be named following the signing of a definitive agreement.
The group is aiming to sign a definitive agreement by midyear.
Chicago Mayor Lori Lightfoot complimented the plan as an “innovative proposal” and the group said it has been working closely with the state’s Department of Healthcare and Family Services because the group would seek state funds earmarked to support plans aimed at a transforming healthcare.
Leaders of the hospitals will hold a series of community meetings beginning next month to build support and hear from stakeholders. A state review panel that holds sway over the construction of new facilities would also have a say.
The hospitals say improved services are needed given data that shows that residents on the South Side — where there are pockets of greater poverty and fewer hospital services — have lower life expectancy and higher incidences of chronic disease.
While hospital partnerships and mergers and acquisitions are commonplace, the Chicago proposal looks unique, said George Huang, a director and senior analyst who follows the healthcare sector for Wells Fargo Securities.
"It sounds like an interesting proposal and it's a different approach that might make sense because the hospitals will share the cost burden” of caring for a lower income population, Huang said. “It could limit some of the individual burden. Sharing that financial responsibility would seem to be a preferable approach.”
Huang also agreed that more localized community health centers are a smart approach that is growing in popularity and the data supports the hospitals’ assertions about the need to address health outcomes that lag more affluent areas.
Capital investment in each of the aging facilities might also be tougher to manage if each hospital acts alone. And the larger system are not simply shedding the hospitals without a promise of capital help.
Huang said the proposal looks innovative and worthwhile and said “more out-of-the-box thinking on developing solutions” is needed across the industry.
