Bloomberg Businessweek|October 04, 2021
Mercy Hospital, a 168-year-old anchor on Chicago’s South Side, was about to succumb to the brutal economics of health care for America's poor and uninsured. Then an unlikely savior appeared

WORD OF MERCY HOSPITAL’S DEMISE BEGAN TO circulate just after 9 a.m. on July 29, 2020. The hospital’s chief executive officer summoned the medical executive committee to an unscheduled conference call. She told them she’d be sending a staff-wide memo shortly and felt a heads-up was in order.

“The decision to discontinue services at Mercy Hospital was not an easy one,” the memo read. More words followed— something about decreasing hospital reimbursements and ballooning capital expenses. Dr. Adele Joy Cobbs, an emergency physician on the committee, felt blindsided. She listened to the reactions of the other committee members on the call. The seconds ticked by.

“There was absolute silence,” Cobbs recalled afterward. “Not a word from anyone. It just reflected the disbelief.”

Disbelief because Mercy had been a Chicago institution since 1852 when the city was a splintery warren of 35,000 and was still rising from the lakeside mud. The part of the South Side where Mercy sits, now called Bronzeville, was then known as “the country.” The location allowed the hospital to survive the Great Chicago Fire of 1871 and to treat many of its victims. When a would-be assassin’s bullet penetrated the rib cage of Teddy Roosevelt during a Milwaukee campaign stop in 1912, he recovered at Mercy. Every year thousands of babies arrived wailing within its walls, and some would return decades later to die. In the past 50 years, as more of the city’s wealth has shifted to the North Side, Mercy, with its 422 beds, has been tagged with the label “safety-net hospital.” The population it serves is now mostly minority, and most depend on either Medicaid or Medicare, if they’re insured at all.

Cobbs had never thought of Mercy as a safety net; it was an anchor, holding the neighborhood in place. Her father had lived in a high-rise two blocks away; she saw the building every time she got out of her car in Mercy’s parking lot. Her cousins, aunts, uncles—they all went to the hospital for care. Their neighbors were among the 1,500 people employed there as nurses, cooks, doctors, administrators, and maintenance workers.

After medical school, Cobbs worked her way through hospitals in other cities, in affluent suburbs, in rural communities. Two of them were safety nets that later went under. Four years ago she returned to the South Side to become the associate director of Mercy’s emergency department.

“To me, this was the dream job,” she said.

A job that would carry her all the way to retirement— or so she’d thought until that conference call. That same morning, shortly after she disconnected, she started typing emails and placing telephone calls. She’d served for almost a decade on the Chicago Board of Health, so her contact list was full of people in government. She reached out to city council members, to the mayor’s office, to the governor. Soon she was logging into virtual roundtable discussions with “the electeds,” as she calls them, brainstorming strategies to keep Mercy alive.

“That’s when I began my fight,” she said.

She wasn’t the only one. Many different people and interest groups fought for Mercy. To save the hospital was to champion social justice, or to seize a business opportunity, or both. Success would defy an accelerating trend throughout American cities. Philadelphia’s Hahnemann University Hospital, another so-called safety net that had survived for 171 years, closed in 2019 after years of financial losses. That same year, the 158-year-old Providence Hospital in northeast Washington, D.C., which served some of the poorest parts of the city, shuttered its inpatient and emergency services. Months later, D.C. officials announced that United Medical Center—now the only general hospital east of the Anacostia River, in the city’s poorest quadrant—would close in 2023 or 2024 because of losses.

In Chicago, the groups hoping to save Mercy worked independently, unaware of one another. Each of them eventually confronted a perverse reality that’s baked into the modern American marketplace: the places with the most acute demand for medical services are the least likely to get them.


THE HOSPITAL BUTTS UP AGAINST INTERSTATE 55, 10 lanes of traffic that carve a bold line through Chicago. On one side of the highway sits America’s largest convention center, McCormick Place, where the surrounding hotels provide a transition northward to the skyscrapers downtown. On the other side of the interstate, Mercy has stood as a gateway to the South Side.

The health disparities on the opposite sides of that line are more extreme than anywhere else in America. The life expectancy for someone who lives in the Near North Side neighborhood of Streeterville is 90 years. In Mercy’s neighborhood, 3 miles straight down Michigan Avenue, life expectancy plunges by 12 years. It keeps dropping as you head south, bottoming out at 60 years in a neighborhood 6 miles from Mercy.

Hospitals haven’t thrived on the South Side, despite the intensity of need. In the past two decades, several hospitals serving the area have either closed or significantly reduced their services. In 2009, Michael Reese Hospital, a 120-year old institution in the same ZIP code as Mercy, bowed out, citing financial pressures.

That left Provident Hospital as Mercy’s closest neighbor. In 2010 budget cuts forced Provident to shutter its obstetrics unit. Two months after Mercy announced its planned closure last year, Provident downgraded its emergency department from a full-service facility to a “standby” unit. That meant Provident would try to stabilize emergency patients so they could be rerouted somewhere else. The obvious choice was Mercy, which was limping toward its planned end.

Last summer, as they surveyed this enfeebled landscape, community advocates in Chicago warned that the Near South Side was becoming a “health-care desert.” They began holding small rallies demanding that someone—may be the city, maybe the state—step in to stop Mercy’s closure.

Once upon a time, that might have been a reasonable expect- local governments ran the hospitals that cared for their poor. But starting around 1970, healthcare costs began steeply and steadily rising; per capita, spending on health care is now 31 times more than it was then, according to federal figures. The public hospital model became a burden for local taxing districts, and more jurisdictions turned their healthcare systems over to the private sector.

Today, fewer than 10% of general hospitals in America are owned by governments or a public hospital district. Those that remain—a list that includes Provident, which is run by Cook County—often complain they’re forced to compete on an uneven playing field. Privately operated hospitals aren’t held to the same standards of social responsibility, they argue, and as a result, can cherry-pick patients likely to bring them a profit.

Mercy was purchased in 2012 by Trinity Health, a not-for-profit company that operates 90 hospitals and about 100 healthcare clinics nationwide. Last year Trinity’s executives said the company had been subsidizing Mercy’s losses for several years. They emphasized that the company was driven by a charitable social mission, but that charity had its limits.

Starting in March 2020, hospitals all over the country were flooded with Covid-19 patients and forced to postpone elective surgeries, an important source of profit. That cut deeply into their margins. Pre-pandemic, the average American hospital operated on an 8.8% profit margin. The margin at safety-net hospitals was just 2.9%, according to industry figures. But Mercy’s bottom line was consistently red; since 2012, Trinity had lost $187 million on the hospital. In the first months of the pandemic, the company said, the losses accelerated by about 25%.

That added financial pressure couldn’t have come at a worse time. The South Side was the part of the city hardest hit by Covid in those early months, and Black Chicagoans were dying at a rate 2.5 times higher than Whites. The city was broke, facing a record $1.2 billion shortfall for the coming fiscal year. Chicago Mayor Lori Lightfoot said the combination of a public-health catastrophe and a fiscal emergency represented “a crisis, unlike anything we have experienced in our lifetimes.”

Fearing that the financially struggling hospitals in the most affected parts of the city couldn’t absorb a Covid surge, the city approved a hastily contrived solution: a $66 million emergency field hospital inside McCormick Place, directly across the highway from Mercy. But when Chicagoans got sick, they did what they’ve always done: They turned to their hospitals. In the end, only 38 patients were treated at the convention center.

WHEN TRINITY BOUGHT MERCY FROM THE Sisters of Mercy, the order of Catholic nuns that founded it, the company made a series of promises to local officials in exchange for tax breaks. It pledged to keep Mercy running as a full-service hospital until at least 2029. So before Trinity could close Mercy, its executives had to convince a state board of regulators that they’d exhausted other options.

A series of hearings was scheduled for the fall and winter. Right away, the regulators let it be known that they didn’t plan to let the company offers. The board members demanded to know how, exactly, a hospital-like Mercy could lose so much money. Were the executives exaggerating the losses? Was this a case of mismanagement? Why couldn’t they sell the hospital to another company?

“As a public-health person, I am really distressed that this is going on in the midst of a global pandemic,” said Dr. Linda Murray, one of the board members.

From their offices in Michigan, the Trinity executives smiled politely and pleaded their case.

They placed much of the blame for the hospital’s struggles on the way medical insurance works for the poor. Only 22% of Mercy’s patients were covered by private insurance plans, they explained. A majority were on Medicaid or were uninsured. The patient mix is important because different insurance plans pay hospitals different amounts for the same services. Private insurers reimburse hospitals roughly twice as much for all services as does Medicare, according to a 2020 survey by the Kaiser Family Foundation. Medicaid, the government plan for the poor, pays the least: Another Kaiser study reported that Illinois’s Medicaid program reimburses hospitals just 61% of what Medicare does. Taken together, these surveys suggest that when a private insurer pays $1,000 for a procedure, Medicaid in Illinois pays about $307. Federal and state aid programs compensate hospitals that provide charity and reduced-cost care for poor patients, but Trinity officials said it’s not nearly enough to bridge the difference.

“The Medicaid funding model does not cover the cost of care,” Edward Green, a lawyer representing the company, told the regulators, “let alone leave any room for equipment or capital repairs or improvements.”

In the closure application it submitted to the state, Trinity wrote that those repairs and improvements couldn’t be put off much longer. “Mercy’s aging facility will require at least $100 million of additional capital investments in the next five years to maintain a safe and sustainable acute care environment,” the application read.

To generate that money, Mercy would need to attract more privately insured patients. But it was facing world-class competition in the form of Chicago’s top-tier hospitals: Rush University Medical Center, Northwestern Memorial Hospital, and the University of Chicago Medical Center. How could Mercy attract privately insured patients with the means to travel to those hospitals, which also eagerly courted them?

It couldn’t, Green told the regulators. The big hospitals were “siphoning of commercial and Medicare patients,” in his words. The only new patient's Mercy could attract seemed to be the poor who were abandoned after the closures and downgrades of other South Side safety nets. “The burden of treating those patients has largely landed on the doorstep of Mercy,” said John Capasso, Trinity’s executive vice president.

The executives suggested that this wasn’t their burden to carry and that no one would necessarily get hurt if they dropped it. “There is a hospital with an emergency department within 5 miles of Mercy Hospital, but Provident Hospital elected to downgrade the level of its emergency department services,” Green noted. “Provident Hospital can simply return to its original status and begin treating emergency department patients again.”

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