Chicago's oldest hospital files for bankruptcy, angering state officials

Closing Mercy Hospital would be "inhumane and unconscionable," officials said.

February 12, 2021, 6:36 PM

Chicago's oldest hospital filed for Chapter 11 bankruptcy this week, frustrating city and state officials who pledged to keep the safety-net hospital open.

The hospital plans to cease all operations except for basic emergency services on May 31.

"We recognize the community's desire that Mercy should stay open, but Mercy has provided as much care as possible while incurring losses that no single entity can afford alone," Mercy said in a statement. "The system of care for the underserved on Chicago's South Side is badly broken, and it is the system that must be fixed so patients can access the care they deserve."

Mercy Hospital and Medical Center is owned by Trinity Health, the fifth-largest health care system in the country, which bought the hospital in 2012. Safety-net hospitals like Mercy tend to serve patients who are people of color, poor, old and either uninsured or on Medicaid, and typically operate on razor-thin margins.

Mercy was profitable when it was purchased, with assets exceeding liabilities by $140.8 million. In 2014, the hospital started losing money, according to tax documents. By 2017, it was in the red.

"Mercy tried for many years to find a path to financial sustainability," the hospital said in a statement. "This included a multi-year national search for buyers and a robust transformation plan with other safety net hospitals. Unfortunately, neither path provided a viable future."

PHOTO: Mercy Hospital stands in the background in Chicago, Nov. 19, 2018.
Mercy Hospital stands in the background in Chicago, Nov. 19, 2018.
Tribune News Service via Getty Images, FILE

The bankruptcy filing comes weeks after the Illinois Health Facilities and Services Review Board voted for a second time to deny Trinity permission to close the hospital and open an urgent care center in its place. Community members and doctors argued that the plan to replace the hospital with urgent care would worsen health care access for the hospital's predominately Black patients and create a health care desert on the South Side -- with the nearest emergency department at least 5 miles away.

Illinois Gov. J.B. Pritzker and state Rep. Lamont Robinson, who counts Mercy in his district, are among the elected officials trying to find a buyer to take over Mercy with the help of state funding.

Robinson said the bankruptcy news came as a surprise. "At no time during talks with Gov. Pritzker, other elected officials, nor myself, did Trinity ever mention bankruptcy as an option," Robinson told ABC News.

A spokesperson for Pritzker said the governor called Trinity's CEO to express his frustration. Pritzker also signed a statement with other elected officials asserting that Trinity's call to close the hospital had hastened its decline. Uncertainty about Mercy's future forced key staff to leave their jobs, the officials argued.

PHOTO: Illustration
Chicago hospitals in Mercy Hospital's service area
ABC News

"They have continually dismantled Mercy Hospital piece by piece, including stripping the hospital of emergency staff ahead of its intended closing schedule," Robinson said.

"This is truly inhumane and unconscionable, especially during a pandemic," the officials wrote. "We asked them to work with us on a smooth transition, to allow another entity to take over. They refused to talk to us and chose instead to operate in secrecy, strategically dismantling a once-vibrant hospital and creating their own financial dilemma."

While state law requires hospitals to get permission from the review board in order to close, the state is limited in its ability to force Mercy to stay open. The $10,000 a month fine the state could impose for closing without permission wouldn't be much of a penalty to the fifth-biggest health care system in the country. Halting Medicaid payments to Mercy, where Medicaid patients make up the bulk of inpatient visits, would make the hospital even less financially viable. A third option for the state would be threatening Trinity's tax-exempt status as a nonprofit since Trinity owns other hospitals in the Chicago area.

"We're just kind of reaching a point where the old solutions aren't working," said Nancy Kane, an adjunct professor of management at the Harvard T.H. Chan School of Public Health. Kane has noticed a trend in the for-profit hospital world of big hospital systems buying up bundles of hospitals to gain market dominance and then closing the low-income facilities. Nonprofit hospital systems like Trinity have now gotten so big that the same tactics are possible in the nonprofit world.

"It's very much part of a growing trend," Kane said. "The worst part is what it does to the populations that these providers serve. No one is stepping in to take care of them," she added. "A 5-mile distance in an emergency in a city is huge, especially if you don't have a car."

PHOTO: Teddy Roosevelt stayed at Mercy Hospital in Chicago, after being shot in an assassination attempt on Oct. 14, 1912.
Teddy Roosevelt stayed at Mercy Hospital in Chicago, after being shot in an assassination attempt on Oct. 14, 1912.
Library of Congress

Hospitals with fewer private payers and more Medicaid reimbursement face significant financial challenges, according to Felicia Perlman, an attorney at McDermott, Will & Emery in Chicago, who often works with the health care industry on restructuring matters.

"There have been recent bankruptcy filings among urban hospitals, such as Mercy," Perlman said. "I think we will see more of that."

The next review board meeting about Mercy's closure is scheduled for March 16.

Dr. David Ansell, senior vice president for community health equity at Rush University Medical Center in Chicago, called the situation "a slow death by a thousand paper cuts."

"We've seen this play out in Chicago before. A health system writ large that treats health as a commodity rather than a human right," Ansell said. "It will become a self-fulfilling prophecy. It's tragic."

What to know about the coronavirus:

Tune into ABC at 1 p.m. ET and ABC News Live at 4 p.m. ET every weekday for special coverage of the novel coronavirus with the full ABC News team, including the latest news, context and analysis.