Tentatively, a new 500-bed hospital or two 250-bed hospitals are planned to take the place of the four hospitals’ nearly 800 combined beds. They had planned to sign a definitive agreement and announce a CEO and leadership team by midyear.

The hospitals could aggregate their data to identify future care sites and service lines, like violence recovery, executives said. The community centers would offer urgent care, ambulatory surgery, infusion therapy, mental health services, diagnostics and imaging as well as specialty care.

Similar moves are being made throughout the country, Buchanio said, noting that Chicago’s South Side has changed a lot since the 1950s.

“It’s hard to adapt unless hospitals merge and attack regional patient demographics in a different way,” he said.

Changes to reimbursement, including efforts to spur new models of care, are leading to consolidation and specialization, said Mark Armstrong, a shareholder at LBMC.

“Smaller markets have been encouraged to be more general, but then they have to adapt when they realize they shouldn’t be all things to all people,” he said.

Illinois officials are seemingly supporting this deal because of the treatment barriers that low-income communities face, said Jennifer Perry, managing principal at consultancy FMG Leading.

The hospitals predominantly serve a South Side community that has significantly lower life expectancy than downtown Chicago, the result of food deserts, violence and substandard housing, among other issues.

“Competition isn’t serving all of them or the community that well,” said Perry, adding that several of the hospitals’ faith-based missions may have led to a partnership. “They may have tried to be involved in other transactions that may have not been attractive because of their performance.”

While the new entity will not be a Catholic system, discussions about the church’s Ethical and Religious Directives that ban abortions, gender reassignment surgeries and other procedures are ongoing, executives said.

Catholic and secular hospitals will often set up separate subsidiaries to ensure patients have access to all treatments, but they aren’t performed through the faith-based division, Perry said.

Meanwhile, it’s uncertain whether the funding commitment from local and state agencies and philanthropists was guaranteed.

“The money may be going toward more immediate needs,” Buchanio said. If that’s the case, it may push back a lot of that funding, he said.

Thus, it’s imperative hospital leaders make a compelling case, experts said. The executives must clearly explain the rationale of closures and operations adjustments to the community, Buchanio said.

“An inability to do so erodes trust and can negate or dampen the momentum behind the investment,” he said.

“Given the complexity of the deal, they have to spend time upfront clarifying their shared purpose and manage expectations,” Perry said.

Many hospital deals lead to aggregation rather than integration, warned Gay Casey, a managing director at Berkeley Research Group. Economists have pointed to a number of studies that have shown prices typically rise after hospitals merge while expected savings often fall short.

“They cannot afford to have duplication of administration function,” she said. “They have to optimize resources and sites of service and figure out how to best deliver care for people in those communities. If they try to continue operations status quo, then I would venture to say the outlook is not great.”

Casey remembers one deal where a health system divested a hospital, and they had to set up everything from scratch.

“It took a small army and relentless focus to get that done,” she said.

Source: COVID-19 reshapes healthcare M&A

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