Nonprofit Merger Case Study: Mercy Hospital

Although nonprofit mergers are great tools for sustainability and financial efficiency, some fail and are unable to sustain an organization. Serving high-risk communities throughout the COVID-19 pandemic and facing increases in outpatient care over the last several years, Mercy Hospital, as well as three other South Side Chicago medical centers, have faced financial struggles. Their solution was to merge into a single healthcare network in order to create a more efficient system of hospitals. This system would create outpatient centers that allow the hospitals to continue serving their communities in the ways they need. Unfortunately, mergers are never a sure solution and present serious challenges and costs to those involved. With insufficient resources and too little time, this merger failed, leaving Mercy Hospital in peril. 

On July 29th, 2020, Mercy Hospital, in Chicago’s Near South Side, announced that it will be closing its doors after this merger plan fell through. The plan involved four nonprofit Chicago medical centers, including Mercy, South Shore, St. Bernard, and Advocate Trinity hospitals crafting a merger deal that created a sustainable network and repositioned their infrastructure. The plan the hospitals developed would create a single healthcare network comprising of one to two new modern hospitals, and three to six outpatient centers that would replace the four existing hospitals. This new layout would prioritize creating space for the growing demand for outpatient care and provide it in a financially efficient environment. While this plan was centered on restructuring for financial sustainability and efficiency, the plan relied on lawmakers to back $520 million of the estimated $1.1 billion cost. The price tag was just too much for lawmakers to justify, and the plan was rejected. Illinois has struggled with balancing its budget for years, and lawmakers expect serious budget struggles during and after the COVID-19 pandemic. Mercy Hospital alone is losing $4 million monthly and despite attempts at sustainable business practices, its only chance for surviving was government support of the merger or a windfall $100 million in capital investment in the next several years. 

The merger carried a hefty price tag for the state that would have further strained an already struggling Illinois budget. The state failed to balance its budget and is already planning to rely on federal grants to offset their lack of state revenue. Mercy was forced to seek this merger and a government stake after outpatient care and the COVID-19 pushed their budget to its breaking point. Outpatient care reimburses hospitals far less than other forms of care, especially when it happens in beds that are equipped for aging care or other more expensive care options. These hospitals are responsible for a significant amount of healthcare services, especially on the south side of Chicago. The closure of these hospitals will likely place a significant strain on other hospitals, potentially causing financial trouble in the future. Overall, the closure of Mercy Hospital shows the serious impact nonprofit failures have on communities; the hospital accounts for over 50,000 emergency room visits, some 350,000 outpatient visits, and nearly 12,000 hospital admissions, delivering 1,600 babies and employing 1,700 workers.

This is an example of a nonprofit merger that failed, revealing the delicacy of mergers and resulting in the closure of Mercy Hospital. They are challenging to complete. While they may be great tools for restructuring, eliminating redundant roles, and making a system of nonprofits more efficient, they are not guaranteed solutions. It also highlights the issue of resisting mergers until financial insolvency is unavoidable. While we are not privileged to the financial details of Mercy Hospital’s budget over the last decade and few expected a pandemic to hit the world, always looking toward making nonprofit communities more efficient and sustainable should be on the mind of leaders across the country. Highlighted in our last blog, merging financially robust organizations supports a healthy and less dire merging environment for all parties involved. 

In challenging times, experience is an essential feature of navigating and persevering through crises. At NMBL Strategies, our team of consultants possesses a wealth of strategic planning experience having spent 30+ years serving in executive roles at nonprofits and small businesses. Reach out to us today at info@nmblstrategies.com to learn about what we can do for you in these uncertain times.