Two big Midwest hospital mergers are canceled

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Two major Midwest not-for-profit hospital mergers have fallen apart amid turmoil roiling the healthcare industry and state governments.

A plan among four hospitals to form a new system for South Side Chicago unraveled after Illinois lawmakers adjourned last week without providing needed financial support amid budget strains caused by the COVID-19 pandemic’s drain on state revenues.

Advocate Aurora's Trinity Hospital was to have merged with three nearby hospitals on Chicago's South Side to form a new system.

Michigan-based Beaumont Health and Ohio-based Summa Health called off their plans to form a $6.1 billion system Friday.

“Beaumont Health is ending partnership plans with Akron, Ohio based Summa Health,” the two announced in a joint statement Friday. “The organizations are now finalizing details and next steps to end the planned partnership.”

The two systems announced partnership plans in July and in December signed a definitive agreement for Summa to join Beaumont.

Summa has $1.4 billion of revenues generated by a network of four hospitals, community health centers, a health plan, a physician-hospital organization, and a multi-specialty physician organization. Beaumont is Michigan’s largest not-for-profit health provider with eight hospitals and $4.7 billion in annual revenues.

They received all necessary state and federal regulatory approvals.

After the COVID-19 outbreak grew into a pandemic that forced hospitals to focus all their attention on treatment and preparation for growing numbers of patients, the two put the merger temporarily on the backburner in April. Beaumont officials said the two agreed that the union was an “unnecessary distraction.”

Officials said they were disappointed that Beaumont called off the merger but the system is in stable enough shape that it does not need to seek a new partnership.

No Illinois funds

In Chicago, four fiscally strained hospitals nixed plans announced early this year to join forces and create a new system with plans to eventually build new facilities. State lawmakers failed to include hospital transformation funding that the group was banking on to support their $1.1 billion capital plan.

Without the funding that was to be included in legislation establishing the Hospital Transformation Fund, “we have determined that we see no path forward for our project that would transform health care on the South Side and help address disparities in health for the patients we serve," the hospitals said in a letter to the Illinois Department of Healthcare & Family Services. "We have grave concerns about this development, and we believe this action will force hospital closures.”

The hospitals were seeking a total of $520 million in state funds over five years including $110 million in fiscal 2021.

The plan had Chicago Mayor Lori Lightfoot’s endorsement and support from the Illinois Department of Healthcare and Family Services but some lawmakers said more information was needed.

“This is extremely difficult because I want that transformation to take place as soon as possible” but the timing was bad with “so many things in flux about our state budget,” Pritzker said last week. “It was nearly impossible for the General Assembly to go forward with a billion-dollar program. And I know that that timing makes it very, very difficult for those hospitals.”

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. Mercy Hospital and Medical Center is part of Michigan-based Trinity Health. Advocate Trinity Hospital is part of Advocate Aurora Health which had previously said it intended to shed the hospital.

The four were going to spend more than $1 billion on new and improved facilities before closing any existing, aging hospitals. The hospitals said that combining into one system would allow it to better respond to chronic illnesses pervasive in South Side communities, many of which suffer from poverty. They planned to build at least one new state-of-the-art hospital and new community health centers.

Summa-Beaumont

Summa officials attributed the decision to end the merger to Beaumont, which in turn said its decision focused on whether Summa was the right fit for Beaumont during the current, challenging times.

Beaumont has cut executive pay and turned to furloughs and layoffs to manage the pandemic’s fiscal impact. It previously reported $54 million in first quarter operating losses. Summa has said it saw about a $10 million loss in March and $16 million hit in April.

As part of the merger plan, Summa debt was to have come under the Beaumont Health obligated group, which has roughly $1.5 billion of outstanding debt rated in the single-A category.

Moody’s downgraded Summa’s $350 million of debt in 2017 to Baa2 citing unexpected operating losses and higher capital spending. Summa announced in 2017 that it was beginning a search for a potential partner or merger with another health system to help ensure long-term financial stability.

Officials said they were disappointed that Beaumont called off the merger but the system is in stable enough shape that it does not need to seek a new partnership.

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