What Mercy Hospital’s $1 Sale Says About Safety Nets’ Future

Just a few weeks ago, I wrote about the very real threat that is rural hospital closures and consolidation. But an issue that deserves further attention is the impact that Covid-19 has had on the safety net hospitals serving some of our country’s most vulnerable populations – and more importantly, what this means for their future.

Compared to other care delivery organizations, safety net hospitals have particularly thin margins. The majority of patients they see are either altogether uninsured or on Medicare or Medicaid, which reimburses them at a much lower rate than commercial insurance plans.

Though fulfilling an immense need in the communities they serve, safety net hospitals rarely have much profit to show for their efforts. And when Covid-19 forced safety net hospitals to cancel elective procedures and make large purchases of personal protective equipment and other tools to treat patients presenting with the virus, that was the straw that broke the camel’s back. Due to the compounding social determinants of health impacting the members in their community, safety net hospitals often saw more patient volumes than that of hospitals treating Covid-19 patients with commercial insurance, but at the same time, had far fewer resources from which they could pull.

Mercy Hospital & Medical Center in Chicago is a perfect example. Mercy was considering merging with three other area hospitals in January 2020, but when those plans fell through, it only took Mercy two months to realize and announce that it had no choice but to shut its doors.

To the relief of many in the Chicago community, it was announced earlier this month that Mercy would remain open after all. Having been purchased for a whopping $1 from Insight Chicago, an affiliate of a Michigan-based healthcare company specializing in neuroscience and orthopaedic surgery, Mercy will change its name but remain an acute care hospital.

One dollar may sound awfully cheap for an entire hospital, but when you consider how hard a safety net hospital’s business model is; how much time, money and energy will need to be invested to prevent history from repeating itself; and the fact that Mercy spent 18 months trying to sell to no avail, this shouldn’t come as a complete surprise. What will come as a surprise is if Insight is able to turn Mercy into a profitable hospital.

Financially the odds aren’t in Insight’s favor. However, timing may be.

In the last few years, we’ve seen consumers’ preferences shift, and care delivery with it. Convenience is king. So rather than wait weeks to get in to see their primary care physicians, many Americans today head to an urgent care clinic – and in some states, retail clinics at Walmart, Target, Walgreens or CVS – to get a quick diagnosis. Instead of picking up prescriptions at their local pharmacy counter, they’re getting their prescriptions delivered by the likes of Amazon. And more recently, they’re turning to telehealth to consult with their physician, though there are still barriers to overcome there, too.

Consumers want to get the biggest bang for their buck in the easiest and least painful way possible. And with a rising number of healthcare disruptors stepping in to give them that, many are turning away from the traditional care delivery organizations that continue to place volume before value.

If Insight can demonstrate that the new Mercy Hospital & Medical Center is more than the safety net hospital that it was before, that it can provide more value to more Chicago residents, Insight could see an uptick in the number of commercially insured patients it serves. To do so, Insight will first have to define the core services it needs to offer to its critical constituents, how those services will be delivered, where, and by whom. It will need to clearly define outcomes that matter and create compelling, straightforward value narratives that will enable them to differentiate in a space where there is real competition. Meaningful connections to community leaders — both formal and informal — will be important in reestablishing the organization as a pillar in the community. This is clearly the time for thinking differently about the business model of healthcare. If the new entity attempts to reestablish itself on a dying fee-for-service model, it will fail once again. However, if it embraces a different approach — one that isn’t hospital and provider centric — but rather focuses on the real healthcare needs of the population it chooses to serve, it might actually become a model of what’s possible in serving the needs of a vulnerable population — and make enough money in the process to remain viable.

Prioritization of scarce resources will be key in meeting the most pressing needs of the community it serves. Everything else will be a far second. Then, they will likely have to leverage their neurological and orthopaedic expertise, and find a way to demonstrate that they provide a higher-quality experience. Reporting relevant patient outcomes in a consumer-friendly manner is a great way for Insight to do so.

Indeed, bringing in more commercially insured patients by delivering greater value to Chicago residents will accelerate Insights’ success in the acquisition of this safety net hospital. The same can be said for any other organization looking to purchase a safety net hospital in the short term. Though in the long term, value will prove to be vital for all hospitals’ and health systems’ future success.

Experts have long said that value-based care is the future, and thanks to the acceleration caused by Covid-19, that future is starting now.