It isn’t the pandemic that may kill Chicago’s bankrupt Mercy Hospital and Medical Center.

The oldest chartered hospital in the city has had financial problems since the 1990s, according to a court document filed Thursday. And its story is emblematic of the challenges facing a large swathe of U.S. hospitals also struggling to survive.

Mercy takes on sicker patients, many of whom lack private insurance that reimburses at higher rates. It’s also suffered as more treatment moves outside hospitals. Mercy, located on Chicago’s South Side, sought court protection on Wednesday after Illinois health officials rejected a plan to close the hospital and replace it with an outpatient center.

Even before the pandemic slammed hospitals, forcing them to pay up for protective equipment and cancel many profitable elective procedures, the divide between centers like Mercy and richer facilities has widened.

“Hospitals in surrounding areas have made investments in outpatient services, which, along with new and updated facilities, allowed them to dominate positive consumer opinions in the market and siphon off commercial patients, Medicare patients and outpatients,” Chief Executive Officer Carol Garikes Schneider, who’s headed the hospital since 2013, said in a court filing.

Outpatient Conversion

Mercy’s patients suffer “disproportionately” from chronic diseases that would benefit from early detection and monitoring in an outpatient setting, Schneider said in the filing as she detailed years-long efforts to save the institution.

The Sisters of Mercy converted an old boarding house into Chicago’s first chartered hospital in 1852. The facility stayed independent for more than a century until joining Trinity Health Corp. in 2012. Trinity isn’t part of the bankruptcy filing.

In 2016, Trinity and its board of directors began studying options to save Mercy, concluding that “no scenario was financially viable,” Schneider said. They then explored a sale or new affiliation, but got no interest after speaking with more than 20 potential partners.

Mercy later joined with three other institutions to form the South Side Coalition, and the group signed an agreement in January 2020 to create a new health system that would replace the four hospitals with one or two new facilities and three to six outpatient centers. The group expected to receive $1.1 billion in public and private funds for the project over a decade. But in May, the state declined to provide a $520 million commitment for the project, and the group dissolved.

Mercy decided to close in 2021 and in August sought permission from the state’s health review board to do so. It proposed converting to an outpatient center that could serve 50,000 patients annually and “help local residents avoid expensive emergency room visits and hospitalizations.”

The state said in December that it intended to deny the closure request. Mercy will reappear before the review board on March 16.

In the meantime, Schneider said, losses soared from $4 million a month to $9 million in January and has been losing staffers. By filing for bankruptcy, Mercy seeks to close by May 31.