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Centegra sues state board over approval of competitor's Crystal Lake hospital plan

Sarah Nader - snader@shawmedia.com
Board members listen to speakers during a Health Facilities and Service Review Board hearing for the Mercy hospital that plans to build in Crystal Lake Tuesday, June 20, 2017 in Bolingbrook. There were presentations of support and opposition while the board members determined how to decide on this $80 million facility.
Sarah Nader - snader@shawmedia.com Board members listen to speakers during a Health Facilities and Service Review Board hearing for the Mercy hospital that plans to build in Crystal Lake Tuesday, June 20, 2017 in Bolingbrook. There were presentations of support and opposition while the board members determined how to decide on this $80 million facility.

WOODSTOCK – Centegra Health System has asked a judge to toss out a state board's decision to grant a permit for Mercyhealth's planned 13-bed hospital in Crystal Lake.

The Illinois Health Facilities and Services Review Board in June approved Mercyhealth plans to build a $79.5 million hospital and an $18.8 million medical office building at the corner of Route 31 and Three Oaks Road. Centegra argues in its lawsuit, filed July 25, that review board members failed to follow their own rules and abused their discretion when they approved the 13-bed hospital. Specifically, Centegra claims the board failed to follow its requirement that hospitals have at least 100 beds.

The suit asks a judge reverse the review board's decision and revoke Mercyhealth's permit.

"Centegra Health System’s position has not changed in the nearly 15 years since Mercy first tried to build a facility in Crystal Lake," Centegra Health System spokeswoman Michelle Green said in a statement. "There is no need for the service Mercy proposes, and Crystal Lake is not the right location for a new hospital, no matter its size."

The Illinois Health Facilities and Services Review Board declined to comment on the lawsuit Wednesday. Jeannie Mitchell, assistant general counsel for the review board, said the board couldn't comment on pending litigation.

Mercyhealth "stands by our patient-centered proposal to bring critical hospital and emergency services to the citizens of the Crystal Lake area, a population of more than 60,000 that has no access to such services,” Paul Van Den Heuvel, vice president of legal affairs and general counsel for Mercyhealth, said in a statement.

“As the facilities board noted in its decision, Mercyhealth’s proposal was appropriately formulated to provide necessary services to the Crystal Lake community and met key criteria," he said. "The facilities board made its decision without any knowledge that Centegra had been planning to abandon its Woodstock hospital facility, a decision announced by Centegra within hours after the facilities board convened and rendered its decision. With this knowledge, I imagine the facilities board would have perceived the need for our proposed hospital to be even greater.”

Centegra announced the day after the board's vote that it plans to close its intensive care and medical-surgical operations at its 108-bed Woodstock hospital and move those services – and hospital beds – to McHenry and Huntley.

"Mercy’s most recent proposal is the most non-compliant proposal they have submitted to date, and by approving it the IHFSRB failed to comply with its own rules," Centegra CEO Michael Eesley said in a statement. "Under the circumstances, Centegra was compelled to file this lawsuit. Rules that are not followed are no rules at all."

Centegra's 27-page suit recounts Mercyhealth's two previous attempts to build a hospital in Crystal Lake and mentions illegal activity surrounding the first attempt in 2004. No one at Mercy was ever accused of wrongdoing, but a contractor who offered a kickback in exchange for getting the contract to build the hospital later pleaded guilty and was sentenced to 27 months in prison in 2013.

Centegra and Mercyhealth have been adversarial competitors in McHenry County for years, and the state board's decisions have been the subject of legal challenges in the past. Mercy challenged the review board's 2012 decision rejecting its plans for a 128-bed hospital and, later, a 70-bed hospital in Crystal Lake.

Advocate Health and Hospital Corp., which runs Advocate Good Shepherd Hospital in Barrington and Advocate Sherman Hospital in Elgin, has filed a motion to intervene in the case for administrative review. Advocate also wants to see the board's decision reversed, according to that motion.

Centegra's lawsuit argues that the state board's decision also failed to properly consider the effect Mercyhealth's 13-bed hospital and medical building would have on other facilities in the area, including Mercyhealth's hospital in Harvard.

"Mercy's Crystal Lake facilities would have to make nearly $50 million every year just to break even on operating and capital costs," Centegra alleges in the suit. "Combine that with Mercy Health's admission that all of its proposed patients will be drawn from the existing area providers, and the undisputed evidence in the administrative record overwhelmingly confirms the staff's finding that the project would have an adverse impact on existing facilities and that the adverse impact is immense."

Centegra is in talks to join the larger Northwestern Medicine system and has faced mounting losses so far this year.

The parties are next due in court Aug. 25.

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