In 1965 Pennsylvania Hospital established Hall Mercer to provide community based mental health services which, unlike the previous state hospital system would allow patients to receive treatment for mental illness while maintaining family and social ties. This was part of the federal initiative of the Kennedy Administration to humanize care of people with mental illness. The Kennedy initiative was implemented in Pennsylvania, through the Pennsylvania Mental Health Procedures Act which set up Pennsylvania's Base Service Unit System. The Base Service Unit system consists of a statewide network of small outpatient neighborhood-based facilities called Community Mental Health/Mental Retardation Centers which offer mental health/mental retardation services to residents in the local community or catchment area.

With Pennsylvania Hospital's long history of service to the underserved and mentally ill of Philadelphia, it was a perfect fit to house one of the new Community Mental Health/Mental Retardation Centers. Pennsylvania Hospital became the first institution in Philadelphia to apply for and be granted one of the Community Mental Health/Mental Retardation Center's thus becoming the BSU for Center City and Southeast Philadelphia Catchment area. Of historical interest, Pennsylvania Hospital was also the site of the signing of the Pennsylvania Mental Health Act.

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