Mercy Iowa City tackles contract disputes, dissolutions

Mercy Iowa City is seeking relief from its executory contract with the Steindler Orthopedic Clinic, three months after the clinic filed an objection to its contract being assumed by Mercy’s buyer, University of Iowa Hospitals and Clinics. “Rejection of executory contracts is appropriate when rejection would benefit the Estate,” a court document stated, which also indicated that UIHC did not express interest in assuming the contract with Steindler after scrutinizing Mercy’s rejected contract list. Included on the rejected contract list is Physician’s Building Group, Crown Medrealty Partners, Steindler North Liberty Ambulatory Surgery Center and Dr. Taylor Dennison, all Steindler related counterparties. Mercy requested that the court approve the rejection request by the first calendar day immediately following the closing date of Jan. 31, and establish March 1 as a deadline for Steindler to file claims against Mercy for damages arising from the rejection. The court agreed to Mercy’s motion and declared the contract with Steindler to be rejected as of Feb. 1. Patrick Magallanes, CEO of Steindler Orthopedic, said that “Steindler is getting exactly what it wanted.”

“We’re not at all unhappy,” said Mr. Magallanes. “We’re looking forward to working with the University at the new facility. We're just very happy that any agreements that we might have had, those agreements could have touched development in North Liberty, they could have touched co-management, (and) that we really just have a blank canvas to create new relationships.” Mr. Magallanes said that Steindler Orthopedic will continue to see patients in the downtown location and continue working on the vision for its North Liberty site.

Altera Digital Health Inc. dispute heating up

On Jan. 12, Mercy filed a motion “compelling contractual performance” aimed at Altera Digital Health Inc., Mercy’s electronic medical record software system. Altera is balking at providing transition services to UIHC, which Mercy argued was one of the conditions to closing the sale with UIHC, an argument that Altera disputes. On March 9, 2021, Mercy entered into the Altera agreement with Allscripts Healthcare Solutions, Inc., a company that was acquired by Harris Computer Corporation and rebranded as Altera Digital Health, to implement a needed upgrade to its EMR system. “The EMR system is the backbone of the hospital’s operations and is vital to the day-to-day operations of the hospital to keep and track medical records, schedule patient visits, track medical histories, lab results, physicians’ notes, and to the Hospital’s ability to bill and collect…without Altera’s assistance in the transition, (Mercy) could not continue to operate,” said a court document. According to the motion, Altera will only agree to help with the transition process if the hospital drops all claims and causes of actions against it. Mercy is also accusing Altera of being in violation of the automatic stay. “Unfortunately, Altera has… sought to exploit the situation by demanding a release from (Mercy) in exchange for providing transition services,” the court document went on to say. Mercy called the implementation of Altera’s EMR system an “immediate and catastrophic failure,” blaming the software company for Mercy’s massive loss of cash flow between 2022-2023 because the hospital’s ability to collect payment and bill was “significantly impaired,” claiming it was a primary cause for filing bankruptcy. During this time, Mercy experienced difficulties in coding, billing, and collecting for patient visits, an inability to submit regulatory reports on time, and misconfigured workflows. This created a backlog of accounts receivable payments that could not be promptly collected, which ballooned to 40%. Consequently, Mercy claimed, the hospital was compelled to hire a restructuring firm which ultimately led to filing for Chapter 11 bankruptcy. Altera is seeking a $9.8 million payment, but Mercy said Altera did not live up to its standards “as stipulated in the contract.” “(Mercy) does not owe Altera any unpaid amounts in light of their breach and failure to perform,” said a court document, claiming that Altera breached its agreement. Part of the agreement, Mercy argued, was providing transitioning services to UIHC up to one year after its termination with the hospital. “Altera’s demands for a release and failure to engage with the University to ensure appropriate transition services of the EMR system is little more than an attempt by Altera to exercise control against (Mercy) and force (Mercy) to give up a valuable claim,” the court document added. The court granted Mercy’s request to compel transition services and to perform the services according to the Altera agreement until March 2025. It also found the company to be guilty of violating the automatic stay and ordered that damages be awarded at a later date.

Altera: problems existed before EMR implementation

Altera has vigorously disputed Mercy’s claims, calling them a “desperate and last minute attempt” to force their hand and accused Mercy of trying to “misappropriate Altera’s software, and impose a term of indentured servitude on Altera to comply with (Mercy’s) wishes.” Altera stated that Mercy is unwilling to pay a fair market price for the software and that it is innocent of breaching its contract with Mercy, arguing that it is not obligated to perform transitioning services, even if it were in violation of the agreement. “The breach allegations contain zero specific facts of how Altera allegedly breached the agreement or even what terms Altera allegedly violated. Moreover, (Mercy’s) motion cites absolutely zero evidence showing a breach,” said a court document dated Jan. 19. Part of the agreement plan states that Mercy is entitled to one year of services following the termination date with Altera, but only if the agreement was terminated for reasons other than client breach, and if the client has paid for services in full. Altera said it has not been paid in full, so Mercy does not get transition services – and even if it did, third parties – like UIHC – cannot request transition services. At the outset, Altera gave Mercy a license to use its clinical and financial manager software in connection with the operation of its hospital and clinics, emphasizing that the two “very different” software platforms are used for separate tasks – clinical and financial – which connect or speak to each other. Altera stated that the situation surrounding the implementation of the new software system rested solely on the squares of Mercy’s shoulders. At the start, Altera suggested Mercy take a staggered approach to implementing the software– starting with the clinical software, followed by the financial software. “Doing so avoids many problems,” the court document stated. Mercy agreed to assume the risk of going live all at once instead of in steps, because of “cybersecurity and non-reporting issues” it was having at the time. It was the all-or-nothing approach that caused the situation with Mercy’s EMR system, Altera argued, saying that EMR implementation can take a long time – 16-24 months – and it’s normal to run into snags along the way. According to a court document, Altera stated that Mercy also declined further testing with the system before it went live, thus failing to satisfy its own obligations. According to the motion, the agreement between Altera and Mercy stated that “before any software is used in a live production environment, it is (the) client’s responsibility to make independent decisions about system settings and configurations based upon (the) client’s needs, and reach its own independent determination that the software as implemented is appropriate for live production use.” Mercy, Altera argued, agreed that it was solely their responsibility to independently determine how and when to implement the software. Altera also claimed that Mercy’s issues started well before the two companies made an agreement, saying that Mercy was using an obsolete software that had not been updated for four years, resulting in cybersecurity incidents. Prior to hiring Altera, Mercy was using Horizon electronic medical software by McKesson, which retired the product in 2015 and ceased maintenance of it in early 2018. Because the outdated software was no longer certified, according to the court document filed by Altera, Mercy could not comply with reporting requirements by the Centers for Medicare & Medicaid Services (CMS). In addition, the court document continued, Mercy experienced numerous management changes and turnover at senior staff levels. Altera accused interim CEO of MercyOne of inhibiting Altera’s implementation success due to lack of knowledge on the subject of EMS. “These problems would have occurred regardless of what software was being used and irrespective of who implemented that software,” said the court document. According to the agreement, stated Altera, Mercy had to support the implementation of the new EMR by using knowledgeable staff who needed to input proper billing codes and info. “Software is only as effective as the information input and the ability of the user,” said the court document.