The ongoing circumstances surrounding Mercy Iowa City’s proposed acquisition will continue to develop, as the 150 year-old community hospital hopes to maintain its regular operations throughout the process.
On Tuesday, Aug. 8, the Iowa Board of Regents moved to accept the University of Iowa’ s request to purchase Mercy Iowa City for $20 million, after the hospital filed for Chapter 11 reorganization in the U.S. Bankruptcy Court in Iowa’s Northern District.
This approval immediately followed a Monday, Aug. 7 announcement that stated Mercy and the university had signed a Letter of Intent, planning for its acquisition.
The proposed acquisition follows years of financial challenges–including difficulties finding a healthcare partner, the resignation of several top executives, a downgrade in credit rating from Moody’s Investor Service and the hiring of a restructuring team.
“We face financial challenges–that is not a secret,” said Mercy Iowa City president and CEO Tom Clancy, in a video message to employees Aug. 7. “However, the financial pressures escalated when one of our largest creditors filed a petition with the court to put our hospital into receivership a couple of weeks ago.”
Mercy investor Preston Hollow Community Capital and master trustee Computershare Trust accused Mercy of breaching contracts connected with $63 million it borrowed via publicly-issued bonds, and petitioned the court on July 24 to put the hospital into receivership, a move disputed by hospital officials.
The Letter of Intent, signed by both entities, stated the university would acquire “substantially all” the operating facilities and key assets of Mercy, which include real estate, equipment, inventory, workforce, supplies, and active business operations.
“We as the University of Iowa remain committed to our mission of care for all citizens of the state and in many ways, this particular move is part of that commitment,” said University of Iowa President Barbara Wilson at the Board of Regents meeting where the approval was given.
What will happen with Mercy’s outstanding debts has yet to be determined by the U.S. Bankruptcy Court. The proposed purchase agreement states that the university will not “be obligated to pay, discharge, perform, or assume any debt, obligation, expense, or liability of sellers.”
Two years ago, UIHC offered Mercy $605 million for ownership of the hospital when it was searching for a healthcare partner, an offer that was ultimately rejected after Mercy said it failed to identify a good long-term fit from several offers, as originally reported by The Gazette.
Steindler will continue with construction
The acquisition comes one year after Steindler Orthopedic formed a partnership with Mercy, in which Steindler agreed to provide management services for Mercy’s orthopedic service line, as well as establish a new medical park in North Liberty.
The plan included a 71,000-square-foot Steindler Orthopedic Clinic, a physician office building, acute care hospital, general market hotel and space for future development. This 36-acre medical campus will be developed near the intersection of Forevergreen Road and Highway 965.
“If Mercy Iowa City is acquired by UIHC, Steindler Clinic’s relocation from Iowa City to North Liberty will go on as planned,” said Patrick Magallanes, president and CEO of Steindler Orthopedics, in an email to the CBJ. He said Steindler has been the primary revenue generator for Mercy, via the orthopedic procedures they perform in Mercy’s operating rooms.
“We have received a lot of interest today from hospitals interested in providing operating rooms for our surgeons. Currently, we are proceeding as normal with our planned procedures at [Mercy.] We are also hopeful that if the acquisition of MIC by UIHC occurs, Mercy will have the resources and leadership to restore its place in our community,” Mr. Magallanes said.
