During its meeting on Tuesday, the Iowa Board of Regents approved the University of Iowa’s plan to purchase Mercy Hospital of Iowa City. The plan calls for UI to pay $20 million for “substantially all” of Mercy’s assets, including the 234-bed Iowa City hospital, as well as the Mercy Family Medical Centers in Kalona, Tipton, West Liberty and Williamsburg.
The regents approved the purchase agreement “without asking questions about the deal’s finances, including how the price was determined, where the money will come from and what will happen with the $63 million Mercy owes on publicly-issued bonds,” the Gazette’s Vanessa Miller reported.
The regents’ spokesperson told Miller, “The bankruptcy court will determine what happens with Mercy’s debt, but the state will not be responsible.”
The purchase agreement between the university and Mercy was publicly announced Monday morning, after the hospital filed for Chapter 11 bankruptcy earlier that morning. The purchase of Mercy will have to be approved by the judge assigned to the case.
The bankruptcy filing came in response to a legal action initiated two weeks ago by Preston Hollow Community Capital, a Texas-based specialty finance company that purchased $41.8 million of the bonds Mercy issued in 2018. Preston Hollow filed a petition seeking to force the hospital into receivership, claiming Mercy was in “financial freefall” and is “on the verge of insolvency.”
Mercy objected to the receivership request and sought to have it dismissed, claiming it was a “pretextual power play by an investment fund that puts the medical team, employees, patients and larger community at risk,” and is the result of Mercy rejecting the company’s “aggressive and improper demands to abruptly change management.”
The bankruptcy proceedings have superseded Preston Hollow’s petition. According to Preston Hollow’s filings, Mercy’s own financial documents show it has a negative cash flow of approximately $2.6 million per month.
The purchase agreement approved by the Board of Regents shows that discussions between UI and Mercy long predate Preston Hollow’s actions last month. The agreement states that the university and the hospital entered into a nondisclosure agreement about their negotiations on Nov. 1, 2022.
UI President Barbara Wilson told the Regents that Mercy had approached UI asking it “to submit a bid to continue their long tradition of health care in our community and beyond.” The agreed-upon purchase price of $20 million is drastically lower than the $605 million UI offered in 2021 in an attempt to buy Mercy and make it part of a planned University of Iowa Hospitals and Clinics community division.
UI was one of four bidders for Mercy in 2021, after the hospital solicited purchase offers. Mercy ended up rejecting all the bids.
The statement issued Monday morning by President Wilson and UI Vice President for Medical Affairs Denise J. Jamieson said UI has “always maintained great respect for Mercy Iowa City, knowing the vital role it has played in our community since 1873. As members of the same community, many of us know and care about people who work at Mercy Iowa City. We want you to know that leaders from the University of Iowa, UI Health Care, and Mercy Iowa City are working together to avoid significant disruption.”
According to the agreement between UI and Mercy, the university will create an advisory board for Mercy, but Mercy will continue to have its own chief administration officer. UI also commits to making regular capital investments for Mercy’s needs.
Wilson told the regents, “The potential affiliation with Mercy Iowa City is one way we can continue to meet the health care needs of citizens in this community and in outlying areas around our community, as well as across the state.”
This story originally appeared in LV Daily, Little Village’s Monday-Friday email newsletter. Sign up to have it delivered for free to your inbox.
