Court Approves UIHC purchase of Iowa City Mercy Hospital

[cigaretteman]

As Monday’s final sale hearing approaches in the heated bankruptcy of Iowa City’s oldest and only remaining community hospital, precarious deals are being tested by objections and rising tempers — including from Mercy Hospital partners and creditors unlikely to get the millions they’re due.



Steindler Orthopedic Clinic — which for generations has partnered with Mercy, recently making deals related to Steindler’s development of a $29.3 million ambulatory surgery center in North Liberty — took specific issue with the prospect its contracts could be assigned to University of Iowa Health Care, slated to buy Mercy’s assets for $28 million.


“Steindler has the right to enforce the prohibition against the assignment of the North Liberty (ambulatory surgery center) agreements by Mercy without Steindler's consent, as the agreements concern the future development, operation, and ownership of (the) center,” according to an objection Steindler filed Friday in U.S. Bankruptcy Court. “Steindler’s’ ability to decide which entities are allowed to join in that development is a fundamental term of the North Liberty ASC agreements.”



Given that control was central to the deal, according to Steindler’s objection, “Mercy should not be allowed to use the bankruptcy filing to attempt to dictate to Steindler that other entities may have an opportunity to interject themselves into Steindler’s ambulatory surgical center’s development and operation.”


Not said in the filing is that UIHC is building a $525.6 million hospital — just over a mile east of Steindler along the same Forevergreen Road in North Liberty — that will house its own orthopedics department.


The university’s standing offer to buy Mercy Iowa City, going before a judge Monday, comes after years of failed negotiations and backroom drama — including a UIHC offer in 2022 to buy Mercy for a $605 million investment over 10 years.


Steindler, in its objection Friday, for the first time publicly revealed its involvement in that deal’s failure.


“Steindler was approached by Mercy and its representatives, who provided Steindler with ‘UIHC Requirements and Mitigating Alternatives’ and stipulated that UIHC’s offer to acquire Mercy would fail if Steindler would not alter the North Liberty Ambulatory Surgery Center agreements, including modifying the restrictive covenants in the North Liberty Ambulatory Surgery agreements and agreeing to grant 51 percent ownership of Steindler’s North Liberty ASC to UIHC,” according to court documents.


“The very intent of the agreement would fail if the agreements were assumed by the type of competitor for which the agreements were designed,” according to the objection. “The restrictive covenants, which Mercy said was necessary for UIHC to close the widely publicized $605M offer for Mercy, were intentionally drafted to protect Steindler from competition.”

​

After UIHC’s 2022 offer failed to materialize, and Mercy’s financial position continued to decline, the hospital was pushed into Chapter 11 bankruptcy in August — announcing at that time the university had made a “stalking horse bid” of $20 million for essentially all its assets.


When the sale went to auction, Mercy’s largest bondholder Preston Hollow Community Capital and master trustee Computershare tapped some of the nearly $63 million in debt Mercy owed them to “credit bid” above UIHC’s $20 million offer.


The university initially opted not to bid above the $20 million offer, prompting Mercy to continue the auction — rather than close it that first day. When the auction resumed nearly a week later, the UI did up its bid — only to be topped again by Preston Hollow, who initially was declared the winner.


Days later, though, friction emerged over how and who was going to cover Mercy’s ongoing operating losses through the transition to Preston Hollow, which planned a partnership with Los Angeles-based American Healthcare Systems to maintain Mercy as a community hospital.


Given those funding disagreements, Mercy reopened the auction Oct. 27, reversed the results and declared the UI the actual winner — closing the auction and promptly setting a hearing date for Monday.


The university has declined to disclose from where it will pull the $28 million should a judge finalize the sale. Both the UI and Board of Regents officials have repeatedly declined to disclose whether that will come from the campus’ general fund or another funding pool, like patient revenue or investment income.

Mercy Hospital sale agreements spark objections

As Monday’s final sale hearing approaches in the historic and heated bankruptcy of Iowa City’s oldest and only-remaining community hospital, precarious deals are being tested by objections and rising tempers – including from Mercy Hospital partners and creditors unlikely to get the millions they’re due.

www.thegazette.com

 

[cigaretteman]

'Unfairly tip the balance’​

After days of silence — while attorneys worked through details of the proposed sale and use of Mercy’s available cash-like assets, or “cash collateral” — documents filed with the court late last week revealed vast protections for its master trustee and bondholders, in hopes of preventing them from objecting to the sale to the university.


Those protections, though, compelled Mercy’s hundreds of unsecured creditors to do just what hospital executives had been trying to avoid: object.


“Any final cash collateral order should only provide adequate protection as required by the bankruptcy code and not unfairly tip the balance of these Chapter 11 cases in favor of the master trustee through an excessive adequate protection package and waivers of rights that will be detrimental to the interests of general unsecured creditors,” according to a Friday objection, noting the master trustee has had adequate interim protections for the past three months.


“There has been no showing whatsoever that such protections have been inadequate,” according to the creditors’ objections. “There is no reason, evidence, or support to change the status quo to tilt the scales of these cases in favor of the master trustee.”


But Computershare and Preston Hollow warned they could and would object to Mercy’s ongoing use of the cash they hold liens on — threatening to throw more wrenches in the Mercy-UI deal — if a judge doesn’t approve the ramped-up protections.


“Each of the covenants, agreements, and protections set forth in the proposed final order are interrelated, and are essential to the (bondholders’) consent,” according to court filings. “In the absence of all the protections delineated in the proposed final order, the (bondholders) would not — and do not — consent to the use of their cash collateral, and hereby expressly reserve all their rights, remedies and objections.”


Mercy, in response to that assertion, filed its own “reservation of rights” — making clear two primary aims at this juncture: selling its assets to the UI and doing so without a fight from the bondholders.


“ (Mercy) now stands on the verge of seeking to obtain the most significant relief yet in these bankruptcy cases at the upcoming hearing on Nov. 6, 2023 — approval of the sale to the university,” according to court filings. “But this was far from a linear path.”


Outlining the “many obstacles” its bondholders already have thrown at Mercy — including court petitions for a receiver, an examiner, objections, depositions and extensive discovery — hospital officials said they “remained steadfast in their efforts to consummate the transaction that it set out to achieve at the outset of these cases.”


And now, given lengthy negotiations on how to proceed, Mercy said it just needs a judge to sign off on the arrangements and protections.


Mercy and the bondholder “have been able to reach consensus on a form of final order approving cash collateral that not only ensures the ongoing funding necessary to bridge to the sale, but most importantly, allows the (bondholder) to not object to the proposed sale.”

'Only viable bidder’​

Under the proposed sale agreement, Mercy publicly shared several details, commitments and insights — including its perception of Preston Hollow collaborator American Healthcare Systems.


“The evidence shows that (Mercy) faces the grave probability of imminent business failure and will cease operations within a few weeks if the assets are not sold to a buyer who can operate it successfully,” according to the proposed sale order. “(The university) is the only viable bidder that can and will operate the assets as a viable acute care hospital.”


American Healthcare Systems, however, has taken over several struggling community hospitals nationally in recent years and still is running them today.


Addressing the issue of fair competition — given the university, with its pending purchase, will have a monopoly on the hospital market in Johnson County — Mercy argued “the sale will not substantially lessen competition, because there is no alternative buyer that can or will operate the assets as a viable competitor.”


“(Mercy) has made unsuccessful good-faith efforts to elicit reasonable alternative offers that pose a less severe danger to competition than does the sale, and no such offer has been received,” according to Mercy.


And Mercy, in touting its priority to maintain care for patients and ensure employees get paid, said it has been “highly successful in this regard” and has “outperformed the agreed-upon budget.”


“Census is up, meaning that (Mercy) is taking care of more patients,” according to a court filing. “(Mercy) employees now see a successful end in sight with the proposed transaction to the University of Iowa.”

 

[theiacowtipper]

November 6, 2023



Dear Medical Staff and Employees, 



We are pleased to announce that the bankruptcy judge approved the sale of Mercy Iowa City (“Mercy”) to the University of Iowa (the “University”) this morning. The transaction is anticipated to be completed in January 2024.



This approval allows the University, in coordination with Mercy, to start organizing its detailed plans to strengthen Mercy’s operations to serve our region more effectively and efficiently. The external statement being issued jointly by Mercy and the University this morning is attached.



We recognize that Mercy has experienced tremendous financial uncertainty over the past decade, especially in the past two years. While it has been difficult, you have continued to demonstrate our healing mission. Now, in conjunction with the University, and with a shared commitment to providing excellent patient care in the Eastern Iowa region, there is so much the two organizations can accomplish together. We are pleased that we are another step closer to achieving this critical goal.



The benefits derived from this new unified model are centered around stabilizing Mercy and creating opportunity for our staff. The University will provide financial resources that will allow Mercy to continue providing quality patient care and employment for our providers and staff. This new beginning will initiate more effective recruiting, renewed support from our medical staff, and less stress on our team, resulting in better patient care.



While the University is preparing to assume ownership in January, we are committed to keeping our employees, providers, and the community updated between now and then. We understand you have many questions, and we will begin to provide answers as they become available.

 

[theiacowtipper]

I think that’s it right?

 

[theiacowtipper]

The joint statement.

November 6, 2023
To our employees, providers, and community:
We are pleased to announce that the sale of Mercy Iowa City to University of Iowa was approved by the bankruptcy court this morning.
For 150 years, the University of Iowa and Mercy Iowa City have served the health care needs of patients in our community and beyond. From the beginning, both our institutions have focused on bringing accessible health care to Iowans, regardless of their ability to pay. It is that same spirit of steadfast commitment to service that will be vital as we join our two organizations.
At a time when many hospitals nationwide are experiencing significant financial challenges, we are heartened to begin the planning to bring Mercy Iowa City into UI Health Care. Together, we will preserve and enhance access to quality health care and jobs for those throughout our region. Here are some immediate first steps:
• The university has committed that all Mercy Iowa City employees in good standing will be offered employment with UI Health Care.
• Community providers not employed by UI Health Care may continue to practice at the facility under an open medical staff model.
• We are beginning to plan for our organizations to officially join as one in early 2024. In the meantime, there will be no immediate changes for patients, employees, or physicians.
• If you receive your care with Mercy Iowa City, please continue to schedule and go to your appointments as usual.
We know that in times of change, our shared values, hopeful spirit, and desire for stability matter more than ever. Although many details are yet to be determined, our teams are dedicated to finding solutions through collaboration and providing regular updates.
Thank you for caring about the future of health care and the people who deliver this care to our

 

[cigaretteman]

I think so.

 

[JRHawk2003]

I think so.

Do the creditors have any other recourse? Is there an appeal process?

 

[Jimmy McGill]

I only lived in Iowa City for 4 years, but I always wondered about the location of that hospital. It just did not fit. Seemed like a strange location.

 

[JRHawk2003]

I only lived in Iowa City for 4 years, but I always wondered about the location of that hospital. It just did not fit. Seemed like a strange location.

It was there for a long long time. For years it hard a large school across the street. The old City High was there, and then became Central Junior High until it was torn down in 1983-84. Then it became Mercy Medical Plaza. For many years the local docs had their practices around it. I went to Dr. John Maxwell (Who last I knew was still alive), who had an office on Market about a block away. Neighborhood has changed.

 

[Jimmy McGill]

It was there for a long long time. For years it hard a large school across the street. The old City High was there, and then became Central Junior High until it was torn down in 1983-84. Then it became Mercy Medical Plaza. For many years the local docs had their practices around it. I went to Dr. John Maxwell (Who last I knew was still alive), who had an office on Market about a block away. Neighborhood has changed.

Thanks. Well that makes sense. I was there well after the early 80's

 

[theiacowtipper]

Do the creditors have any other recourse? Is there an appeal process?

I’m sure you can always sue, but unless there’s fraud I think the bankruptcy court has jurisdiction.

 

[JRHawk2003]

I’m sure you can always sue, but unless there’s fraud I think the bankruptcy court has jurisdiction.

So this means Iowa Taxpayers via UIHC and the state take on the pensions?