Among the complexities of a Mercy Iowa City bankruptcy sale to the University of Iowa is the transition of its electronic medical system — with any gap or abrupt termination of system operations posing “significant” threat to Mercy and its patients.
Thus Mercy has told Altera Digital Health Inc. — which it contracted with in 2021 for electronic medical record software and which it has blamed, in part, for its financial decline — that it plans to exit their agreement but only after Altera first maintains services through Mercy’s transition to UI ownership and then for a yearlong “support term” through March 9, 2025.
Altera is asking a judge to intervene.
“(Mercy) stated the (UI) needs the support term to facilitate a transition to a different electronic medical record provider following the sale,” according to a request for judicial intervention that Altera filed with the U.S. Bankruptcy Court on Wednesday.
“(Mercy) asserted that the need for transition services is of the utmost importance because: ‘Put simply, without transition services provided by Altera to the (UI), the daily operations of the hospital would grind to a halt, patients’ lives would be at risk, and the hospital would likely immediately close.’ ”
But New York-based Altera wants a bankruptcy judge to first force Mercy to either “assume or reject” its existing agreement — which Altera said is supposed to run through March 9, 2031.
By “assuming” the contract, Altera would continue its work and Mercy would stay in compliance with agreement terms — transferring all rights and obligations to the UI when it officially takes over Mercy.
By rejecting the contract, Altera could stop its work and halt accruing expenses, putting Mercy in breach and potentially liable for damages.
“But by using the software and evading assumption or rejection of the agreement, (Mercy) is unfairly forcing Altera to continue performing under the agreement without giving Altera any of the benefits and protections of the bankruptcy code,” like allowing it to immediately halt services and save “significant” costs being incurred. By intentionally keeping Altera in limbo, Altera is being prejudiced because it is incurring out-of-pocket expenses.”
Mercy has had plenty of time to decide whether to assume or reject the contract, Altera attorneys argue.
“Since assumption or rejection of the contract is literally a matter of life and death and mission critical to the hospital’s basic operation, a decision concerning assumption or rejection should have been the ‘first and most pressing orders of business’,” according to the petition.
“Indeed, the assumption or rejection of an agreement that could literally put someone’s life in danger should be decided immediately. Instead of prioritizing that decision, however, (Mercy) is simply trying to use the software and allow (the UI) to use the software, while ignoring the bankruptcy code’s requirements and protections.”
Such protections include requiring Mercy pay a “cure amount,” which also is in dispute.
While Mercy has stated the cure amount for its Altera contract is nearly $8 million — and $1.8 million for its Allscripts Health Care agreement, which was Altera’s successor — Altera argues that amount is “insufficient.”
In fact, according to court filings, Altera said it’s due $12 million “plus damages,” and — since Mercy filed for bankruptcy Aug. 7 — the hospital has racked up nearly $4 million through Dec. 15.
“The unpaid amounts continue to accrue in the approximate amount of $207,000 per week,” according to the court filing, reporting Altera will suffer meaningful harm if Mercy and the UI are allowed to keep it operating in limbo.
“Altera presently is only being compensated at less than half of the payment required under the agreement,” according to its petition, adding that without court intervention, “the software and benefits from the agreement will be conferred on an absolute stranger to the agreement with whom Altera did not contract: the (UI).”
Altera told the court it doesn’t object to Mercy assuming and assigning the agreement to UI but does object to Mercy’s “attempt to allow (the UI) to use the software without assumption and assignment of the agreement.”
In previous bankruptcy documents, Mercy has listed Altera Digital Health among potential “causes of action” for its “implementation of EMR system.”
And Mark Toney, Mercy’s chief restructuring officer, in his court declaration blamed Altera’s electronic medical record system for creating “significant operational problems.”
“These included difficulties in coding, billing and collecting for patient encounters, an inability to submit regulatory reports on time and misconfigured workflows,” according to Toney. “Consequently, the flawed system caused a precipitous loss of revenue in late 2022 and early 2023 due to delayed patient bill submissions, resulting in a substantial backlog of accounts receivable payments that could not be collected promptly.”
Mercy’s accounts receivable ballooned by more than 40 percent during that period, “despite lower year-over-year net patient revenues.”
“As a result, (Mercy’s) financial liquidity was severely affected during the latter half of 2022 and the first quarter of 2023.”
In a Dec. 8 letter to Altera, Mercy attorneys reminded the company of those perceived shortcomings and the hospital’s belief that it “may have colorable causes of action against Altera in connection with the EMR implementation system in 2022.”
“Put simply, the failed EMR implementation was a significant contributing factor to (Mercy’s) financial difficulties in 2022 and 2023, that ultimately necessitated the filing of these Chapter 11 (bankruptcy) cases,” Mercy attorney Dan Simon said in the letter to Altera. “Now, on the cusp of closing a value-maximizing sale to the University of Iowa approved by the bankruptcy court, your client’s attempt to leverage a release for potentially valuable causes of action is not well received.
“The University of Iowa has already committed to paying Altera reasonable value for its services during this transition period, which is not only a condition to closing, but absolutely vital for the operations of the hospital to continue.”
Should Altera remain “unwilling to negotiate a fair and reasonable transition services agreement in good faith with the university, (Mercy) will have no choice but to seek to compel Altera to provide the transition period.”
In response, Altera noted that although Mercy has said it could file a lawsuit or cause of action, the hospital hasn’t.
“Altera is not in the business of agreeing to short-term arrangements,” according to its Dec. 14 response letter, filed with the court. “Absent assumption, because (Mercy) has no basis to compel Altera to provide transition services, Altera is free to negotiate with (the UI) as it chooses.”
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Thus Mercy has told Altera Digital Health Inc. — which it contracted with in 2021 for electronic medical record software and which it has blamed, in part, for its financial decline — that it plans to exit their agreement but only after Altera first maintains services through Mercy’s transition to UI ownership and then for a yearlong “support term” through March 9, 2025.
Altera is asking a judge to intervene.
“(Mercy) stated the (UI) needs the support term to facilitate a transition to a different electronic medical record provider following the sale,” according to a request for judicial intervention that Altera filed with the U.S. Bankruptcy Court on Wednesday.
“(Mercy) asserted that the need for transition services is of the utmost importance because: ‘Put simply, without transition services provided by Altera to the (UI), the daily operations of the hospital would grind to a halt, patients’ lives would be at risk, and the hospital would likely immediately close.’ ”
But New York-based Altera wants a bankruptcy judge to first force Mercy to either “assume or reject” its existing agreement — which Altera said is supposed to run through March 9, 2031.
By “assuming” the contract, Altera would continue its work and Mercy would stay in compliance with agreement terms — transferring all rights and obligations to the UI when it officially takes over Mercy.
By rejecting the contract, Altera could stop its work and halt accruing expenses, putting Mercy in breach and potentially liable for damages.
“But by using the software and evading assumption or rejection of the agreement, (Mercy) is unfairly forcing Altera to continue performing under the agreement without giving Altera any of the benefits and protections of the bankruptcy code,” like allowing it to immediately halt services and save “significant” costs being incurred. By intentionally keeping Altera in limbo, Altera is being prejudiced because it is incurring out-of-pocket expenses.”
‘Pressing business’
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Mercy has had plenty of time to decide whether to assume or reject the contract, Altera attorneys argue.
“Since assumption or rejection of the contract is literally a matter of life and death and mission critical to the hospital’s basic operation, a decision concerning assumption or rejection should have been the ‘first and most pressing orders of business’,” according to the petition.
“Indeed, the assumption or rejection of an agreement that could literally put someone’s life in danger should be decided immediately. Instead of prioritizing that decision, however, (Mercy) is simply trying to use the software and allow (the UI) to use the software, while ignoring the bankruptcy code’s requirements and protections.”
Such protections include requiring Mercy pay a “cure amount,” which also is in dispute.
While Mercy has stated the cure amount for its Altera contract is nearly $8 million — and $1.8 million for its Allscripts Health Care agreement, which was Altera’s successor — Altera argues that amount is “insufficient.”
In fact, according to court filings, Altera said it’s due $12 million “plus damages,” and — since Mercy filed for bankruptcy Aug. 7 — the hospital has racked up nearly $4 million through Dec. 15.
“The unpaid amounts continue to accrue in the approximate amount of $207,000 per week,” according to the court filing, reporting Altera will suffer meaningful harm if Mercy and the UI are allowed to keep it operating in limbo.
“Altera presently is only being compensated at less than half of the payment required under the agreement,” according to its petition, adding that without court intervention, “the software and benefits from the agreement will be conferred on an absolute stranger to the agreement with whom Altera did not contract: the (UI).”
Altera told the court it doesn’t object to Mercy assuming and assigning the agreement to UI but does object to Mercy’s “attempt to allow (the UI) to use the software without assumption and assignment of the agreement.”
Altera blamed
In previous bankruptcy documents, Mercy has listed Altera Digital Health among potential “causes of action” for its “implementation of EMR system.”
And Mark Toney, Mercy’s chief restructuring officer, in his court declaration blamed Altera’s electronic medical record system for creating “significant operational problems.”
“These included difficulties in coding, billing and collecting for patient encounters, an inability to submit regulatory reports on time and misconfigured workflows,” according to Toney. “Consequently, the flawed system caused a precipitous loss of revenue in late 2022 and early 2023 due to delayed patient bill submissions, resulting in a substantial backlog of accounts receivable payments that could not be collected promptly.”
Mercy’s accounts receivable ballooned by more than 40 percent during that period, “despite lower year-over-year net patient revenues.”
“As a result, (Mercy’s) financial liquidity was severely affected during the latter half of 2022 and the first quarter of 2023.”
In a Dec. 8 letter to Altera, Mercy attorneys reminded the company of those perceived shortcomings and the hospital’s belief that it “may have colorable causes of action against Altera in connection with the EMR implementation system in 2022.”
“Put simply, the failed EMR implementation was a significant contributing factor to (Mercy’s) financial difficulties in 2022 and 2023, that ultimately necessitated the filing of these Chapter 11 (bankruptcy) cases,” Mercy attorney Dan Simon said in the letter to Altera. “Now, on the cusp of closing a value-maximizing sale to the University of Iowa approved by the bankruptcy court, your client’s attempt to leverage a release for potentially valuable causes of action is not well received.
“The University of Iowa has already committed to paying Altera reasonable value for its services during this transition period, which is not only a condition to closing, but absolutely vital for the operations of the hospital to continue.”
Should Altera remain “unwilling to negotiate a fair and reasonable transition services agreement in good faith with the university, (Mercy) will have no choice but to seek to compel Altera to provide the transition period.”
In response, Altera noted that although Mercy has said it could file a lawsuit or cause of action, the hospital hasn’t.
“Altera is not in the business of agreeing to short-term arrangements,” according to its Dec. 14 response letter, filed with the court. “Absent assumption, because (Mercy) has no basis to compel Altera to provide transition services, Altera is free to negotiate with (the UI) as it chooses.”
Mercy medical record transition heats up in bankruptcy court
Among the complexities of a Mercy Iowa City bankruptcy sale to the University of Iowa is its electronic medical system transition – with any gap or abrupt termination of system operations posing “significant” threat to Mercy and its patients.
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