On Monday, August 7, 2023, at Mercy Iowa City Hospital in Iowa City, Iowa. The financially struggling hospital has signed a letter of intent with the University of Iowa to be acquired by the university for a proposed $20 million. The hospital and staff will transition to UI Health Care. (Jim Slosiarek/The Gazette)Thank you for reading this post, don't forget to subscribe!
IOWA CITY – In a surprising turn of events that many did not expect – including Mercy Iowa City and its executives – bondholder Preston Hollow Community Capital sold the hospital’s assets to the University of Iowa for Mercy as part of Chapter 11. In a long and drawn out auction. Bankruptcy case.
That means instead of turning the 150-year-old community hospital over to UI ownership – which many saw as a foregone conclusion, given the university’s $20 million “stalking horse bid” as part of Mercy’s bankruptcy proceedings. Huey – Dallas-based Preston Hollow affiliate will join American Healthcare Systems in maintaining Mercy Iowa City as a “viable community hospital.”
“In connection with the acquisition of the hospital, Preston Hollow Community Capital and other bond investors will also make significant capital investments to stabilize hospital operations, restore community care service lines and return the facility to profitability.” Preston Hollow Press Release.
News of the auction results were filed in bankruptcy court Tuesday evening.
In a news release, Preston Hollow said the community hospital it plans to run with American Healthcare Systems “will be organized as an Iowa nonprofit organization, with board members from Iowa City and Johnson City.” “Community leaders from the county will be involved.”
Preston Hollow – which in early August, before Mercy filed for bankruptcy, had asked a district court to appoint a receiver to take over the struggling hospital’s operations – is one of American Healthcare System’s “most trusted hospitals across the United States.” Explained about “extensive experience in rehabilitation of hospitals”.
Although none of the parties involved Tuesday shared many specifics of the new hospital concept, Preston Hollows suggested Steindler Orthopedic Clinic would be involved.
“Preston Hollow, along with our partner American Healthcare Systems, look forward to building on Mercy Iowa City’s strong legacy in the community, which is reflected in the exceptional work of the hospital’s talented team of doctors, nurses and other staff who provide high Will continue to provide service. Quality, affordable health care for individuals and families in the area,” Jim Thompson, president and CEO of Preston Hollow Community Capital, said in a statement.
“Additionally, as part of this transition process, we look forward to partnering with Steindler Orthopedic Clinic.”
In a statement, Steindler President and CEO Patrick Magallanes said Steindler has been a provider of orthopedic care at Mercy for nearly 75 years.
“We are confident that Preston Hollow is committed to preserving a community hospital and associated services in Iowa City,” he said. “What this means to the physicians, nurses and staff who have remained loyal to Compassion through a long period of uncertainty and what it means to our community cannot be overstated.”
near term infection
As part of the transfer and transition, Preston Hollow and American Healthcare Systems met with doctors, nurses and other Mercy staff to gather feedback and recommendations, answer questions, and “establish the partnerships necessary to fulfill the hospital’s mission.” Will organize all team meetings together. In the coming years.”
“We got to know Preston Hollow as a bondholder, and we learned more about the American healthcare system,” Mercy President and CEO Tom Clancy said in a news release. “AHS has experience in operating and rehabilitating hospitals across the country.
“As we celebrate our 150th anniversary here in Iowa City, it is comforting to know that they will continue to operate the hospital and our clinic network as a community-based health system.”
Details of how much Preston Hollow bid and what is and is not included in its pending sale agreement have not been made public. A judge has not yet reset the hearing for the sale, which was previously scheduled for Tuesday before the auction was delayed.
But Mercy said final approval is expected “in the near term,” allowing American Healthcare Systems to assume operational and financial responsibility for the hospital by mid-November.
“Transition planning has already begun,” Mark E. Toney, Mercy’s chief restructuring officer, said in a news release. “We look forward to the new vision and path forward from AHS for the health system and are pleased by the commitment AHS and Preston Hollow are making.”
credit bid option
News of Tuesday’s auction matches a communication sent by Mercy officials to employees last week, stating, “All bids received were for the ongoing acute care hospital, including our providers and staff.”
In the days before last Wednesday’s auction, UI administrators – believing that they, as Mercy’s “stalking horse” bidder, would win the day – were already arranging meetings about the anticipated acquisition. The agency had begun reaching out to Mercy staff, according to an email obtained by The Mercy. Gazette.
But when Preston Hollow and master trustee Computershare – as Mercy’s largest bondholders – exercised their option for a “credit bid” on the approximately $63 million of debt owed by Mercy, the university ultimately caved.
Ultimately, Preston Hollow and American Healthcare System “provided the best overall bid” – an amount that included the mandatory $800,000 fee for breaking the UI-Mercy deal.
In hopes of convincing the university to raise its bid, Mercy continued the auction beyond the initial auction date last week – sources told The Gazette. But, according to court documents, despite behind-the-scenes negotiations that lasted last weekend and into today, Mercy officials finally signed off on Preston Hollow’s winning bid on Tuesday.
The credit bid option allowed Preston Hollow to consider the property free and clear of debts, pension liabilities, unpaid dues and unsecured contracts accrued over the years of financial decline by the Mersey operation.
Although officials of Mercy reserve the right to object to or challenge “the validity, extent or priority of liens and security interests relating to the alleged claim underlying any credit bid” in its bidding processes, Mercy may do so or No, its details have not been given. Has been made public.
“We also appreciate the work and commitment shown by the University of Iowa as the lead horse in the auction process,” Tony said in the statement. “The university’s commitment was motivated by the preservation of health care in Iowa City, we believe this process has done that.”
looking forward, looking back
A relatively young website for American Healthcare Systems – a Glendale, California-based for-profit organization with health care management expertise – lists a four-person corporate leadership team and six news releases as of July 2021.
Half of them report on a series of health care acquisitions in the past year, including Gateway Regional Medical Center in Granite City, Illinois, in November 2022; Vista Medical Center East in Waukegan, Illinois in May; and ProMedica Coldwater Regional Hospital in Coldwater, Michigan two weeks later.
When announcing the Michigan acquisition, American Healthcare Systems shared the financial challenges posed by the asset purchase agreement.
According to the news release, “American Healthcare Systems has plans to help ensure the sustainability of Coldwater Regional Hospital, and is expected to focus on maintaining or expanding hospital services.”
Mercy, when it filed for bankruptcy protection on August 7, did not disclose how or why it agreed to a $20 million purchase agreement with the university—which would have raised $605 million over 10 years—to assume ownership in 2021. Offered more.
According to documents obtained by The Gazette, that UI offer from two years ago included $85 million for employee retention efforts as well as Mercy’s unfunded pension liability; $250 million for primary and specialty care development; $150 million to improve financial performance; $95 million to upgrade facilities; and $25 million to recruit new community providers.
At that time the university also proposed a $10 million foundation “to preserve and continue the (Sisters of Mercy) mission outside the walls of the health care enterprise.”
The details of why that proposal never came to fruition have not been made public.
The $20 million offer related to UI’s bankruptcy will not include its tax debts, settlement costs and mercy liabilities such as employee-related dues – including liabilities related to severance or retirement benefits.
Vanessa Miller covers higher education for The Gazette.
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