Change and challenges: Mercy Iowa City’s journey

When the Sisters of Mercy arrived in Iowa City in 1873, they saw a community that desperately needed access to health care, and as a result, they founded Mercy Hospital in collaboration with the University of Iowa.

The Sisters of Mercy could never have imagined that their hospital — one that thrived as a beacon in the community — would face so many financial and legal challenges over the past twelve months. Yet, following the onset of the COVID-19 pandemic, the combination of predatory competitive practices, low reimbursement rates from insurance companies, costly medical equipment and information technology, high leadership turnover, and other factors all contributed to a potentially disastrous outlook for Mercy Hospital.

By the summer of 2023, the hospital faced a fork in the road — bankruptcy or close. After careful deliberation by the board of directors with support from its advisers, the hospital made the difficult decision to file for bankruptcy under chapter 11 of the United States Bankruptcy Code on Aug. 7, 2023. The Board’s decision was driven by the singular goal: to continue to provide critical health care services in the Iowa City community.

A bankruptcy process is challenging for any company, but especially for a health care organization such as Mercy. While the process appeared chaotic and contentious, I’ve come to learn that this is not unusual. While the Board suspected this process would require a new owner and a different name, our objective was to preserve the mission of serving the health care needs of the community while also fulfilling our legal duties to repay as much as possible to the many creditors owed money by Mercy. The successful sale to the University of Iowa helped us achieve both goals.

Ironically, bankruptcy can be an expensive process, but it is also a very efficient way to reorganize a company like Mercy and provide distributions to creditors in a timely manner. This bankruptcy case was, by all accounts, a resounding success — Mercy effectuated a smooth transition to the University of Iowa at a price that increased by at least 40% during the case, employees continued to obtain wages and benefits during the process, and the Mercy team also monetized other ancillary assets to provide significant distributions to creditors under a Plan which, by all accounts, appears to be consensual with all parties. Despite some of the publicized disputes among some of the parties, all have been resolved through negotiations and settlements, sometimes on the proverbial courthouse steps. This is precisely how bankruptcy is intended to work, with all parties working collaboratively to resolve their disputes consensually and avoiding costly litigation that could span years. These resolutions were strongly encouraged by the professionals in the case, and the results were praised by the bankruptcy judge presiding over the Mercy cases. Most importantly, the hospital and clinics continued to operate through the arduous process with no disruption to the Mercy patients.

While it's easy to dwell on the challenges of the past year, it's important to recognize the diligent efforts of our employees, volunteers, including my fellow board of directors, who are non-compensated volunteers, and the Sisters of Mercy. Their work, along with our management and attorneys, not only preserved the hospital but also secured its future as the University of Iowa Healthcare Downtown Campus. While the name on the sign has changed, the fact that the hospital’s doors remain open to serve the community is a testament to the enduring legacy that Mercy started 150 years ago.

Thomas R. Clancy, Ph.D., is chairman of the board of directors at Mercy Iowa City Hospital.