Mercy Iowa City saw losses in ’22 budget year

IOWA CITY — Over a budget year in which Mercy Hospital Iowa City sought a new owner, entertained a takeover offer from University of Iowa Health Care and tried to climb back from tens of millions in pandemic-incurred losses, new documents show finances for the hospital only worsened.

Cash and cash equivalents for the hospital portion of Mercy’s business operation — with excess cash signaling “a high degree of safety and liquidity” — fell from $22.1 million in the 2021 budget year to $5.8 million in the 2022 budget year that ended June 30, according to an independent auditor’s report filed with the Municipal Securities Rulemaking Board, a regulatory board established by Congress.

The hospital’s revenue, including patient income, fell from $174.2 to $161.4 million — while expenses swelled from $166.7 to $180.8 million — amounting to a $19.4 million operating deficit, before additional restructuring costs and a $2.1 million management fee paid to health care system MercyOne.

Mercy’s 194-bed hospital facility — which owns Mercy Services Iowa City, Mercy Outreach Iowa City and the Mercy Hospital Foundation — in 2017 shifted from its relative independence to a contractual arrangement with MercyOne for management services and strategic affiliation.

The $2.1 million in annual fees to MercyOne is for its direction “providing strategic guidance, turnaround management, and certain other management services to Mercy.”

In total, including non-operating losses — like $24.4 million related to investments — the hospital reported a $40.5 million deficit in fiscal 2022, compared with a $10.5 million surplus in fiscal 2021.

Adding in 2022 losses from the Mercy’s services and foundation branches, last year’s total deficit was $55.9 million — compared with a narrow half-million surplus in fiscal 2021.

Mercy Iowa City declined to answer The Gazette’s questions about the financial issues — including what its management is doing to address the losses and whether it’s still pursuing a new managing partner or owner after failing to secure a new collaboration.

Four hospital systems responded to Mercy’s July 2021 request for proposals from potential new owners — including UI Health Care, which offered $605 million to take over Mercy and make it the “centerpiece” of a new UIHC “community division,” according to an investigation by The Gazette.

Mercy officials didn’t answer questions about why none of those offers materialized, and the community hospital in July announced it was ending its unsuccessful search and staying with MercyOne.

The hospital last week also declined to comment on the independent auditor’s findings that it is “not in compliance with the financial covenants” of $44.6 million in revenue bonds it issued in 2011 to, among other things, fund capital investments.

“The company failed to comply with the ‘minimum annual debt service coverage ratio,’” according to auditor Deloitte’s report, noting, “The company must retain a consultant to make recommendations with respect to the company’s operations, which has been completed.”

Among Mercy’s current liabilities are the remnants of a $24.7 million cash advance from Medicare in the 2020 budget year under a “COVID-19 Accelerated and Advance Payments” program. At the end of the 2022 budget year, Mercy owed a remaining balance of $8.6 million and the full amount was coming due.

“The company claimed hardship and applied for a 36-month extended repayment schedule and on November 2, 2022, the company received approval,” according to the audit report.

In total, the Mercy system’s assets in fiscal 2022 fell 19 percent from $283.9 million in fiscal 2021 to $229.2 million in fiscal 2022.

Comments: (319) 339-3158; vanessa.miller@thegazette.com