Mercy Iowa City announces end to MercyOne relationship, again

IOWA CITY — Mercy Iowa City held a series of “all staff” meetings Wednesday to announce upcoming changes for the 234-bed hospital — including a new chief executive, another operations improvement consultant and a plan to end its relationship with partner MercyOne.

“We are working with MercyOne in Des Moines to phase out of our administrative and management services agreement,” according to a companywide email Mercy Board of Directors Chair Tom Clancy sent Tuesday. “During this transition, MercyOne will continue to provide services to us as needed.”

MercyOne System Vice President Mike Trachta — who's been the acting Mercy Iowa City chief executive officer since 2021 — will return to a full-time role at MercyOne in Des Moines, according to Clancy’s email and Mercy Iowa City officials.

Mercy Iowa City’s 13-member board — which Clancy heads and which includes Trachta — appointed Clancy to serve as Mercy's new CEO, given his “long and rich history with Mercy.”

“My wife, Renee, and I worked here as nurses in the ‘90s,” he wrote. “We live in Iowa City and have a deep affection for the mission of the Sisters of Mercy.”

Before Mercy, Clancy was a clinical professor and associate dean with the University of Minnesota School of Nursing and was responsible for facilitating corporate and community partnerships, according to a Mercy Iowa City statement. He facilitated “multiple health care business partnerships with local and national corporations and community and professional organizations.”

In a statement, Clancy said, “Our hospital is known for its quality services, low wait times, and compassionate patient care. With a new urgency for change, these attributes will help guide us through the health care landscape during these challenging times.”

Improvement consultant

In his email, Clancy acknowledged fiscal challenges facing the hospital and said the board has hired ToneyKorf Partners to develop and implement a plan to help Mercy “improve its operations.” ToneyKorf is a New York management and advisory firm specialized in “helping health care organizations address complex and critical challenges.”

“They have worked with us for a few months on various reviews, including the forecasting cash flow,” Clancy wrote.

Mercy hasn’t said how much it’s paying the consultant that, according to its website, focuses on “transforming organizations by increasing revenue, reducing costs, and incorporating key constituents into the processes.”

Last summer, Mercy Iowa City used a different “strategic and operational performance improvement” consultant — Insight Health Partners — after breaching debt coverage obligations, according to the Municipal Securities Rulemaking Board.

Financial strife

Moody’s Investors Service last month again downgraded the hospital’s credit rating from B1 to Caa1, putting it four ranks from the lowest. A Moody’s report in March credited the downgrade to, among other things, “severe cash flow deterioration, from historically weak levels, which has resulted in material and rapid cash burn and is likely to necessitate the funding of a debt service reserve at (the 2023 budget year end.)”

That report indicated Mercy’s “cash flow losses are largely reflective of elevated labor and supply costs and a slowed revenue cycle after implementation of a new billing system.”

“While labor and inflation pressures are sector-wide challenges, the impact to Mercy has been disproportionate,” according to Moody’s. “Additionally, sluggish recovery of inpatient volumes and ongoing shifts in care to outpatient settings has impaired demand, with inpatient volumes continuing to lag pre-COVID levels.”

Moody’s reported Mercy Iowa City had $74.4 million in outstanding debt at the close of the 2022 budget year last June.

In filings with the rule-making board, Mercy in December reported net assets at $34.5 million — down $60.3 million, or 64 percent, from $94.9 million in December 2021. Mercy’s cash and cash equivalents fell from $22.1 million in the 2021 budget year to $5.8 million at the end of fiscal 2022; its total assets in December were down to $179.1 million from $209.9 million six months earlier.

A recent Mercy disclosure showed its occupancy for the quarter that ended Dec. 30 was down to 27 percent from 31 percent during the same period in 2021. Its “patient days” were down from 6,179 in 2021 to 5,415; total surgeries dropped from 1,858 to 1,742.

MercyOne partnership

Mercy Iowa City is one of 23 hospitals affiliated with the Des Moines-based MercyOne network, which systemwide encompasses more than 18,000 employees spread across more than 230 care locations.

The Iowa City campus instigated a management partnership with MercyOne on June 1, 2017 — paying the oversight agency an annual $2 million “management service fee.” But Mercy Iowa City in June 2021 said it wanted out to align with a larger organization.

MercyOne officials at that time told The Gazette the decision was made jointly in light of Mercy Iowa City’s “historical operating challenges, the impact of the pandemic and the changing health care dynamics in the market.”

Mercy Iowa City officials said they wanted a new partner capable of offering broader access to infrastructure, better purchasing power and more clinical and operational support.

MercyOne at that time — like it’s doing today — committed to providing services during Mercy Iowa City’s transition.

“We are an independent hospital, and given the market dynamics as well as challenges from the health care industry, we need to integrate much more closely with a larger health system so we can achieve economies of scale aligning with our long-term goals,” a Mercy Iowa City spokesman said of the separation from MercyOne on June 30, 2021.

A Gazette investigation found Mercy’s search for a new owner yielded takeover offers from Mercy Medical Center in Cedar Rapids, UnityPoint Health, Marshfield Clinic Health System of Wisconsin and the University of Iowa Hospitals and Clinics.

The university’s $605 million offer to take ownership of the community hospital proposed making Mercy the “centerpiece” of a new UIHC “community division.” But none of the deals materialized, and Mercy Iowa City in July 2022 announced it was ending its search for a new partner or owner.

“While we have received several proposals and vetted a number of potential partners, we have not identified a partner that is a good long-term fit for us,” Trachta wrote in an email at the time. “Therefore, we have made the decision to end our search for a strategic partner and remain an affiliate of MercyOne.”

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