Mercy Iowa City auction underway in Chicago

An auction for the assets of Iowa City’s 150-year-old Mercy Hospital was underway in Chicago on Wednesday afternoon — although details about bidders and results weren’t immediately made public.

As part of the Chapter 11 bankruptcy petition Mercy filed Aug. 7 after years of financial decline, the University of Iowa made an initial “stalking horse” offer to buy the community hospital’s assets for $20 million.

Anyone wanting to compete with that bid had to make an offer by Monday.

UI Health Care through its communications website on Wednesday said Mercy “has confirmed that there are multiple bidders.”

Because Mercy received at least one competing bid, an auction was scheduled for Wednesday morning at law offices in Chicago.

That auction wasn’t open to the public, and a spokeswoman for Mercy Hospital on Wednesday afternoon told The Gazette the “auction process is underway in Chicago.”

“Once the auction process is completed, information will be filed with the court and then released,” Mercy spokeswoman Eileen Wixted, with Wixted & Company, said.

A Board of Regents spokesman said he did not have information to share about the auction and didn’t answer a question about whether the university had been in touch with the board on the matter Wednesday.

A final hearing to consider details of a proposed sale is scheduled for 10:30 a.m. Oct. 10.

“At the sale hearing, the bankruptcy court will consider whether to approve the selected bid,” according to the UIHC communication Wednesday. “If the University of Iowa bid is selected, and approved by the courts on Oct. 10, we will begin the process of bringing our two organizations together.”

In the meantime, UIHC said it “continues to support Mercy Iowa City and preserve health care access for patients, and jobs for the health care workforce and our community.”

Objections

In addition to at least one competing bid, several creditors and companies in contract with Mercy filed objections related to the sale by the Monday deadline — largely related to “cure” costs of their contracts.

“Cure amounts” are defined in the university’s proposed purchase agreement as “the amount required to be paid with respect to each assumed contract to cure all defaults under such assumed contract to the extent required by … bankruptcy Code.”

The UI’s $20 million offer did not include additional “cure amounts” of contracts it was to assume.

One “cure amount” objection was filed by Altera Digital Health Inc. — which succeeded Allscripts Health LLC, the company that led what Mercy officials have described as a problematic upgrade to their electronic medical record system.

“The EMR implementation, which went live in March 2022, immediately created significant operational problems,“ according to a court declaration from Mercy’s Chief Restructuring Officer Mark Toney. ”These included difficulties in coding, billing and collecting for patient encounters, an inability to submit regulatory reports on time, and misconfigured workflows.

“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,” Toney said, reporting Mercy’s accounts receivable “ballooned by more than 40 percent during this period despite lower year-over-year net patient revenues.”

Mercy, among its bankruptcy court filings, has indicated a potential lawsuit against Altera. But that company on Tuesday filed an objection to Mercy’s reported cure cost of its contract — should an assets sale go through.

“The cure notice incorrectly understates the amount due to Altera pre-petition and does not include any amounts due to Altera that arose post-petition,” according to its objection.

Specifically, Mercy reported a cure cost to Altera of $7.9 million on Sept. 20. Altera in its objection argued Mercy as of Tuesday owed at least $12 million — with costs accruing.

“Altera is in the process of reconciling the post-petition activity to determine the precise amount due, although unpaid amounts continue to accrue,” according to the objection.

Vanessa Miller covers higher education for The Gazette.

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