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Mercy Iowa City ends search for new partner; staying with MercyOne
‘We have not identified a partner that is a good long-term fit for us’
IOWA CITY — A year after Mercy Iowa City announced plans to exit its four-year affiliation with the statewide MercyOne health network and integrate into a larger health care system, the only community hospital in Iowa City is ending its unsuccessful search and sticking with MercyOne after all.
In an email to Mercy Iowa City employees Thursday, Acting President and Chief Executive Officer Mike Trachta acknowledged “significant changes that could not have been anticipated” during the search for a partner that would help put the hospital on a better financial path.
“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. “Therefore, we have made the decision to end our search for a strategic partner and remain an affiliate of MercyOne.”
In the email, Trachta also announced Dawna Miller, Mercy Iowa City’s executive vice president and chief financial officer, and Judy Andronowitz, vice president and chief operating officer, are leaving.
While Mercy Iowa City focuses internally on “improving performance, growing our staffing and services, improving facilities, and providing the necessary resources so we can deliver on our healing mission,” the hospital has engaged consultant Insight Health Partners to assess its financial and strategic operations, Trachta said Thursday.
An assessment of the 194-bed hospital will take about 60 days and engage leaders, colleagues and providers in meetings and evaluation activities to give feedback for the campus’ future.
“Insight Health Partners will be looking at areas of opportunity for improvement and highlighting our competitive advantages to help us define, strengthen, and grow as the only community hospital in this area,” Trachta wrote.
Any opportunities to improve financial performance will be implemented as they’re identified, according to the email.
“As members of the Mercy Iowa City team, caring for our patients and community is so very important, yet the environment continues to be increasingly more challenging,” Trachta wrote.
Mercy financial woes
Through the first nine months of the 2022 budget year that ended June 30, Mercy Iowa City was reporting a $15.6 million loss in operating income, according to publicly available reports Mercy submitted to the Municipal Securities Rulemaking Board.
Its net revenue was $147 million — $10.4 million under budget and down $11.3 million from the same period last year, when COVID-19’s shutdowns were fresh.
Mercy Iowa City reported total net assets at the start of the 2022 budget year near $14 million, but was sitting at a loss of $11.2 million at the time of the March 31 report. Where Mercy Iowa City had $23.1 million cash on hand June 30, 2021, the hospital was down to $2.8 million cash in March.
COVID-19 hit Mercy Iowa City hard, as it did other hospitals and health care providers. Its monthly revenue fell to $4.3 million in April 2020 — compared with about $19 million in both January and February that year, documents obtained by The Gazette show.
Although revenue rebounded some, it did not in 2021 return to pre-pandemic levels. And in March 2021, Moody’s Investor Service downgraded Mercy Iowa City’s rating to B1 — 14 ranks below the prime Aaa rating and in “highly speculative” territory. Moody’s also gave Mercy Iowa City a “negative” outlook.
In comparison, Moody’s in May assigned the nearby University of Iowa Hospitals and Clinics a Aa2 rating — two spots from the top.
A year after the Moody’s downgrade, an Iowa City couple in March received a nearly $98 million civil verdict after suing Mercy Iowa City for its care of their newborn son, who suffered permanent brain damage after providers “improperly used forceps and a vacuum, crushing the baby’s head” during delivery.
A month later, in April, the family of a 2-year-old who died during a routine procedure to place tubes in his ears and remove his adenoids sued a physician associated with Iowa City-based ENT Medical Services and Mercy Iowa City for negligence.
Recent financial records showed Mercy Iowa City paid MercyOne $1.6 million through three quarters, indicating it gives about $2 million a year to the West Des Moines affiliate for its “management service fee.”
When Mercy Iowa City last year announced it wanted to align with a different and larger organization, MercyOne officials told The Gazette it reached the decision jointly in light of “the impact of their historical operating challenges, the impact of the pandemic and the changing health care dynamics in the market.”
“At this time, MercyOne simply cannot provide that level of integration because we are in the midst of more fully aligning our internal structure,” MercyOne officials said at the time.
Although MercyOne committed to remain managing partner of the Iowa City hospital during its search, Mercy Iowa City officials said it wanted a new partner that could offer broader access to infrastructure, better purchasing power and greater clinical and operational support.
“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,” Mercy Iowa City spokesman Aaron Scheinblum said June 30, 2021.
Mercy Iowa City began its management partnership with MercyOne on June 1, 2017.
At that time, officials said the collaboration would strengthen the Iowa City hospital’s “financial performance even more by providing access to critical benefits such as payer contracting, group purchasing and economies of scale, access to systems that already exist within the network and strategic growth opportunities.”
Officials in the memo Thursday did not offer details of the partnership proposals the hospital received and why they didn’t pan out. Officials with Mercy Iowa City and MercyOne did not answer specific questions Thursday from The Gazette.
But Mercy Iowa City spokeswoman Lisa Steigleder did provide the following statement: “The health care environment has changed tremendously in the past year. The impacts of COVID-19 and the current nationwide staffing shortage will continue to be felt for years to come. The role of community hospitals, like Mercy Iowa City, providing convenient and accessible care is more important than ever.”
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