116 3rd St SE
Cedar Rapids, Iowa 52401
Home / News / Education / Higher Ed
Mercy Iowa City names new management team
Moody’s, citing ‘severe cash flow deterioration,’ lowers hospital’s credit rating
IOWA CITY — A month after Mercy Iowa City leadership named a new chief executive officer, announced the hospital again would end its partnership with MercyOne of Des Moines and disclosed the hire of an operations improvement consultant, executives last week shared more updates — including that a hospital rebranding is underway.
The update reported that executives with ToneyKorf Partners of New York — which Mercy Iowa City hired in April to develop and implement an operations improvement plan — are serving as the hospital’s “new and dedicated management team … as we transition from MercyOne.”
Mark Toney — founding member and senior managing director with more than 37 years experience in “crisis management, operational reorganizations, financial revitalizations, and corporate turnarounds” — is Mercy’s chief restructuring officer.
Jim Porter — managing director of ToneyKorf, having spent more than 25 years working with “distressed companies” — is Mercy’s chief financial officer. And Chris Karambelas — another managing director with 15 years experience in “health care advisory, finance, bankruptcy, and restructuring” — is Mercy’s senior vice president of operations.
“A Commitment Review Committee has been established to identify critical vs. avoidable spending in our efforts to focus on immediate expense needs,” according to the May 3 update from Mercy’s new President and CEO Tom Clancy, who also chairs the board of directors that named him CEO last month. Former Mercy Iowa City Acting President Mike Trachta returned to his role as a senior vice president with the MercyOne System.
“Positive results and momentum in revenue cycle are resulting in improvements in billing and collections,” according to Clancy’s update, which also boasted “good news” like the May 1 opening of a Mercy Iowa City Heart Care Clinic.
Moody’s lowers credit rating
Moody’s Investors Service in March downgraded Mercy Iowa City’s credit rating three spots — from B1 to Caa1 — following “severe cash flow deterioration, from historically weak levels, which has resulted in material and rapid cash burn.”
The investors service posted a May 1 update following the downgrade reporting that Mercy could be upgraded if its operating performance results in positive cash flow, for example. It also could be downgraded again, though, if cash flow slips and Mercy doesn’t stabilize or find a new partner.
Moody’s May 1 financial update reported Mercy has a negative operating cash flow margin of more than $16 million in the red — down from $3 million in the black in 2021.
Its unrestricted cash and investments “were at very low levels as of (Dec. 31), with just $30.6 million providing for about 53 days cash on hand and just under 40 percent cash to total debt.” That is down from nearly $70 million and 122 days at the end of the 2022 budget year and from 254 days cash-on-hand at the close of 2021.
Its operating revenue has dropped from $201.1 million in 2021 to $175.8 million so far this year — based on annualized data from Moody’s.
Mercy Iowa City spokeswoman Lisa Steigleder said officials don’t have any comment about the Moody’s update, bond redemption demand and organizational update.
“When there is something new to share, we will let you know,” she said.
Credit score details
In detailing considerations behind Mercy’s credit rating, Moody’s gave the 234-bed hospital a “highly negative” credit impact score because of its high exposure to social and governance risks.
Mercy’s poor social score reflects “elevated risk exposure to customer relations and demographic and societal trends.” Mercy is much smaller and more limited in its clinical offerings than the nearby University of Iowa Hospitals and Clinics, a reality that’s especially challenging given risks inherent for not-for-profit hospitals — like a shift toward “government payors and hospitals’ limited ability to influence reimbursement rates and regulations.”
Mercy’s poor governance score primarily reflects its “financial strategy and risk management and management credibility and track record.”
“Mercy has faced a multiyear period of operating deficits, which have deepened, and efforts to manage expenses have been insufficient to match the magnitude of challenges,” according to Moody’s update. “Sustained operating imbalance has resulted in weak and thinning liquidity.”
Plus, according to the report, a high level of management turnover and inability to secure a long-term strategic partner are “key risks.”
Comments: (319) 339-3158; email@example.com