University of Iowa ‘disappointed’ it was not ‘preferred bid’ for Mercy Hospital

IOWA CITY — In response to the surprise news that the University of Iowa won’t be taking over its longtime community health care competitor Mercy Hospital after being outbid in a bankruptcy auction, UI President Barbara Wilson and UI Health Care Vice President Denise Jamieson expressed disappointment.

“In August, we wrote to you to share our commitment to assist Mercy Iowa City as it entered bankruptcy,” Wilson and Jamieson wrote Wednesday. “Today, we learned the university’s offer to potentially transition Mercy Iowa City to become part of University of Iowa Health Care was not selected as the preferred bid.”

Court-approved bid procedures for the assets authorized Mercy Iowa City to choose as the “winning bid” the “highest or otherwise best qualified bid” in the auction — with hundreds of creditors and bondholders owed tens of millions of dollars.

Details have not been made public about how much investor Preston Hollow Community Capital of Texas bid to win the auction. The UI had offered $20 million going into the auction last week

“We are disappointed in this outcome because we believe there is value in having patient care delivered by an Iowa-based health system,” Wilson and Jamieson said in their statement. “Nevertheless, we are heartened that the selected bidder, the bondholder, has committed to keeping Mercy Iowa City as a hospital.”

According to the statement, the UI participated in the auction “because it is important to protect and enhance access to quality health care and jobs in our community.”

Mercy future

Preston Hollow — Mercy’s largest bondholder — announced plans to collaborate with American Healthcare Systems to operate a new hospital “organized as an Iowa not-for-profit group” with local board members.

Preston Hollow is a multibillion-dollar investor providing backing for “projects of significant social and economic value to local communities across the United States.”

“Since making a major financial investment in Mercy Iowa City in 2018, Preston Hollow Community Capital has been committed to ensuring that Johnson County residents can continue accessing critical health care services through a community-based hospital,” Preston Hollow Chair and Chief Executive Officer Jim Thompson said in a statement. “The Preston Hollow team is pleased that this critical goal will be met for many years to come now that our bid to acquire the hospital has been approved.”

American Healthcare Systems is a 2-year-old Los Angeles-based health care operator that has made several health system-related purchases since its inception. It started with Asheboro, N.C.-based Randolph Health in 2021 — when American Healthcare received bankruptcy court approval to acquire that community health care system.

The young corporation has a leadership team of four, including Chief Strategy Officer Faisal Gill, who told The Gazette he leads acquisitions and mergers for the company.

“We want to save community hospitals,” Gill said, noting his company looks specifically for community hospitals facing challenges. “We want to turn them around and have them for the community. We did that in North Carolina and in Illinois. And we plan to do that in Iowa as well.”

In total to date, American Healthcare has bought a hospital out of bankruptcy in North Carolina, bought two hospitals in Illinois and is in various stages of acquiring hospitals in Texas, Michigan and now Iowa.

CEO Michael Sarian had been a senior health care executive for over 30 years — serving as president of hospital operations for Prime Healthcare Management, a California-based for-profit health system. Of the 45 hospitals in 15 states under his watch at Prime Healthcare, eight ranked among the country’s “top 100 hospitals,” according to his corporate biography.

To the question of financing to acquire and operate the hospitals, Gill said the company taps both personal resources and banks.

“Each hospital obviously is different, has its own challenges, but we certainly come in and we see what the challenges are and we put the capital where it's needed,” Gill said. “We don't believe in having mass layoffs, or laying off employees, or dramatically cutting salaries, or cutting service lines. We don't do that.”

With its purchase in North Carolina, American Healthcare hired more people and increased service lines. he said. “Same thing in Illinois and other places. We want to make sure we grow the service.”

Preston Hollow hasn’t said how much it plans to invest in Mercy — only that it and other investors will make a “significant capital investment” to stabilize its operations, restore service lines and make the hospital profitable.

Gill said American Healthcare officials were watching the Mercy situation unfold, and eventually reached out to Preston Hollow. “We thought this was a great opportunity, so we dove right in,” he said.

Steindler orthopedic

Preston Hollow officials shared an expectation of partnering with Steindler Orthopedic Clinic, which has been operating in Mercy facilities and collaborating with the community hospital since the 1940s. Today, it has 18 physicians, nine midlevel providers plus physical and occupational therapists.

“Steindler has been the orthopedic care provider at Mercy for nearly 75 years,” said Steindler President and CEO Patrick Magallanes. “We are reassured that Preston Hollow is committed to preserving a community hospital and affiliated services in Iowa City.”

In a letter he sent to Steindler patients late Tuesday, Magallanes said he — like many — assumed that “our health care market would become a one-provider community.”

“I also shared that we would determine how to coexist with the exceptional orthopedic providers at UIHC, if UIHC acquired Mercy Hospital assets,” he said in the letter.

Magallanes told The Gazette that Steindler physicians require an inpatient facility — meaning they would have had to find another hospital for hospital-based procedures if Mercy closed. “We want a hospital in our town,” he said. “Not one or two counties away.”

Steindler — like UI Health Care — is in the process of building a new facility in North Liberty. UIHC is building a massive new $525.6 million hospital that will house its full orthopedic operation, in addition to a new emergency room and other amenities.

Just over a mile to the west, Steindler is building a new $29.3 million ambulatory surgery center, with plans for a new orthopedic clinic and possible hospital and hotel.

The Mercy auction results don’t change Steindler’s plans, Magallanes said.

“My swing-for-the-fences goal is to put an orthopedic specialty hospital out there, which would put an inpatient hospital for us on the grounds,” he said.

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