Court approves sale of Iowa City’s Mercy Hospital to University of Iowa

A bankruptcy court has approved the sale of Iowa City’s Mercy Hospital to the University of Iowa for $28 million.

The financially struggling hospital successfully fought off an attempt by one of its primary creditors, Preston Hollow Community Capital, to purchase the 150-year-old medical center.

“At a time when many hospitals nationwide are experiencing significant financial challenges, we are heartened to begin the planning to bring Mercy Iowa City into UI Health Care,” UI President Barbara Wilson, UI Vice President for Medical Affairs Denise Jamieson, Mercy President and CEO Tom Clancy, and Mercy Chief Restructuring Officer Mark Toney said in a joint written statement. “Together, we will preserve and enhance access to quality health care and jobs for those throughout our region.”

They said the university has made a commitment to offer employment to all Mercy-Iowa City employees who are in good standing. Community medical providers who are not directly employed by UI Health Care will be allowed to continue practicing at Mercy under an “open medical staff” model, they added.

The two entities plan to officially join as one in early 2024, the university said, adding that there will be no immediate changes for patients, employees, or physicians during the interim.

The sale brings to an end a contentious battle for control of the 234-bed, acute care hospital. Bondholder Preston Hollow was initially believed to have been the winning bidder for Mercy at an Oct. 10 auction. The sale was scrapped after Preston Hollow indicated it expected $10 million from Mercy’s foundation to cover operating losses through November, and Mercy said that arrangement was not part the deal.

The dispute resulted in the auction being reopened and UI being selected the winning bidder. Court records indicate Preston Hollow didn’t object to the sale on Monday.

Days before Mercy filed for bankruptcy in August, Preston Hollow claimed Mercy was in “a financial freefall.” The specialty finance company went to court asking a judge to appoint a receiver who could take control of the hospital’s assets, claiming the hospital was incurring “unsustainable financial losses” and arguing that a receiver was needed to avoid a shutdown of the hospital.

Mercy sought to have that case dismissed, calling Preston Hollow’s actions a “pretextual power play by an investment fund that puts the medical team, employees, patients and larger community at risk.”

According to Preston Hollow’s petition, Mercy’s liquidity had declined by $40 million, or 51%, over the past nine months and the hospital had a negative cash flow of roughly $2.6 million per month.