Mercy Iowa City reaches agreement with University of Iowa



The first Mercy Hospital in Iowa City and the current hospital are shown in these file photos.

The Catholic Messenger

IOWA CITY — The University of Iowa and Mercy Iowa City have signed a letter of intent for the university to acquire all the operating facilities and key assets of Mercy as the hospital faces financial struggles.

Mercy Iowa City is an acute care hospital and regional referral center for southeast Iowa, founded by the Sisters of Mercy in 1873. In an Aug. 7 press release, Mercy Iowa City said its hospital and clinics will remain open. Physicians and providers will continue to focus on providing care to patients and the community.

“Mercy Iowa City believes this plan is the best path forward to preserve our hospital operations,” said Tom Clancy, chairman of the board and CEO of Mercy Iowa City. “As we implement this plan, our dedicated Mercy Iowa City staff remain steadfast in their commitment to provide compassionate care to our community, just as we have since 1873.”


To implement the plan, Mercy Iowa City filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in the Northern District of Iowa. Mercy expects to seek approval of a sale process with the University serving as the “stalking horse bidder” with the goal of transitioning Mercy and its employees to a new owner and operator that intends to preserve the services provided by Mercy to the community.”

In connection with the expedited Chapter 11 filing, Mercy Iowa City has filed a motion with the court to use its cash and investments to fund operations. In addition, Mercy has asked the court to allow the hospital to pay employees their wages and benefits in the ordinary course for the work they perform. While in Chapter 11, Mercy operates in the ordinary course and can pay suppliers for goods and services provided after filing for bankruptcy protection.

Mark Toney, Mercy’s chief restructuring officer, cited the “recent actions of one of our largest creditors” for significantly and negatively impacting the hospital’s finances, resulting in the bankruptcy filing. “The Board and management moved rapidly to secure a partner to maintain health care in our community.”

The creditor, Preston Hollow Community Capital, said the bankruptcy filing “is the fault of Mercy Iowa City and no one else.” In 2018, Preston Hollow invested $41.5 million into Mercy Iowa City. On July 24, Preston Hollow filed documents in Johnson County Court claiming that Mercy’s liquidity had fallen by $40 million in nine months and was on track to close its doors by Sept. 29. Mercy pushed back, saying the hospital board has taken steps to make its finances better and be open with its investors about day-to-day operations. “Preston Hollow’s assertions are incorrect and damaging to the hospital,” Toney said in a statement last week.

In a statement, the University of Iowa acknowledged Mercy’s “significant” financial changes. “We have always maintained great respect for Mercy Iowa City, knowing the vital role it has played in our community since 1873. As members of the same community, many of us know and care about people who work at Mercy Iowa City. We want you to know that leaders from the University of Iowa, UI Health Care, and Mercy Iowa City are working together to avoid significant disruption. Although many decisions will be in the hands of the bankruptcy court, we share a goal to preserve and enhance local and regional access to quality health care and jobs.”

On Aug. 8, the Iowa Board of Regents voted to approve the University’s $20-million bid to acquire Mercy Iowa City. Clancy said Mercy is “deeply appreciative” of the University of Iowa for finalizing an agreement that, if approved, “will allow us to emerge from this process with a more sustainable future.”

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