University of Iowa denied bid in Mercy Hospital auction. American Healthcare Systems will assume operations
Mercy Hospital in Iowa City has a new owner, officials announced late Tuesday.
Preston Hollow Community Capital, one of the hospital's principal creditors, has won the bid to control the 194-bed Iowa City hospital, beating out the University of Iowa Hospitals and Clinics in a bankruptcy auction that began last week.
If the bankruptcy court gives final approval, Iowa City's oldest hospital would be managed by American Healthcare Systems, a Los Angeles-based healthcare operator. Preston Hollow and American Healthcare Systems are expected to take over hospital operations and its finances as early as mid-November.
A sale hearing was scheduled for Wednesday in the Bankruptcy Court for the Northern District of Iowa.
According to hospital officials' announcement Tuesday, ownership of the hospital "will be organized as an Iowa not-for-profit organization with board members comprised of community leaders in Iowa City and Johnson County."
“We know Preston Hollow as a bondholder, and we have learned more about American Healthcare Systems. AHS is experienced at operating and rehabilitating hospitals across the country,” Mercy Iowa City President and CEO Tom Clancy said in a statement. “As we celebrate our 150th anniversary here in Iowa City, it is comforting to know that they will continue to operate the hospital and our clinic network as a community-based health system.”
More: Mercy Iowa City remains on auction block as bidders contend for hospital ownership
UI 'disappointed' with the outcome of the nearly week-long auction
Bidding for rights to Mercy's facilities and operations began on the morning of Oct. 4 in Chicago. The University of Iowa submitted a bid proposal of $20 million to the State of Iowa bankruptcy court, hoping to purchase Mercy’s 14 buildings across its campuses in Iowa City, North Liberty, Kalona, Tipton and Williamsburg. Preston Hollow outbid the University, though court documents didn't immediately reveal the winning bid.
In an email to university employees, University of Iowa President Barbara Wilson and Carver College of Medicine Dean Denise Jamieson expressed the UI's continuing commitment to quality health care and job opportunities despite falling short in this bidding process.
"We are disappointed in this outcome because we believe there is value in having patient care delivered by an Iowa-based health system," the email read. "Nevertheless, we are heartened that the selected bidder, the bond holder, has committed to keeping Mercy Iowa City as a hospital."
Wilson said Mercy Hospital first approached the university and asked the institution to submit an acquisition bid earlier this year.
“We recognize the outcome is in the hands of the court, but we share a goal to preserve the ability to offer health care access to a wide variety of individuals in the community and beyond,” Wilson said during a special August State Board of Regents meeting.
Mercy plans to transition quickly
Tom Clancy, Mercy Hospital's chief restructuring officer, said the transition plan for the acquisition "has already started."
“We look forward to the new vision and path forward from AHS for the health system and are pleased by the commitment being made by AHS and Preston Hollow," Clancy said in a statement. "We are also appreciative of the work and commitment shown by the University of Iowa as the stalking horse in the auction process. The University’s commitment was driven by preserving health care in Iowa City, which we believe this process has done.”
Mercy Hospital and its satellite clinics filed for Chapter 11 bankruptcy in August after years of financial trouble.
More: Mercy Hospital’s 150-year legacy: Nuns built foundation on respect for care, compassion
Preston Hollow had previously tried to take over operations of Mercy Iowa City, asking this past July for a Johnson County District Court to place the hospital under court-ordered receivership. In those court filings, the Texas-based investment firm alleged the hospital's decision to file for Chapter 11 bankruptcy earlier this year was the result of "years of financial mismanagement and an ongoing refusal to take the necessary steps to restructure and stabilize its operations."
“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,” Jim Thompson, Preston Hollow Chair and CEO, said in a statement late Tuesday. “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.”
What is Preston Hollow?
The Dallas-based capital investment company that submitted the winning bid for Mercy Hospital is a multi-billion-dollar company that "provides financing for projects of significant social and economic value to local communities" across the country, including health care, K-12 education, infrastructure and more.
Preston Hollow and American Healthcare Systems will hold several meetings with Mercy staff to get feedback and recommendations and answer questions about the transition and acquisition, Preston Hollow said in a statement.
"In connection with the hospital acquisition, Preston Hollow Community Capital and the other bond investors will also make significant capital investments in order to stabilize the hospital’s operations, restore community-care service lines, and bring the facility back to profitability," the company said in a release.
Ryan Hansen covers local government and crime for the Press-Citizen. He can be reached at rhansen@press-citizen.com or on X, formerly known as Twitter, @ryanhansen01.
Michaela Ramm covers health care for the Des Moines Register. She can be reached at mramm@registermedia.com, at (319) 339-7354 or on Twitter at @Michaela_Ramm.
This article originally appeared on Des Moines Register: Preston Hollow, American Healthcare outbid UI for Mercy Hospital rights
