Bondholders of Mercy Iowa City have asked a judge to appoint an examiner to investigate why the hospital filed for bankruptcy protection without consulting them, The Gazette reported Aug. 15.
On Aug. 14, Preston Hollow Community Capital — an investor in the hospital — and the master trustee of its debt alleged Mercy "threw in the towel" and filed for bankruptcy protection without consulting them.
They also alleged that if a "below-market" offer from the University of Iowa were to go through, it would turn Mercy into an independent, "full-service acute care hospital."
"Upon information and belief, the University of Iowa intends to reduce Mercy's existing acute care service lines and convert Mercy into largely a behavioral health hospital," the filing alleged.
This comes after the University of Iowa proposed a $20 million deal to purchase Mercy.
According to Mercy's court filings, University of Iowa plans to establish a "Mercy advisory board, allow Mercy to have its own chief administrative officer responsible for operations and make certain strategic upgrades" if the deal is approved.
Mercy allegedly has received offers from at least four healthcare systems as it sought to replace its former managing partner, West Des Moines, Iowa-based MercyOne.
Mercy told the publication it disputes Preston Hollow Community Capital's claims.
"In due course, we will address these issues in the bankruptcy court. In the meantime, Mercy remains focused on moving the sale process forward to achieve a fair value for all creditors, while continuing to provide quality patient care at our hospitals and clinics and protecting our employees and physicians," the hospital said.
Preston Hollow was the main investor in $41.8 million in bonds Mercy issued in 2018, according to the publication.
The bondholders have also asked an examiner to investigate Mercy's current and former officers and directors; MercyOne; and its former EHR vendor, Allscripts.
"Examples of the fiduciary breaches, mismanagement, incompetence and corporate waste include the board and management's decision to migrate the hospital's electronic medical records system to an inferior platform, which had a devastating financial effect resulting in potentially millions of dollars of losses," the court filing reads.
On Aug. 31, a bankruptcy judge is set to discuss the proposed bid deadline, a potential auction date and the new appeal for an examiner, according to the publication.