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IOWA CITY — Although MercyOne for nearly two years has criticized a bankrupt Mercy Iowa City for not paying its outstanding $31,524 bill — citing that debt repeatedly as grounds to fight Mercy’s liquidation plan and demand thousands of documents and emails — MercyOne now is refusing to accept the hospital’s payment.
“The trustee wishes to pay MercyOne cash in the amount of $31,524.63 immediately,” Dan Childers, trustee of the Mercy Iowa City Hospital liquidation plan, told a bankruptcy judge this week, citing “the fact that ongoing litigation and appeal expenses will far exceed (and have exceeded) the face amount of MercyOne’s claim.”
As it has done repeatedly since Mercy Iowa City filed for Chapter 11 in August 2023, MercyOne — which managed the hospital for years preceding its bankruptcy — in April cited its $31,524 claim in demanding a committee overseeing Mercy Iowa City’s liquidation produce records and submit to examination.
“The (committee), as it has in every brief and pleading about MercyOne, notes that MercyOne has a $31,524.63 claim,” according to MercyOne’s April filing. “But the dollar amount of a claim is irrelevant. The (committee) cannot dispute that Rule 2004 only requires a pecuniary interest; there is no dollar threshold. MercyOne’s impaired and unpaid claim alone provides sufficient basis for its (records request).
“Again, if the (committee) thought this claim were so trivial, it could have paid it long ago.”
Not quite two weeks later, the Mercy Iowa City committee on May 5 sent a letter to MercyOne seeking to pay the claim immediately, “upon MercyOne’s tender of wire instructions,” according to court documents.
MercyOne on May 16 rejected the cash payment — arguing it violates federal code in that it treats the claim differently than the many others Mercy Iowa City still owes.
But, in asking a judge this week to force MercyOne to take the money, the Mercy Iowa City trustee argued the payment is based on “cost-benefit considerations and the desire to save and conserve resources of the trust.”
“The payment is based on legitimate cost-benefit considerations and is a straightforward exercise of the sole power vested in the trustee to negotiate, compromise, and pay claims,” according to the motion.
‘Simply pay the amount’
MercyOne’s dispute with Mercy Iowa City dates back to the start of their relationship in 2017, when MercyOne signed a “management and affiliation agreement” that Mercy Iowa City said gave the Des Moines network management oversight.
Paying MercyOne a $2 million annual fee for its services, Mercy Iowa City characterized the Des Moines entity as an “insider, supervising and directing large portions of (the hospital’s) business affairs.”
The two organizations tried to part ways after COVID in 2021 — seeking potential buyers, including a $605 million offer from the University of Iowa that didn’t materialize.
With Mercy Iowa City continuing to decline financially, the two officially parted ways in 2023 — shortly before the hospital filed for bankruptcy.
Among its Chapter 11 filings — reporting Mercy Iowa City owed $62 million to bondholders and $17.3 million in unsecured creditors — MercyOne was listed as having a $31,524 claim.
That was far below some of the creditors owed in the hundreds of thousands or more — like Allscripts Health Care at $1.8 million or Texas-based J & K Professional Medical Services at $846,616.
After the University of Iowa won a bankruptcy auction to buy Mercy Iowa City for a total of $37.4 million in January 2024, the court set up a liquidation trust to distribute the assets to bondholders, creditors, and pensioners.
But MercyOne fought a liquidation plan that everyone else signed off on — in large part because it left MercyOne solely vulnerable to lawsuits.
“MercyOne’s objection was a clear attempt to gain leverage to avoid litigation,” Mercy Iowa City attorneys said in court documents, arguing against MercyOne’s opposition to the liquidation plan.
“This court should not be paralyzed into inaction by MercyOne’s use of … a ‘red herring’ litigation tactic that has nothing to do with MercyOne’s interest in maximizing recovery on its $31,000 claim and has everything to do with avoiding being a target of future litigation.”
A judge denied MercyOne’s objection to the plancompelling it to appeal.
And it is through that ongoing dispute that each side continues to fight for records and depositions — even as the liquidation oversight committee tries to pay MercyOne the outstanding claim that’s given it standing to fight the plan at all.
Arguing MercyOne should be required to accept payment, the liquidation trustee said in court documents that he therefore posits “MercyOne’s continued prosecution of the appeal to the Eighth Circuit is not justifiable.”
“Indeed,” an attorney for the oversight committee wrote about MercyOne in May, “this payment is consistent with the contention you urged (when) you on behalf of your client posited the trust should simply pay the amount displayed on the proof of claim.”
Vanessa Miller covers higher education for The Gazette.
Comments: (319) 339-3158; vanessa.miller@thegazette.com
