Costs up, revenue down as Mercy Hospital runs a deficit
Mercy Hospital in Iowa City
IOWA CITY — In a fiscal year in which Mercy Hospital Iowa City sought a new managing partner, received a takeover offer from the University of Iowa Health Care, and tried to reverse dozens of million in pandemic-related losses, new documents show the hospital’s finances have only gotten worse.
Cash and cash equivalents for the hospital portion of Mercy’s business operations – with excess cash signaling “a high degree of safety and liquidity” – fell from $22.1 million in the fiscal year 2021 to $5.8 million in fiscal year 2022 that ended June 30, according to an independent auditor’s report filed with the Municipal Securities Rulemaking Board, a regulatory body established by Congress.
Hospital revenue, including patient revenue, fell from $174.2 million to $161.4 million – while expenses rose from $166.7 million to $180.8 million – equivalent to a deficit operating expenses of $19.4 million, before additional restructuring costs and management fees of $2.1 million paid to MercyOne Health System.
Mercy’s 194-bed hospital facility — which owns Mercy Services Iowa City, Mercy Outreach Iowa City, and the Mercy Hospital Foundation — moved in 2017 from relative independence to a contractual arrangement with MercyOne for management services and affiliation. strategic.
The $2.1 million annual fee paid to MercyOne is for its management “providing strategic advice, turnaround management, and certain other management services to Mercy.”
In total, including non-operating losses — like $24.4 million related to investments — the hospital posted a deficit of $40.5 million in fiscal 2022, compared to a surplus of 10.5 million in fiscal year 2021.
Adding in 2022 losses from Mercy’s services and foundation branches, the total deficit last year was $55.9 million, compared to a narrow surplus of half a million in the fiscal year. 2021.
Mercy Iowa City declined to answer questions from The Gazette about financial issues — including what its management is doing to deal with the losses and whether it is still looking for a new managing partner or owner after failing to secure a new collaboration.
According to a survey conducted by The Gazette.
Mercy officials did not respond to questions about why neither of those offers materialized, and the community hospital announced in July that it was ending its unsuccessful search and staying with Mercy One.
Last week, the hospital also declined to comment on the independent auditor’s findings that it is ‘non-compliant with the financial covenants’ of $44.6 million in revenue bonds it issued in 2011. to, among other things, finance capital investments.
“The company failed to meet the ‘minimum annual debt service coverage ratio’,” according to auditor Deloitte’s report, noting that “the company should retain the services of a consultant to make recommendations regarding the company’s operations, which have been completed”.
Among Mercy’s current liabilities are the remnants of a $24.7 million cash advance from Medicare in fiscal year 2020 under a “COVID-19 Accelerated and Advance Payments” program. At the end of fiscal year 2022, Mercy owed a remaining balance of $8.6 million and the full amount was coming due.
“The company argued hardship and requested an extended repayment schedule of 36 months and on November 2, 2022, the company received approval,” according to the audit report.
In total, Mercy System assets in fiscal year 2022 fell 19% from $283.9 million in fiscal year 2021 to $229.2 million in fiscal year 2022 .
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