An oversight committee representing the bankrupt Mercy Iowa City hospital has filed a complaint seeking to recover at least $55 million from MercyOne, Iowa Heart Center and a former hospital CEO.
Seven things to know:
1. The filing. The Mercy Hospital Liquidation Trust Oversight Committee filed the complaint Aug. 6 in U.S. Bankruptcy Court for the Northern District of Iowa. Defendants include MercyOne, Iowa Heart Center and Sean Williams, former president and CEO of Mercy Iowa City.
2. The affiliation agreement. Mercy Iowa City and MercyOne entered an affiliation agreement in 2017 that was extended into 2023. The deal was intended to lead to a “complete and strategic affiliation relationship” that would have effectively merged the two organizations, according to the complaint.
3. Obligations of the agreement. Under the agreement, MercyOne was to provide EHR replacement, IT support, telemedicine development and other management services. The complaint alleges MercyOne did not provide all of the required services, exacerbating Mercy Iowa City’s financial challenges.
4. EHR dispute. MercyOne allegedly missed a November 2018 deadline to replace the hospital’s EHR. A 2021 implementation of a new system led to $37.5 million in losses “as a direct consequence of MercyOne’s failure to provide EHR and IT support services under the Affiliation Agreement,” the complaint states.
The hospital has blamed a difficult EHR implementation as one of the main reasons it had to file for Chapter 11 protection in August 2023.
5. Hospital leadership. Mr. Williams, appointed by MercyOne, served as Mercy Iowa City’s president and CEO from 2018 until his resignation in 2021. The complaint accuses him of breach of fiduciary duty, being regularly absent during business hours and advancing MercyOne’s financial and operational interests to the detriment of the hospital.
6. Relief sought. The complaint seeks to recover payments made to MercyOne and Iowa Heart, avoid allegedly fraudulent and voidable transfers under bankruptcy and Iowa law, and collect damages for breach of contract, unjust enrichment, breach of fiduciary duty and negligent misrepresentation.
7. MercyOne’s response. A MercyOne spokesperson, which includes MercyOne Iowa Heart, said in a statement shared with Becker’s that the organization has been made aware of the legal action filed and will respond in the timeframes established once served.
“MercyOne has become a potential scapegoat for the impact of bankruptcy, while many others who caused or contributed to Mercy Iowa City’s decision to file for bankruptcy have received releases,” the spokesperson said. “An appeal is pending in the Eighth Circuit Court of Appeals concerning the propriety and validity of those releases. Regardless of the outcome of that appeal, there is no basis for any claim against MercyOne or any affiliated entity or individual. We look forward to the opportunity to fully and vigorously defend ourselves against these claims.”
Mercy Hospital Liquidation Trust Oversight Committee said it is unable to comment on pending litigation. Becker’s has reached out to Mr. Williams and will update this story if more information becomes available.
