Education

Millions spent on University of Iowa clinic that's still mostly vacant

Audit portrays confused, mismanaged process of building facility

The Old Capitol building is shown in Iowa City on Monday, March 30, 2015. (Adam Wesley/The Gazette)
The Old Capitol building is shown in Iowa City on Monday, March 30, 2015. (Adam Wesley/The Gazette)

IOWA CITY — More than a year after University of Iowa Health Care wrapped up construction of a state-of-the-art clinic on the city’s east side — spending millions to build and outfit it — the facility sits mostly vacant, with more than $400,000 in equipment not being used.

So far, UI Health Care has spent $5.1 million on furnishings, fixtures, and equipment for the 61,067-square-foot, two-story North Dodge Clinic at 1360 North Dodge St. That includes $1.3 million on 29 “change orders” — work added to or deleted from the project as initially envisioned. It later spent $1.4 million on the building since the clinic started accepting patients in June 2017, including for uncounted project alterations.

Additionally, the university has spent $4.9 million in clinic operating costs so far. And it has paid $1.6 million so far on a 12-year lease agreement with the builder for the total $20.4 million project, which it entered into in June 2015 and which is expected to cost the UI more than $20 million over its life span.

So far, in less than a year of operation, the facility has generated $1.55 million in revenue.

“The operating loss in year one was not a surprise,” UI Health Care spokesman Tom Moore wrote in an email to The Gazette. “The clinic was sized to allow for year over year patient volume growth, knowing that the initial years of operation would sustain losses due to lower patient volumes,” he said.

The lopsided accounting follows a critical internal audit of the project earlier this year that found “unacceptable” weaknesses and risks due to mismanagement, disconnected planning and inadequate documentation, among other things.

Design build questioned

Auditors reported documentation was missing or lacking throughout the project, including for the selection of the site, developer and architect, and solicitation and selection of bids for much of the change work that occurred before and after the facility opened — counter to UI policy.

The project used a “design-build” method, which taps a single entity for both design and construction. That’s different from the typical “design-bid-build” process that involves separate contracts for design and construction.

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The Board of Regents has asserted it’s exempt from a portion of Iowa Code requiring boards and commissions to follow a “design-bid-build” process, citing a separate section allowing regents to reject bids they find unacceptable and proceed differently.

Some lawmakers, including Rep. Jake Highfill, R-Johnston, believe the board is in violation. Regents for years tried to change the law to explicitly allow public universities to use alternative building methods, until deciding in 2012 they already had the authority.

Highfill proposed legislation that would do the opposite and require “a specific reason” for rejecting bids.

That proposal didn’t survive a legislative deadline, but one that did — with Gov. Kim Reynolds signing it into law this month — requires public bodies like the Board of Regents to have competitive bidding before awarding contracts.

“When you have taxpayer money, you should use taxpayer money in an open and responsible way,” he said.

The audit urged the UI to adhere to purchasing policies for evaluating and choosing developers, architects, designers and locations “for off-site projects under a lease-back contract like the North Dodge Clinic.”

“I can’t believe we’re even having a conversation about open and transparent bidding work,” Highfill said. “People are trying to smear the mud and cover this up. But what the regents are doing is wrong.”

UI faces financial headwinds

The criticism comes as UI Health Care battles back from a start-of-the-year deficit of $7.2 million and mounting industry headwinds — prompting it to cut costs, in part, by eliminating 500 full-time positions, largely through attrition but with some layoffs.

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An arbitration panel also recently ordered UI Health Care to pay a $21.5 million award to one of its many contractors on the $360 million UI Stead Family Children’s Hospital, which opened in February 2017 and also was plagued by cost overruns, change orders and confused management documented in a 2015 audit.

The university fought the arbitration award, but indicated in court documents “a settlement agreement in principal has been reached.”

Growth forecast proved optimistic

In summer 2015, when UI Health Care was in the midst of its Children’s Hospital construction, it was looking to expand its footprint in east Iowa City, “in the center of an area targeted by UIHC for new patient growth,” according to a request of the Board of Regents to lease space for the new clinic.

Two months later, the university opened s Quick Care clinic on North Dodge Street, about a mile away. That Quick Care — like five of the university’s 10 total Quick Care clinics — has since closed due to “patient volumes, revenue, and changes in the local market and health care environment.”

Although administrators in 2015 told regents the new North Dodge primary care clinic would offer pediatrics, internal medicine and OB-GYN services, only two OB-GYN physicians are seeing patients there now, along with three nurse practitioners and a nurse midwife — filling just 27 percent of the space.

Spokesman Moore said the clinic no longer plans to offer internal medicine there. The UI-owned Pediatric Associates will begin seeing patients at North Dodge in July, and in vitro fertilization and reproductive endocrinology will start seeing patients there in June — putting it at 65 percent occupied.

In July 2019, the in vitro and reproductive endocrinology clinic plans to relocate in its entirety to the building, bringing it to 87 percent occupied.

The audit, which went to the regents in February but did not spur discussion, notes UI Health Care developed the clinic as part of its plan for growth based on “assumptions that did not come to fruition timely and created confusion.”

The audit also addressed other concerns, including:

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• Planning and design was “disconnected at the onset,” leading to “significant issues” with occupancy after construction and redesign. “As a result of the change in occupancy by individual departments, UIHC purchased over $400,000 in equipment that is currently not being used in the (clinic) and is in storage,” auditors found.

• UI Health Care inadequately documented its process for selecting the clinic site, developer, architect and designer. “Documentation is key in defending against accusations of inappropriate or fraudulent activity,” the audit said.

• Documentation also was lacking on change order approvals, which often were not approved in a timely manner. “There was risk that delay in approval to the developer could have allowed them to proceed without considering the potential change order,” according to the audit.

Auditors did note throughout the report ways the university was strengthening controls going forward. “Management has been responsive to the recommendations,” the audit said.

l Comments: (319) 339-3158; vanessa.miller@thegazette.com

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