Health

University of Iowa hospitals seeking rate hike, amid industry headwinds and institutional efficiency efforts

Payers like Medicare and Medicaid would feel most impact - not patients

University of Iowa Stead Family Children’s Hospital in an aerial photograph in Iowa City on Thursday, July 14, 2016. (Stephen Mally/The Gazette)
University of Iowa Stead Family Children’s Hospital in an aerial photograph in Iowa City on Thursday, July 14, 2016. (Stephen Mally/The Gazette)
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The University of Iowa Hospitals and Clinics — which is navigating changes in its leadership, integrating new facilities, and facing massive headwinds in the country’s health care industry — wants to raise rates for its services six percent, a hike that’s become routine.

UIHC leadership every year for nearly a decade has requested, and received, permission from the Board of Regents to enact similar increases. Although regents during their meeting Wednesday did not express opposition to the hospital’s proposed rate bump, which would go into effect July 1, the board will not take action on the request until its April meeting.

The UI-based hospital system — the largest and most lucrative in the state — decides how much to propose increasing rates by reviewing charged items, such as increasingly expensive drugs and medical equipment, and by considering rates at peer institutions.

“UIHC charges are relatively low,” according to the hospital’s request for board approval.

According to a recent industry comparison among all Midwest academic centers, UIHC “acuity adjusted charges” are in the 29th percentile.

“This does not catch up but at least it would keep up — so we wouldn’t slide further among our peers in the Midwest,” said Doug True, interim associate vice president and chief financial officer for UI Health Care.

When proposing rate increases, UIHC administrators also consider limits in payer contracts on charge increases — as many commercial payers restrict annual charge hikes to no more than six percent.

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In addition, hospital charges can affect prospective contractual rates set by payers, and they directly impact reimbursement for payers who use a percent of charge as part of their payment structure, according to Board of Regents documents.

“Given UIHC’s low charge levels, it would be reasonable to increase charges more than six percent,” according to the hospital request. “However, given the cap on charge increases in many of our contracts, we feel it is most prudent to cap the increase proposal to six percent.”

Many patients won’t experience any direct impact from rate bumps — as the increases often fall to payers such as Medicare and Medicaid. But some outliers — such as those with some specialty care services or patients who pay for themselves — will.

The increase in revenue, however, is imperative in helping the UIHC’s bottom line, according to administrators.

The hospital’s financial health has been under the microscope after it ended the last budget year with an operating income nearly 50 percent under budget and started the new budget year with a $7.2 million deficit.

In subsequent months, the institution has made progress in climbing out of that hole, and True on Wednesday reported month after month in the black have cut the UIHC deficit.

Figures through December, reported to the board on Wednesday, show the hospital system’s operating income $7.1 million under budget and $16.6 million less than the same period last year.

Its operating margin was one percent, compared to a 1.9 percent budget and 3.4 percent through the same period last year. But UIHC Chief Executive Officer Ken Kates said numbers are continuing to improve and the enterprise’s operating margin reached 2.1 percent in January, over its 1.9 percent budget.

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The improvement has been accomplished, in part, through an $86 million initiative to both find new revenue and new saving.

Through the first six months of the 12-month initiative, the hospital has achieved $24 million of its goal by — among other things — eliminating 461 positions to date and curtailing administrative costs.

The hospital system, which had been relying heavily on costly traveling nurses, also has reduced those contract workers by hiring more staff. To date, UIHC has trimmed its traveling nurse corps by 185, bringing it to between 40 and 50. Meanwhile, its staff nurse total has increased to 2,100.

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