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Cedar Rapids, Iowa 52401
IOWA CITY — As it promised, University of Iowa Health Care plans to reward more than 12,000 employees it required over the last year to either forfeit raises, absorb pay cuts, shed earned vacation time or take unpaid leave to ease its budget woes in the worst throes of COVID-19.
The one-time lump sum payments — coming Sept. 1 if approved next week by the Board of Regents — will vary in amount depending on the eligible worker’s base salary as of June 30, 2021, according to documents made public this week. The payments will range from an average of $1,139 for workers earning an average wage of $37,953 to an average of $5,902 for faculty earning an average base salary of $196,738.
In total, UIHC expects to pay out $26.6 million to 12,050 eligible employees based on a projected hospital operating margin of over 7 percent for the budget year that ended June 30. Such a strong financial performance seemed only a long shot in June 2020 when UIHC administrators announced the need for cost-saving measures in the 2021 budget year that started July 1, 2020.
When UIHC asked employees — including thousands of unionized staff — to forgo a scheduled or contracted 2.1 percent pay raise to save the hospital nearly $15.6 million, executives were projecting a $120 million hit from lost patient volume and new pandemic-related expenses.
Unionized workers roundly rejected that ask, prompting UIHC to take another tact.
While keeping most employee salaries whole and on track for scheduled pay increases — and with the financial outlook beginning to improve — administrators proposed two options “to avoid layoffs while maintaining financial viability.” Staff making an annual salary of $50,000 or more had to take two weeks unpaid leave, return 100 hours of accrued vacation or offer a combination of the two. Those making under $50,000 had to sacrifice half that amount — so one week unpaid leave or 50 vacation hours.
Administrative leaders and faculty didn’t see pay raises. Top executives — such as UIHC Chief Executive Officer Suresh Gunasekaran and UI Vice President for Medical Affairs Brooks Jackson — took a 10-percent pay cut for three months. Other UIHC executives took a 5-percent cut during that time, while also taking off two weeks unpaid or forfeiting 100 vacation hours.
Department heads absorbed a 4-percent pay cut for the year, and faculty — including physicians and professors — saw a 2.5 percent pay reduction.
“Other health care entities were laying off employees due to reduced census, low volumes in ambulatory clinics, mandated reductions in operating room time and suspension of all non-emergency procedures,” according to the regents documents. “Costs were escalating as many new safety, screening, laboratory and testing measures were instituted and the need to purchase as much PPE as possible from anywhere in the world.”
Alongside the reductions, though, Gunasekaran announced a “success-sharing program” to encourage productivity by promising a lump payment if the system emerged from the worst of the pandemic on solid financial ground.
“As FY21 comes to a close, due to the tremendous work of the employees, as well as their participation in the FY21 cost-saving initiatives, the University of Iowa Hospitals & Clinics are in a stable financial condition and have a positive margin,” according to the board documents. “As a result, UIHC would like to reward all employees with a one-time lump-sum payment on September 1, 2021.”
Although UIHC still is in the process of closing its fiscal 2021 books, the hospital system as of March was reporting an over-budget operating margin of 5.1 percent. Its operating income at that time was 11.4 percent over budget and nearly 37 percent above the previous year.
Of the 12,050 employees eligible for the reward payments, 3,391 are members of the Service Employees International Union — which includes nurses, nurse aides, teachers, laboratory scientists and food workers, among others.
Another 2,680 are categorized as “merit” workers, including equipment technicians, cashiers, clerks and cooks. And 3,993 are “professional and scientific” staffers — leaving 1,200 faculty members and 786 residents or fellows.
Given faculty earn the highest average salary of $196,738, their average lump sum payment will be $5,902. Those in the professional and scientific category make the second-highest average pay of $72,233 — earning an average payout of $2,167 each.
Residents and fellows can expect an average payout of $1,950; SEIU employees will see an average payment of $1,839; and merit staff will receive an average $1,139 payout, according to board documents.
The payouts amount to 3 percent of an employee’s salary — a percentage determined by the hospital’s operating margin. Three percent is the highest payout possible on a sliding scale, according to board documents.
“Currently, the organization is on pace to issue a 3 percent payout,” according to the documents, which indicate UIHC’s operating margin measured in dollars is over $133 million.
Looking forward, UI Health Care in a separate Board of Regents budget document this week reported its fiscal 2022 operating budget for the year that just started is $1.92 billion. Its fiscal 2020 operating budget was $1.68 billion.
But COVID-19 still poses a revenue threat — on top of other financial pressures on the health care industry.
“Impacts that the COVID-19 pandemic had on volumes and patient populations will continue to present risks into FY22,” according to the UIHC portion of the board’s budget report. “These and other external challenges will have an impact in all areas of their mission, ranging from near flat reimbursement for patient care services to continued constraint and competition for research funding.”
Among other things, increasing expenses for salaries and operating costs continue to outpace payer rate increases, UIHC reported.
“An average salary increase of around 2.1 percent is projected for next year due to base salary increases,” according to the board document. “Medical and surgical supply costs are estimated to rise 3 percent or more due to price increases and changes in technology. Pharmaceutical cost increases are anticipated in the 3.0 percent range.”
Inpatient and outpatient demand is expected to increase, including for the state’s sickest patients.
“Additional net revenues will be required in FY 2022 to meet a 4 percent budgeted operating margin,” according to the report. “These additional net revenues will be achieved through new volumes and a rate increase of 6 percent” in patient hospital bills.
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