The University of Iowa Hospitals and Clinics annually for more than a decade has asked the Board of Regents to raise payer rates about 6 percent — and it did so again Thursday, receiving the standard board stamp of approval after repeating its refrain about health care headwinds and a need to grow.
“Every year there is a new headwind with a new title, and if it ain’t coming out of Washington, D.C., it’s coming out of here locally,” UIHC CEO Suresh Gunasekaran told the board during its Thursday meeting. “So we want to manage our investments and make sure that we’re really prudent with our resources. We want to focus on growth.”
Gunasekaran stressed the importance of maintaining an operating margin of between 4 and 5-plus percent because annual cost increases for things like drugs, equipment, and employees outpace annual payer increases to the tune of 3 to 5 percent, compared with 1 to 2 percent, respectively.
The UIHC preliminary operating margin for the 2020 budget year is 3.9 percent, which UIHC administrators said is on the low end of the acceptable range.
“Growth and expansion is really important for us to stand still,” Gunasekaran told the board. “It’s not that we’re getting away from our mission by growing. We are growing to keep our mission going. That’s just the reality of it.”
UIHC administrators picked the proposed 6 percent rate hike based on general expense increases, charge levels at peer institutions, and limits on hikes in some UIHC payer contracts. Many of those contracts restrict annual increases to no more than 6 percent, according to board documents.
And UIHC Chief Financial Officer Bradley Haws said, compared to other similar hospitals and academic medical centers, “Our prices tend to be very low.”
“Something I think we are very focused on is trying to keep those at an appropriate level,” Haws said.
The estimated revenue bump of the 6 percent rate increase is about $14 million, according to Haws. And many patients won’t experience any direct impact from the increase, as it often falls to payers like Medicare and Medicaid.
Some outliers — like those who receive specialty care services and those who pay for themselves — will be hit by the cost increase. For them, Haws said, the university offers discount policies.
“We are very sensitive to the costs of health care that get passed on to the employers and the members of our state,” Haws said, but added, “this we think is a very reasonable request. … Our prices tend to be much lower than others nationally.”
In further supporting the need for more revenue through cost increases and growth, Gunasekaran pointed to the fact that the 811-bed hospital serving more than 36,000 inpatients annually consistently is more than 90 percent full in both its inpatient units and operating rooms.
Meanwhile, with the exception of its new 14-story Stead Family Children’s Hospital, much of the hospital is between 30 to 50 years old, driving up operating costs and making it harder to meet patient expectations.
In outlining projected construction needs over the next few years, UIHC projects $170 million in necessary capital work in the 2020 budget year, increasing annually to $246.9 million in 2023.
That work is the result of increasing demand, with patient wait times for some surgical procedures and appointments stretching out four to seven months. Inpatients that are admitted end up sharing a room, which — in today’s health care landscape — doesn’t meet patient expectations.
“We have an obligation to figure that out,” Gunasekaran said.
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