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Regents Approve UIHC Rate Increase, Budget

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CEDAR FALLS, Iowa -- University of Iowa Hospitals and Clinics must find more budget efficiencies and grow patient volumes in response to financial challenges in the health care industry, UI hospital leaders said Wednesday in seeking state regents approval of next year's budget.

It's not a new message from hospital leaders, but they repeated it Wednesday during a state Board of Regents meeting during which the board approved the hospital's Fiscal Year 2014 budget, which includes a 6 percent rate increase effective July 1.

Federal government sequestration cuts combined with changes stemming from implementation of the Affordable Care Act will negatively impact UI Hospitals and Clinics by more than $18.5 million annually starting in January, officials said. Along with those reductions, costs such as wages, medical supplies and pharmaceuticals continue to rise, officials said.

"We have a number of challenges, as do all academic medical centers, related to revenue declines," hospital Chief Executive Officer Ken Kates said. "We continue to be very focused on growth and revenue enhancements. We also know there are more challenges ahead and we remain focused to address them effectively."

Hospital officials plan to continue working to decrease expenses and they expect that new clinic facilities will result in higher patient volumes. The FY 2014 budget approved by the regents includes an expected 3 percent operating margin for the hospital next year and a 6 percent rate increase. The FY 2014 hospital budget is based on about $1.2 billion in gross revenues.

But a very small portion of those revenues -- less than 1 percent -- are derived from the 6 percent rate increase, officials said. That price change will result in about $1 million more in net revenue, Chief Financial Officer Ken Fisher said.

Few patients will pay 6 percent more even though that is the rate increase. Only about 4 percent of hospital patients pay that rate, Fisher said. Most patients are covered by insurance companies or other third-party payers, such as Medicare, and those rates are set in other ways or negotiated via contracts.

But those rate increases are not going up at the same rate as costs, meaning volumes must increase for the hospital's financial model to work, officials said.

"We have to be able to deliver the same quality of care at lower costs," UI Vice President for Medical Affairs Jean Robillard said. "And I think that's what we are in the process of doing."

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