Iowa’s biggest and most-profitable hospital is lowering by more than half its operating income projections for 2017 and signaling a possible shift in strategy thanks to a sharp increase in denials from Medicaid managed care payers and a corresponding drop in the hospital’s collection rate.

Jean Robillard, vice president for medical affairs of the $1.9 billion University of Iowa Health Care enterprise and dean of the UI Carver College of Medicine, told the Board of Regents on Wednesday that his hospital recently has seen its collection percentage fall from 33.9 percent in January to 31.3 percent in March — a spike largely tied to Medicaid managed care denials.

Because each collection percentage point decrease represents $3.8 million less in net revenue per month, Robillard said, “This is serious.”

“We have to look at it,” he told the regents, noting the change in denials began in earnest earlier this year but, “We didn’t want to wait three months.”

The change has prompted the hospital system to adjust its operating income margin projections for the current budget year from 3.5 percent to 1.6 percent. When looking at actual numbers, UIHC has downgraded its 2017 operating income projections from $52.2 million to $23.9 million.

The hospital system’s operating income in 2016 was $101.2 million, or 6.9 percent, according to documents provided to the Board of Regents on Wednesday.

“We have to find a solution for this,” Robillard told the board, citing the need to talk with the entities involved and “put pressure on them.”

“That’s the reason we are here today,” he said.

Robillard said the hospital isn’t comfortable with an operating margin under 3 percent.

“We were on that trajectory until December,” he said, adding the drop in collections prompted administrators to ask, “What is going on?”

To be clear, Robillard noted, the hospital has been “jam packed” for months and months — with 90 to 95 percent occupancy rates. Some days, he said, the hospital is even over capacity. And although there’s a chance the trend could reverse with some pressure and negotiation, Robillard said, he wanted to alert the hospital’s governing board.

“For the regents, we just wanted to inform them because it changes the perspective, if it continues to be like that,” he said. “They need to know about this.”

Regents also can help apply pressure, according to Robillard. But, should the trend continue, the hospital will have to employ a “different strategy.”

“If the number of denials continue to go up — I think we may end up at a 30-percent, 31-percent collection rate — it will change completely the way we will have to organize ourselves and do the budget,” Robillard said.

Since the state last year handed over its Medicaid program — and its nearly 600,000 low-income and disabled Iowans — to three private insurance companies, an array of issues have emerged. And Robillard on Wednesday said the hospital still is seeking about $6.4 million in Medicaid reimbursements for old cases dating back 270 days or more — contributing to concerns with the bottom line.

Regarding the more recent alarm over denials, documents provided to the board Wednesday show Medicaid managed care rejections spiked at UIHC to over 700 in the last year, two or three times the payer with the next highest denial rate.

“If you look below that, it’s almost 10 times more than the other commercial payers,” Robillard said. “This is huge.”

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Examples of cases being denied at a higher rate by Medicaid managed care organizations are preeclampsia for monochorionic twins; deep neck infection requiring surgery; and psychiatric patients with a risk status not acceptable for outpatient management.

UI President Bruce Harreld spoke up during Wednesday’s board meeting to emphasize the potential fallout — should the Medicaid managed care trend continue.

“We are in a different environment than we’ve been in the past,” he said. “If this continues, it will have meaningful consequences to us.”

After hearing the UIHC report on Wednesday, regents unanimously approved a maximum 6 percent rate hike — the same percent the hospital requests every year — which Robillard said primarily will affect those who self-pay.