UIHC revenue below first quarter expectations; inpatient tower plans under review

IOWA CITY — University of Iowa Health Care in the first quarter of the current 2026 fiscal year is running under budget in revenue and over budget in expenses — resulting in net operating income that is $15 million below expectations for the 2026 term that started July 1, a rarity for the largest health care system in Iowa.

Directed payment revenue — the result of a partnership with the state that has substantially boosted Medicaid funding for UIHC over the last three years — helped mitigate the damage by generating $107 million in the first quarter of FY26, about $7 million more than expected, per Board of Regents documents.

Without that revenue, UIHC would show a $63 million deficit for the first quarter — putting the sprawling system at a negative-7.4 percent operating margin. With the directed payment revenue, UIHC is $44.3 million in the black this quarter — but still $15 million under its operating margin budget.

And that directed payment revenue is at risk thanks to the federal One Big Beautiful Bill Act that could levy a massive cut in Medicaid support for institutions like UIHC. Nationally, the hit is expected at more than $1 trillion, including $9.5 billion for Iowa, according to an analysis of the Congressional Budget Office’s latest cost estimate.

When a regent asked UIHC for an update on that threatened revenue Wednesday, Associate Vice President for Finance and Chief Financial Officer Mark Henrichs said the campus expects some changes to start in 2027.

“And in 2028, there's a 10-year walkdown decrease in the overall directed payment formulas,” he said. “And so we’re looking at what that means for us as we project out five and 10 years. The main thing we're looking at is, what is the impact on our capital plan, and how do we make sure we’re poised to react to those changes.”

Specifically, Henrichs and Brad Haws — chief executive officer of the UIHC clinical enterprise — said the revenue loss could impact plans for its new $2 billion inpatient tower slated for the main UIHC campus next to Kinnick Stadium.

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When asked when regents can expect an update on that project — for which the university already has spent hundreds of million in enabling projects — Haws said, “That’s the $64,000 question.”

“We are collaborating closely with some external experts about what do we really have to have in that tower,” he said, explaining they’re “trying to figure out what’s the least expensive way to do it.”

Haws suggested UIHC needs three to six months “before we have a solution to what that looks like.”

“What’s also happening, while the finances look difficult, the escalation in construction costs is significant,” he said. “So trying to balance all those factors is a complex puzzle.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com