CEDAR FALLS — Officials at the University of Iowa Hospitals and Clinics told members of the state Board of Regents that financial challenges will force them to tighten the budget in the coming year.

"We will have to be more creative in delivering the same quality services at a lower cost," said UI Vice President for Medical Affairs Jean Robillard.

At the Wednesday meeting, UIHC officials asked for a 6 percent rate increase for next year, including a 3 percent operating margin for the fiscal 2013 budget. The regents unanimously approved the request, which is a decrease from this year’s 4 percent.

UIHC CEO Ken Kates said the facility is operating below its allotted monthly operating margin.

Kates said the payments UIHC receives from third parties, such as Medicare and Medicaid, have been a challenge because the parties do not raise their payment rates at the same rate as the cost of inflation. Drug shortages have also posed a problem.

One UI professor noted changes in Medicare policy are resulting in lower reimbursement, and Medicare reimbursements continue to increase — but not enough to cover expenditures hospitals are making.

Keith Mueller, the head of the UI Department of Health Management and Policy, said private insurance carriers feel pressure from buyers to negotiate lower pricing.

"This has been going on for multiple years," he said. "There’s just a lot of pressure on insurance providers to bring down the increase of reimbursement and lower hospital budgets in general. So far the health care system has been able to hold up.

Ken Fisher, the UIHC associate vice president for finance, said officials intend to tighten the budget in the coming year among employee positions. Though layoffs are unlikely, he said, some vacant positions may remain unfilled.

Officials said they have plans set for a 1.8 percent increase in the payment rates, and a 6 percent price increase. Regents approved the requested 6 percent rate increase for the upcoming year to help offset some of the facility’s debt. Fisher said only 3 to 4 percent of patients actually pay that rate and they are usually completely self-paying.

"We tend to work with them individually, depending on what their financial situation is," he said.

Yet, Kates said, there is a strong overall volume growth in most other areas compared with the previous year.

Fisher said patient discharge and average patient days are slightly above budget and the numbers for inpatient surgery have stayed consistent in recent years. Hospital officials said the consistency is driven by accurate budgeting and the hospital’s capacity of surgery and overtime.

"I am very confident we will achieve the 4 percent operating margin that we budgeted," said Kates of the current fiscal year.

DI reporter Derek Kellison contributed to this story.