Iowa Board of Regents OKs 33% budget increase for construction of UIHC North Liberty hospital

The University of Iowa's health care system will increase the budget for a hospital facility under construction in North Liberty by $130.6 million, or 33% of the original price tag, after approval by Iowa's Board of Regents on Wednesday.

Factors like inflation, heightened material costs and labor shortages are driving the need for the budget increase from $395 million to $525.6 million for the 469,000-square-foot facility, according a document presented to the regents. Ripple effects of the war in Ukraine are also being cited as a reason for the increase in costs.

"We all know what we hear on the news and what we all experience at the gas station and the grocery store, and the construction industry has challenges as well with inflation not only in the United States, but worldwide," Kimberly Hunter, interim CEO of the University of Iowa Hospitals & Clinics, told the regents during a virtual meeting Wednesday.

The project is being financed with hospital revenue bonds, donations and building usage funds; it does not rely on any state or tuition dollars. 

Planning, design and management costs for the North Liberty facility are expected to rise by about $4 million, and furniture and equipment costs by $14.1 million, according to the updated budget submitted to the regents. Other increases are related to "construction."

UIHC considered delaying the project and waiting for the market to change, and/or reducing the size of the project, Hunter said Wednesday.

"We ... understand that the impact of delaying our project is significant on patient care. Health care access for Iowans would be reduced, and providing complex care to our patients is already strained. And this would further strain that," Hunter said. 

The hospital system is operating at 99% bed capacity already, according to Wednesday's presentation. Construction of the North Liberty facility, plus a new in-patient tower on the main Iowa City campus, are being used to address capacity issues.

Last year, UIHC said it received about 2,400 requests to transfer to the hospital system from across the state. 

"We weren't able to take them, and that was because of capacity constraints," Hunter continued. 

After a presentation about the project, the regents asked questions of UI staff for about 30 minutes before unanimously approving the budget increase. 

The scope of the project has not increased since the regents signed off on it in September. Construction on the 48-bed facility at the corner of Highway 965 and Forevergreen Road in North Liberty broke ground in October and is expected to finish on time, by 2025.

Part of the building will house in-patient units, surgery services, an emergency department, labs, pharmacy, and space for research and education; another wing would include space for clinics, faculty offices and research.

Iowa's Health Facilities Council voted in favor of of allowing the project to move forward in August 2021. That was after the same council previously rejected it, citing issues with the cost and expressing concerns that it would give UIHC too big of a footprint in a health care market that was already saturated.

JE Dunn Construction is acting as the "construction manager at risk" for the project. There are 64 bid packages associated with it, including 32 that still need to be secured. 

The updated $525.6 million budget is a "guaranteed maximum price" as set by JE Dunn via an at-risk construction model. Rod Lehnertz, senior vice president for finance and operations at UI, said if the remaining bid packages come in higher than expected, JE Dunn is responsible for covering the cost because of the conditions of its agreement.

More information about those bids will be presented to the regents. 

"When we realize those bids in roughly a month from now, we'll know where we stand, and that will allow us to assess and come back to the Board of Regents with the results and hopefully a revised downward budget," Lehnertz said Wednesday.

Cleo Krejci covers education for the Iowa City Press-Citizen. You can reach her at ckrejci@press-citizen.com.