Iowa's newest Medicaid provider moving into one of central Iowa's priciest new office developments
Iowa's newest Medicaid company will move into one of the priciest commercial office spaces in the Des Moines metro area — a move critics worry will siphon the financial resources needed for the care of the state's disabled and poor.
"It’s disappointing because there are so many other rental properties at far less costs," said Sen. Pam Jochum, D-Dubuque. "The money should really be going into the services of people they are hired to serve.”
Iowa Total Care will officially join UnitedHealthcare and Amerigroup to help manage the state's $5 billion annual Medicaid program in July.
The St. Louis-based company, a subsidiary of Centene, was awarded a state Medicaid contract in May 2018 by the Iowa Department of Human Services. It replaces AmeriHealth Caritas, which pulled out because it said it was losing too much money.
When asked about the company's new offices on Tuesday, Iowa Gov. Kim Reynolds said she was focused on improving care and ensuring the managed care system is sustainable.
"I’m not going to get caught up in the other details," she said.
More:Iowa's new private Medicaid manager has paid millions of dollars in penalties in a dozen states
Iowa Total Care will soon occupy The Westfield Campus at 1080 Jordan Creek Parkway in West Des Moines. The four-story building has two 80,000-square-foot wings that are connected by a large atrium.
The Westfield Campus includes heated, underground parking, a food truck court, a rooftop patio, a coffee bar and an amphitheater.
“Westfield is at the top of the market now,” said Eric Land, a local research analyst at commercial real estate firm JLL.
Land said the western suburbs — proliferated with new construction — are home to the metro’s priciest office spaces. A company report in 2017 ranked Jordan Creek Parkway among the nation's top 50 most expensive streets for commercial office space.
R&R Realty, the building's owner and developer, has moved its headquarters into part of the building. West Des Moines in November approved building permits for $4 million in alterations for Iowa Total Care's space.
The company will hire more than 480 employees before the July 1 launch of its Iowa Medicaid work. About 50 positions have been hired as of Feb. 8, said Marcela Hawn, a spokeswoman for the company.
R&R advertised office space at Westfield at a price of $22.95 per square foot per year — that would add up to an annual cost of about $1.84 million for the company's 80,000 square feet of office space.
Iowa Total Care declined to share a copy of its lease with the Register. Medicaid companies are not required to submit leases for approval with the Iowa Department of Human Services.
► Read more from the Register on Iowa's transition to privatized Medicaid management
Medicaid companies are paid by the number of people they manage. They can spend no more than 12 percent of the program's annual cost for management expenses. (Those costs were between 4 and 8 percent when the state managed the program prior to 2015.)
"I don’t see that (expensive office costs) necessarily as affecting care they deliver," said Iowa Sen. Mariannette Miller-Meeks, R-Ottumwa, who is also a doctor. "If that’s in the realm of their administrative costs, it’s up to them to decide where they want to put that money."
Jochum acknowledged the companies have freedom to decide how to spend their administrative dollars. But she noted arguments made by some of Iowa's other Medicaid companies in favor of increases in rates because they said they were losing millions of dollars under the contracts.
Last year, for example, Iowa agreed to give Amerigroup and UnitedHealthcare a 7.5 percent increase, which cost the state $103 million more a year. Administrative costs — including executive salaries like Centene CEO Michael Neidorff's $25.3 million total compensation — factor into the costs, Jochum contends.
"I can't imagine these costs not having an impact on the people they serve," Jochum said.
The privatization of Medicaid has been intensely controversial since former Iowa Gov. Terry Branstad decided in 2015 to hire for-profit companies to run the state’s $5 billion program. Supporters, including Gov. Kim Reynolds, say it is leading to more efficient, effective care. But critics say it has led to deep cuts in services for disabled Iowans.
David Hudson, a frequent critic of Iowa's transition to privatized care, described the managed-care organization's move as "despicable." Branstad previously appointed Hudson to serve on a state Medicaid advisory committee, though he was not reappointed by the current governor.
"Maybe it's characteristic of the largest MCO in the country: They're making so much money that it doesn't matter how much they spend on office space," he said.
But, he said, Iowa patients will fund the cost of the new digs. Hudson said a state agency would come under fire for moving into such a lavish space.
"We would expect our state government to operate at the most efficient, least expensive cost," he said. "We would never put up with something like that from a state agency."
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Last year, the Iowa Finance Authority moved from a building it owned to a leased 43,411-square-foot building at 1963 Bell Ave. on Des Moines' south side and will pay between $9.40 to $11.23 per square foot each year over the next decade, documents show. The authority's move has been criticized as wasteful after state leaders discovered former IFA Director Dave Jamison did not share full information about cheaper alternatives before the contracts were signed.
Hubbell Realty will be paid between $34,000 and $41,000 a month during the lease’s first 10 years, records show.
Zach Scheckel, property research analyst at CBRE/Hubbell Commercial, said the Westfield property in West Des Moines is one of the highest priced commercial properties on the Des Moines office market. But it also brings a unique package of amenities unseen in the western suburbs until now.
Some commercial rents in downtown have approached similar rates of rent per square foot. But those tenants often rent in smaller increments, Scheckel said. On the whole, the western suburbs offer the priciest office space.
"In the western suburbs, we have seen some considerable inflation in lease rates," he said. "This inflation is due to construction costs and tenant demand for additional building amenities. The largest pockets of more expensive office space are in the western suburbs, for sure."
But the Westfield property is in a class of its own. For comparison, the former Kum & Go 80,800-square-foot headquarters in West Des Moines is listed at about $18 per square feet.
"That may seem high as it relates to traditional west suburban lease rates," Scheckel said, "but could be deemed a bargain considering the quality of that building and asking rents for new construction."
Des Moines Register reporter Barbara Rodriguez contributed to this story.
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