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Hospital Franchise Fee

The federal government provides a fiscal incentive for states to extend Medicaid coverage to more low-income individuals. This incentive is counterbalanced by the requirement for states to share in the cost of Medicaid.

Forty-nine states and the District of Columbia use a hospital tax or provider fees to help fund the state’s share of Medicaid. In Ohio, the tax on hospitals is called a franchise fee.

FINANCE NEWS - FRANCHISE FEE

In response to the COVID-19 pandemic, the Hospital Franchise Fee program has undergone several changes to help financially support Ohio hospitals. For the latest updates, connect here to view Franchise Fee-specific Finance News prepared by OHA's Health Economics & Policy team.

PROGRAM OVERVIEW

Medicaid is funded through a combination of both federal and state funds. Ohio provides the state’s share of Medicaid funding through both state tax revenue and hospital tax revenue raised from the Hospital Franchise Fee Program.

For every $1 in Franchise Fee funds sent to Washington, D.C. the state receives $3 in federal matching funds. This creates a total of $4 Medicaid dollars for every $1 invested.

Of total Medicaid funding for state fiscal year 2021, 46% of funds are paid to hospitals for patient care provided. The remaining 54% goes to additional healthcare provider payments and the state of Ohio to administer the Medicaid program.

FRANCHISE FEE ASSESSMENT

All Ohio hospitals pay the same Franchise Fee rate, regardless of the volume of Medicaid patients they treat. About 30% of member hospitals pay more in Franchise Fees than they receive back in Medicaid reimbursements for services provided.

HOSPITAL PAYMENTS

Since the Hospital Franchise Fee program began in 2009, hospitals have benefited through several payment methods.

Supplemental payments to hospitals, known as Upper Payment Limit, or UPL payments, were a part of the hospital Franchise Fee Program since its inception in 2009. Due to the growth of Medicaid managed care, UPLs declined dramatically in the late 2010s and were ultimately eliminated in December 2019.

To replace the loss of UPL funding, OHA worked with the Ohio Department of Medicaid to create enhancements to hospital Medicaid base rates known as Cost Coverage Add-Ons, or CCAs. Like the UPL payments before them, CCAs were designed to bring Medicaid payment levels up to par with Medicare fee-for-service hospital reimbursement levels. The first CCA payments took effect in January 2020.To ensure the stability of the Hospital Franchise Fee Program during the on-going COVID-19 pandemic, CCA payments were augmented by Hospital Additional Payments. The first Hospital Additional Payment took effect in December 2020.

Finally, Medicaid Managed Care Incentive payments are issued to Ohio hospitals in return for their commitment to providing increased access and treatment for Medicaid beneficiaries enrolled in a Managed Care Plan.