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Hospital Franchise Fee

No General Tax Dollars Fund This Program

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

Connect here to view Franchise Fee-specific Finance News prepared by OHA's Health Economics & Policy team.

FLOW OF FUNDS

Ohio provides the state’s share of Medicaid dollars to draw down the federal match using the hospital franchise fee funds. For every $1 in franchise fee funds sent to Washington, D.C. the state receives $2.33 in matching funds, creating a pool of $3.33 Medicaid dollars for every $1 invested.

From the total pool of Medicaid dollars generated, 31.5 percent of the funds are paid to hospitals for patient care provided. The other 68.5 percent goes to the state of Ohio to administer the Medicaid program and for additional provider payments.

TIPPING POINT FOR OHIO’S HOSPITAL FRANCHISE FEE

Ohio’s method to fund Medicaid is built on a fragile balance and has become unsustainable at the current rate. All Ohio hospitals pay the same rate, regardless of the volume of Medicaid patients they treat. More than 50 percent of member hospitals now pay more in franchise fees than they receive back in Medicaid reimbursements for services provided.

HISTORY OF OHIO'S FRANCHISE FEE

In 2009, Ohio Gov. Ted Strickland’s Administration faced a $1 billion structural deficit in the 2010–2011 biennium budget. Ohio hospital leaders agreed to the franchise fee to provide Ohio’s state share of Medicaid.

Currently, Ohio hospitals are taxed at a rate of 2.66 percent on gross expenses (less Medicare expenses).

UPL SUPPLEMENTAL PAYMENTS

The Upper Payment Limit, or UPL, is a federal limit placed on the state’s fee-for-service reimbursement paid to Medicaid providers. 

UPL supplemental payments are designed to bring Medicaid payment levels up to par with Medicare reimbursement levels when hospitals provide fee-for-service care to Medicaid beneficiaries. OHA works with the Ohio Department of Medicaid to develop the economic model to distribute the supplemental payments from the pool of funds generated through the franchise fee and federal match.

Ohio’s shift to Medicaid managed care has significantly reduced fee-for-service UPL supplemental payments, further jeopardizing the sustainability of the franchise fee program at its current rate.

UPL HOSPITAL PAYMENT SCHEDULE

These dates are preliminary and subject to change.
Payment Made Nov. 12, 2018
Payment Made Jan. 28, 2019
Payment Made March 11, 2019
Payment Made May 6, 2019

MEDICAID MANAGED CARE INCENTIVE PROGRAM

Ohio is transitioning Medicaid beneficiaries to managed care programs—with the five insurers being Buckeye Health Plan, CareSource, Molina Healthcare, Paramount Advantage and UnitedHealthcare.
 
Medicaid managed care incentives are supplemental payments issued to hospitals in return for their commitment to providing increased access and treatment for managed care plan enrollees.