Updated 4:55 p.m.
CLEVELAND, Ohio — Today, most Ohio hospitals pay their first installment of a new corporate franchise fee aimed at narrowing a chasm in the state’s budget over the next two years.
The state’s hospitals are expected to pay fees of $718 million in fiscal 2010 and 2011, according to the Ohio Hospital Association. However, raises in reimbursements from the federal Medicaid program, as well as other reimbursements, are expected to offset the fees to $145 million in two years, the association said.
Many hospital leaders call the fee a “tax” because it is based on a percentage of hospital expenses — including uncompensated care for patients who can’t afford to pay. So in a way, the hospitals would pay twice for providing charity care. The leaders also say the looming fee already has caused some hospital job cuts this year.
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In March, hospital leaders told the Ohio General Assembly that Gov. Ted Strickland’s plan to charge the fee likely would result in significant cuts in income tax receipts and medical services, as well as jobs.
The Ohio Hospital Association’s unemployment program, which processes about 70 percent of hospital unemployment claims in the state, has processed 1,137 claims related to layoffs since the beginning of 2009, said Tiffany Himmelreich, spokeswoman for the association. The association has 175 hospital members.
It’s difficult to say how many of those job losses stem from the new franchise fee. The poor economy also has cut patient volumes, as well as public and private insurance reimbursements, at Ohio hospitals this year. And the number of uninsured patients continues to rise.
But for Chuck Alderson, chief financial officer for Summa Wadsworth-Rittman and Summa Barberton hospitals in Medina and Summit counties, there is some connection between job loss and the new fee.
Summa Wadsworth-Rittman Hospital in Wadsworth reorganized after its January 2008 purchase by Summa Health System of Akron, Alderson said. “We reduced about 30 [full-time jobs], that’s about 10 percent of our workforce, in August,” Alderson said. “We stopped offering obstetrics and delivery services, as of October 31. That was probably 20 more jobs.”
The moves were largely made “to get back to the positive side of the ledger,” Alderson said. But hospital leaders also were thinking about the coming franchise fee, he said.
The new fee may hurt the state’s small hospitals like Wadsworth-Rittman more than its big ones. That’s partly because a 5 percent increase in Medicaid reimbursements, which went into effect on Oct. 1, as well as reimbursements by Medicare and so-called “disproportionate share” payments made to hospitals that do more than their share of charity care will offset much of the franchise fee.
“Smaller hospitals teeter closer to the break-even point,” Alderson said. “When you look at an assessment for them of $600,000 — and their Medicaid volume is pretty low — so the likelihood that they’re going to get much of an offset from a Medicaid increase is not likely.”
Several hospital systems in Northeast Ohio have cut jobs since the franchise fee was proposed early this year, said Alderson, who is also a member of the Ohio Hospital Association committee that has advised the state on the new fee. “There have been a lot of reorganizations within our market.”
On the other side of the Medicaid reimbursement issue, large safety-net hospitals, such as MetroHealth System in Cleveland, likely will be hurt less by the new fee.
“We are one of the largest Medicaid providers in the state,” said Eileen Korey, vice president of communications for MetroHealth, which is owned by Cuyahoga County. “That means that the franchise fee, which does impact MetroHealth to the tune of $6.5 million, is most likely at least partially offset by the fact that we get a whole lot of Medicaid dollars because we care for so many Medicaid patients.”
