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Stretching State Health Care Dollars: Innovative Use of Uncompensated Care Funds

Executive Summary

Hospitals are a significant part of the health care safety net because they provide services to the uninsured and other vulnerable people who cannot pay for these services themselves. States use Medicaid Disproportionate Share Hospital (DSH) funds, as well as state-based revenue streams, to reimburse hospitals for this otherwise-uncompensated care. But experts warn that providing uncompensated care could become more difficult for hospitals in the years ahead as a result of their rising costs and lower operating margins, limited state revenues, cuts in Medicaid DSH, and a growing uninsured population. These trends have spurred strategies in several states aimed at reducing the need for expensive uncompensated services over the long term.

One such strategy is to use a portion of the uncompensated care funds proactively to finance primary and preventive care programs that could ultimately reduce emergency and inpatient hospital care costs. By tapping the federal DSH funds or state uncompensated care funds, states are developing programs that provide individuals with access to care in an appropriate, and often lower-cost, setting.

Specifically, states can divert a percentage of DSH or uncompensated care pool funds and combine this money with state/county/local funds or employer contributions to support safety-net providers working in the community. In this way, patients who would otherwise lack access to a "medical home," such as a medical group practice or a clinic, can be served. States may require hospitals to create programs that improve service delivery and patterns of care for uninsured individuals, as well as to create "three-way share" coverage programs in which employer, employee, and the state contribute approximately equally to cover a range of primary and specialty services.

Publication Details



Stretching State Health Care Dollars: Innovative Use of Uncompensated Care Funds, Sharon Silow-Carroll, M.B.A., M.S.W. and Tanya Alteras, M.P.P., The Commonwealth Fund, October 2004