Safety Net Providers

Safety net providers include those hospitals, clinics, community health centers, public health departments, school-based health centers, individual practitioners, and others who provide health care for uninsured and underinsured adults and children. These safety net providers are funded by the Medicaid and Medicare programs, Disproportionate Share Hospital (DSH) payments, the Maternal and Child Health Care Services Block Grant, federal research grants, state and local sources, private insurance payments, private donations, and patient payments.

Safety net providers and others have also provided care without any direct source of compensation. Until recently, many providers serving the general population could offset the costs of uncompensated care. As purchasers have turned to managed care for cost savings, however, the cross-subsidies and excess revenue sources that could support uncompensated care are shrinking. Purchasers have been negotiating deep discounts in contracts with mainstream hospitals and group practices, forcing many who formerly provided care for the uninsured to refer these patients to safety net providers. At the same time, some safety net providers have been entering into managed care networks so that they can continue to serve the same vulnerable populations or to maintain their financial viability by changing the mix of insured and uninsured patients whom they serve.

The mix of providers, sources of financing, and responsibility for care for the uninsured are different in every community. In a market-driven health care system, the impact of providing unreimbursed or partially reimbursed care is profound. No managed care organization will compete to care for uninsured individuals, and government subsidies to care for low-income and uninsured individuals are generally being reduced.

Not all safety net providers will be able to make a successful transition to the competitive health care marketplace. Success may be based on the degree to which providers can offer and market strong primary care services, can compete for Medicaid managed care contracts, and can negotiate payment arrangements that not only cover their costs but also contribute to their financial health.


Medicaid is the largest single health insurance program for American children. The number of children enrolled in Medicaid has nearly doubled since 1985. In 1997, more than 22 million children—one out of every four children—were covered by Medicaid.

This increase in Medicaid enrollment has offset the simultaneous decrease in children's insurance coverage through private sources and has significantly reduced the disparities in access to health care for poor children enrolled in Medicaid. For some types of care, such as immunization rates and rates of professional treatment for injuries, access to health care for children with Medicaid coverage is comparable to that for privately insured children.

Medicaid has been successful in increasing rates of insurance coverage among children, but millions of children who are eligible for Medicaid have not been enrolled in the program. Because reimbursement rates have been lower than the rates in the private insurance market, provider participation has been lower than would be desirable. In addition, because of provider shortages in medically underserved areas, even children with Medicaid coverage may lack access to a regular source of preventive and acute care.

Several shifts in policy and legislation are changing the configuration of the Medicaid program. First, in an attempt to control costs, many states are converting their state programs from fee-for-service to managed care programs, so that the number of children enrolled in Medicaid managed care has increased sharply. Managed care may increase the level of access to preventive services and also may decrease the level of access to needed specialty services for children with special needs.

Second, the delinking of welfare payments from automatic Medicaid enrollment may lead to a decrease in the enrollment of Medicaid-eligible children. As more parents leave welfare and earn wages

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