Veronica Salvas

Health Management and Policy

OLT Chapter


Safety Net Providers


In 2004, 45.8 million Americans were without health insurance and an additional 79.1 million were underinsured, belonging to either Medicaid or Medicare (US Census Bureau, 2004).  The majority of these individuals belong to vulnerable populations; racial and ethnic minorities, low-income individuals or families, those who are homeless, those with mental or chronic illness, children and elderly.  For these groups, already at risk for poorer health outcomes, access to affordable, quality health care is tenuous.  They depend on a web of health care providers that, by mission or mandate, serve disproportionately high numbers of uninsured or underinsured individuals.  The web, made up by local health departments, public hospitals, community health centers, emergency departments and some private, non-profit organizations, is referred to collectively as ‘the safety net.’



Emergence of a third payer system for health costs and the created need for safety net providers


Commercial health insurance companies are dominant within the present American health care system.  As of 2004, 68.1% of Americans were covered by some form of private insurance.  Most of these individuals were covered by employment-based insurance, but some (9.3%) directly purchased coverage.  Fewer individuals were covered by government plans.  The number of individuals covered by Medicare and Medicaid were similar, with 13.7% and 12.9%, respectively.  A smaller number of individuals were covered through the military (3.7%) and 15.7% of Americans were without any form of health insurance (US Census Bureau, 2004). 

  Such inequity in the form of coverage, or lack thereof, is a relatively young reality.  Until about 1920, lack of modern medical technology limited treatment options for most illnesses. As the majority of illnesses were treated at home, there was little need for health insurance.  However, lost income due to longer duration of illness did lead to the development of ‘sickness insurance,’ which is similar to current disability benefits, rather than health insurance (Thomasson).

 Around the same time, however, advances in medicine meant changes for the field that were both cultural and scientific.  As medicine became more promising in terms of treatment or curing, the public’s perception of medicine began to change and regular interaction between the public and the health care field became the norm.  Both of these factors shifted care out of the home and into hospitals, allowing for an expansion of the medical profession that would greatly increase the cost of health care.

In 1929, a group from Dallas developed the first prepaid hospital plan.  Through a contract with Baylor University Hospital, members of the plan purchased up to 21 days of hospital care for a fixed fee of $6.00 (Thomasson).  Similar plans sprung up throughout the 1930s and benefited both patients and providers.  At the time, both individual incomes and hospital revenues were falling and the arrangement provided steady income for providers and an affordable means of paying for hospitalizations for individuals.    Eventually, community hospitals formed Blue Cross as a collaborative, non-profit prepaid form of health insurance. 

Due in part to the success of Blue Cross and fear of proposed legislation that advocated for a universal, nationalized health insurance system, private physicians also saw the need for a prepayment plan to cover physician services.  An example of early pre-paid physician service plans was  the California Physicians’ Service, which provided a form of health insurance at a monthly fee of $1.70 to employed individuals earning less than $3000 annually.  Again, similar plans sprung up across the nation and became organized as Blue Shield in 1946 (Thomasson).

Up to this point, commercial insurance companies had not offered packages related to health care for fear that such plans would not be profitable.  The success of Blue Cross and Blue Shield, however, demonstrated that offering health insurance based on employment ensured that most plan members were relatively young and healthy.  In the 1940s, the number of commercial insurance companies offering health plans grew rapidly. By 1951, the number of individuals belonging to commercial plans exceeded those belonging to government sponsored plans—a trend that continues into the present.

Important to note, however, is that from the start, the commercial health insurance plans have been designed on an employer-based model.  Such a model was not designed to insure all members of society.  Recognizing this, legislation proposing universal, government sponsored insurance proliferated.  The most feasible means of implementing such a system would have been to start with smaller groups of persons and to eventually provide coverage to all.  This was the rationale for the formation of the Medicare and Medicaid systems which were implemented in 1966.

Since 1966, no additional progress has been made in providing universal health coverage in the United States. Therefore, since about that time there has been a dichotomous disparity in health care such that some Americans have health insurance and others do not.  Rather than seeking a resolution that would provide medical coverage to all individuals so as to ensure that all individuals had access to the same level of medical care, around this same year medical care also split such that there are two main health systems that exist today.  The dominant system is surely the privately managed system that is intricately linked to commercial medical insurance.  For those left out of that system, there is the safety net.

            The Johnson administration’s ‘war on poverty’ enabled political and economic support for the emergence of the safety net system.  In 1965, the Office of Economic Opportunity approved and funded the Neighborhood Health Center Program.  The purpose of the program was to provide points of access to health, as well as social services in what are termed medically underserved areas (MUAs) (Taylor, 2004). Two demonstration projects began in Boston, Massachusetts and in Mound Bayou, Mississippi.  Funding for the neighborhood health centers was received by not-for profit, community based agencies from federal sources.  Success credited to these demonstration projects included reductions in health disparities, lower infant mortality rates, decreased chronic disease burden, and new employment opportunities within otherwise economically strained communities.  Additionally, the program lowered external health care costs by decreasing the level of acute care sought through hospital emergency departments (

            The civil rights movement was a concurrent motivation for the expansion of similar health centers as disparities in health care associated with race became a social issue.  Organizations such as the Black Panther Party organized health clinics that provided preventive, primary care in major cities like Chicago and New York.  These clinics were staffed predominately by volunteers and services were provided either at minimal cost of no cost at all.  Similar clinics were started by organizations representing other minority groups.  For example, the United Farm Workers Union began health programs aimed at Latinos (Waitzkin, 2005)

            By the 1970’s community health centers (CHCs) were an established and important arm of the health care safety net.  Although the Office of Economic Opportunity had transferred the program to the Department of Health, Education and Welfare (now the Department of Health and Human Services), political support continued.  Under the Kennedy administration, a migrant health program was added to the neighborhood health program and in 1975, the centers were authorized as “community and migrant health centers.”  Subsequently, programs were added for the homeless and for those dependent on public housing.  Finally, in 1996 the Health Centers Consolidation Act drew these programs together as Federally Qualified Health Centers (FQHCs) and made formal provisions for funding under section 330 of the Public Health Service Act (Taylor, 2004). 

Despite 40 years of existence of a system that seeks to diminish health disparities, the need for safety net providers has not been eliminated.  If anything, our society is more dependent on the safety net now than at its inception.  As of 2004, 45.8 millions people, or 15.7% of the population, were without health insurance in the U.S. (US Census Bureau, 2004).  At the same time, the percentage of individuals with employment-based health insurance has decreased while the percentage of individuals enrolled in Medicaid and Medicare has increased.  The changing demographics of the US, as well as increasing rates of immigration and increasing health insurance costs, likely mean that in the absence of drastic structural change, the safety net will remain an integral part of the health system in the United States.



Structure of the Safety Net


Safety net systems do not have a uniform structure in terms of funding or member providers.  They vary between communities and change over time.  Safety net providers serve communities in response to disparities in health caused by greater social, economic and political factors.  With the exception of a universal responsibility to the uninsured and underinsured, the safety net is a fragmented system.  Providers include various core safety net members, such as community health centers, public hospitals or emergency rooms, and public health departments. Other peripheral safety net members may include private physicians who offer services as a charity to community members, VA hospitals, the Indian Health Service, free clinics, and rural health centers.   Thus, a discussion of the structure of the safety net system is difficult to articulate.  Instead, what follows is a brief description of the various types of core safety net providers.


Community Health Centers/Federally Qualified Health Centers

            Historically, community health centers emerged as an extension of settlement houses of late nineteenth century.  They were predominately located within neighborhoods with a high proportion of immigrants, or otherwise impoverished individuals.  These health centers were not unlike those that exist at present, in that addition to health services, these agencies offered other forms of assistance, such as housing and employment. The majority of funding was obtained through public health departments and philanthropy, and a motivation was likely to control the spread of infectious diseases or other conditions affecting the poor into wealthier neighborhoods.  While these early health centers were successful, the majority of these centers shut down during the Great Depression (Waitzkin, 2005).

            Through the Neighborhood Health Center Program as well as due social movements, community health centers re-emerged during the 1960s and in the following decade there were over 1000 active community health centers in the U.S. (Waitzkin, 2005).  As already mentioned, under the Health Centers Consolidation Act of 1996, these centers were designated as Federally Qualified Health Centers.  As such, the centers must meet criteria set up through the act in order to receive funding.  There are five core statutory requirements that must be met by these centers:

  • Patients from the community must sit on the governing board;
  • The center must be located within a federally designated medically underserved areas (MUA);
  • The center must be of non-profit, public or tax exempt status;
  • Comprehensive primary health care must be provided, including referrals and other services as needed, such as case management, translation, and transportation;
  • Services must be available to all members of the community regardless of ability to pay and a sliding scale fee schedule must be available


            Community health centers often serve as a point of access into the health system for 15,000,000 people living within the U.S. by providing comprehensive primary and preventative services to clients (  Additionally, many of these centers provide services to match the specific needs of the vulnerable populations that they serve.  These services often include transportation, translation, community outreach, and case management.  Many of the centers also provide mental health services, substance abuse programs, dental care, and onsite pharmaceuticals (Wilensky and Roby, 2005).

            The patient population of community health centers is distinct from the population receiving care elsewhere.  Forty-one percent of FQHC patients are uninsured and an additional 36% are enrolled in Medicaid (Institute of Medicine, 2000). The majority of health center patients are under 65 years of age (93%), most are female (59%) and about two thirds belong to racial or ethnic minority groups, with about 30% of the patient population receiving services in a language other than English (Taylor, 2004). While the geographic distribution of community health centers is even across urban and rural communities—under section 330 rural populations must receive between 40 and 60% of grant funds (Taylor, 2004)—the majority of health center patients reside within urban communities (Institute of Medicine, 2000).


Public Hospitals

Public Hospitals originally emerged in the United States in the late eighteenth century.  Similar to the historic rationale for community health centers, infectious diseases were more common within crowded, urban impoverished areas.  Public hospitals treated infected individuals either free of cost or at little expense and in doing so controlled the spread of infectious diseases into wealthy communities.  In the early 20th century, public hospitals existed in the majority of cities within the U.S.  However, due to the emergence of public insurance such as Medicaid and Medicare in the 1960s, public hospitals, which had been the predominant site of care for the uninsured, began to decline.  Though now proven to be untrue, it was thought that the emergence of public insurance plans like Medicaid and Medicare in 1965 would make ‘charity’ care usually provided by public hospitals unnecessary.  The fate of such hospitals has varied; some closed, some were privatized, and some experienced cutbacks in staff and services (Waitzkin, 2005). 

            At present, there are approximately 1300 public hospitals in the U.S. The majority of these hospitals are within cities and the majority of patients are uninsured or enrolled in Medicaid.  While public hospitals have shifted from being predominately government run to being part of larger for-profit or not-for-profit hospital systems, differences are still apparent between public hospitals and private and the overall health status of the patient population of public hospitals is lower than that of private hospitals. 

            A number of reports by the National Association of Public Hospitals and Health Systems (NAPH) indicate that there are further differences between public hospitals and private hospitals.  In 1999, public hospitals provided 23% of uncompensated care (charity care or ‘bad debt’) in the U.S.  This accounted for 26% of the total costs of the hospitals.  In comparison, the proportion of cost to private hospitals in uncompensated care is only 6% (Institute of Medicine, 2000).  While government subsidies and Medicaid disproportionate share (DSH) payments offset some of these losses, uncompensated care still puts a huge strain on public hospitals.

            The number of outpatient visits to public hospitals has increased by 49% between 1993 and 2003.  While public hospitals do provide primary care, a likely contributing factor which describes this increase is that public hospitals are often the only referral site for health center patients seeking specialty care (“NAPH Members”) and the demographics of the patient population of public hospitals is very similar to that of health centers (“What kinds of patients”).


Emergency Departments

            In 1985 the Emergency Medical Treatment and Active Labor Act (EMTALA) was passed, requiring that all Medicare-participating hospitals to provide emergency medical care, including screening and stabilization, as well as inpatient treatment when necessary, to all patients presenting in emergency rooms regardless of ability to pay (Committee on Pediatric Emergency Medicine, 2004).  Data from the National Center for Health Statistics in 1998 demonstrated that of those utilizing the emergency department, 19.9% were enrolled in a commercial insurance plan, 64.2% were enrolled in Medicaid and 34.2% were without any form of health insurance (Committee on Pediatric Emergency Medicine, 2004).

            While the intended function of the emergency department is the assessment and treatment of emergency conditions, many people also seek care at the emergency room because it is convenient and accessible or because they lack a source of regular primary care.  These secondary functions of the emergency department have significant effects of cost of maintaining facilities and providing care that have led to decreases both in the number of emergency department facilities as well as inpatient beds. Yet, since the 1960s emergency department utilization has increased by 600% so that in 2000 there were approximately 108 million individual visits to an emergency department (Hock, 2005).  These conditions cause overcrowding which strains the emergency departments’ capacity to care for patients.  As well, emergency departments are not structured in a way that allows them to provide the services usually required by the uninsured or underinsured, such as comprehensive social screening, treatment or maintenance of chronic conditions, or referral services to other community resources; these are more appropriately provided in a primary care setting (Hock, 2005, Committee on Pediatric Emergency Medicine, 2004). 


Public Health Departments

            The role of public health departments within the safety net system has been contested since their inception in the 19th century.  Medical professionals as well as the American Public Health Association (APHA) have emphasized what were initially called ‘desirable minimal functions’ (now referred to has ‘core functions’) which include assessment, assurance and policy making.  However, public health departments are often forced into participating in the safety net by providing direct health services within communities of uninsured or otherwise vulnerable populations (Keane, 2003).

As funding of the safety net system is often incomplete, public health departments serve as a ‘provider of last resort.’  Direct patient services of public health departments vary based on funding and community need, but may include immunizations, maternal child health services, sexually transmitted disease testing and treatment, treatment of otherwise communicable and infectious diseases or other clinical services at no cost or minimal cost.  In 2004, public health departments provided approximately $40 million dollars worth of uncompensated care (Bond and Sandele, 2005).


Safety Net Funding Sources

Safety net providers depend on a variety of sources for funding.  Within some communities safety net providers are locally funded, although within others the burden rests on federal and/or state governments.  The greatest proportion of safety net funding originates from Medicaid and the State Children’s Health Insurance Program (SCHIP).  In both cases, reimbursement is provided for direct services provided to individuals enrolled in these programs.  A Federal Medical Assistance Percentage (FMAP) matching program exists for both of these programs whereby state funding covers some proportion of the reimbursement and the federal government contributes between 50% and 77% depending on state and federal income data (Regenstein, et al 2004). 

The Disproportionate Share Hospital (DSH) is another important source of safety net funding. Aside from direct service Medicaid reimbursement, Medicaid’s DSH program is the second largest source of funding to the safety net. A portion of funding received through the DSH program is again matched with federal funds and allocated to state governments.  Thus, unlike reimbursement for direct services, states may use their discretion in how to further distribute this funding (Regenstein, et al 2004). 

For FQHCs, an integral source of funding is the 330 grant program, covering up to a quarter of health center expenses.  Federal 330 grant funding is not intended to cover the cost of direct care.  Grant funding received is used for acquiring or leasing buildings, minor renovations and equipment purchasing or leasing (Taylor, 2004).  As the current presidential administration has proposed increased funding to strengthen the health care safety net, many communities have applied for grant funding to expand existing community health centers or to open new centers (Regenstein, et al 2004).

Some communities also depend on state or local governments for additional funding or rely on private grants to supplement funding received from Medicaid or the 330 grant program.  Other various sources of funding that may support the safety net of different communities include tax revenues or tobacco related funds (Regenstein, et al 2004) or through self-pay patients (Hawkins and Rosenbaum 2005).  Very little revenue is obtained through private insurance companies.  In 2003, for example, 15% of health center patients were privately insured, but private insurance accounted for only 6% of health center revenues (Taylor, 2004).




            While the health care safety net is an obviously integral part of the health care system in the United States, the form that it will take in coming decades is uncertain.  Health care policy is constantly evolving and other social factors such as the economy, immigration and changes in the number receiving employment-based coverage will undoubtedly leave the safety net in a precarious situation.  Still, excluding the likelihood of the adoption of universal health coverage in the United States, the safety net should always exist as a means of catching those who are otherwise without a dependable form of health care.

            Perhaps one of the most difficult changes that the safety net will need to adapt to is changes in Medicaid policy and funding.  Medicaid is one of the key financers of the safety net, but this will not be guaranteed.  As of 2004, increases in the cost of prescription drugs and increased enrollment in Medicaid has lead to nation wide cost-containment efforts at the state level.  The effects of such efforts include limiting benefits, excluding ‘non-mandatory’ populations from coverage, and reducing the amount of provider reimbursement (Regenstein, et al 2004).  Additionally, enrollment procedures have become more complex, thereby limiting access to benefits for individuals who are eligible for Medicaid coverage or leading to a situation where many individuals are enrolled in Medicaid in an on again-off again fashion. 

Any of these changes could be detrimental to safety net providers dependent on Medicaid funding.  As such, strategies which increase the efficiency of safety net providers will help to secure the role of the safety net in society.  One means of increasing efficiency is to work as a system, rather than as broken web of providers.  If safety net members within a community understand the strengths of member providers, a community-wide referral system may be developed such that individuals seeking care do so at the most appropriate facility.  As this would cause less consistency in the care provider seen by individuals, a shared electronic medical records system would also strengthen the safety net and increase the efficiency of care. 

For instance, should an individual visit the community health center at the start of an illness, but fail to receive treatment, perhaps due to inability to purchase prescription drugs, they may later find themselves in an emergency room with more sever complications.  With electronic access to medical records, emergency room personnel could more easily assess the problem and treat with greater efficiency.

Clearly, the above mentioned scenario is not ideal.  However, drug costs or ability of patients to pay may be beyond the safety net provider working at the level of patient care.  Such a problem reflects greater societal flaws that are far upstream and demand solutions more creative and more holistic than the safety net is able to cure.  Until those problems are solved, however, the health care safety net should serve as a comfortable place to fall for those who are uninsured or underinsured.



































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