Children's Hospital Financing

How are hospitals funded?

The services that hospitals provide to patients are covered by different payers.  In California, the three main types of payers are: private (for example, employer-based insurance), Medicare (which provides coverage to the elderly and some individuals with disabilities), and Medi-Cal (California’s state Medicaid program). Sometimes, a patient is uninsured, and there is no payer for the treatment a hospital provides.


Different payers reimburse hospitals differently for the services provided. Private payers and Medicare typically come closest to covering a hospital's actual cost to provide care. Medicaid, on the other hand, does not provide reimbursement to cover a hospital's costs. In fact, California has one of the lowest Medicaid reimbursement rates in the nation, ranking 47th out of all states. On average, Medi-Cal only covers about 74 percent of a hospital's cost to provide care.  As a result, California hospitals are unable to recoup most of the basic costs of providing care to Medi-Cal patients. 


Children's hospitals face unique financing challenges

The distribution of funds that a hospital receives as reimbursement for services from various sources is referred to as its payer mix. A children’s hospital's payer mix is different from that of a typical community hospital. Virtually all children in California are insured under current law, so children’s hospitals typically do not treat uninsured patients. Instead, almost half of all California's children -- 3 in 7 children -- are covered by Medi-Cal.   Because they do not treat seniors, children’s hospitals do not receive reimbursements from Medicare. Consequently, children’s hospitals are very reliant on Medi-Cal for funding. In fact, over 60 percent of patients treated in California's children's hospitals are covered by Medi-Cal. Because children's hospitals serve a disproportionate number of Medi-Cal patients, chronic Medi-Cal underfunding of pediatric care is a significant challenge for children's hospitals operations.


For more information on Medi-Cal, please click here


chart of mix of payers