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The Medicare and Medicaid programs distribute extra payments to hospitals that treat a disproportionate share of indigent patients. The disproportionate share hospital (DSH) payment program under Medicare and Medicaid represent an important source of hospital revenues with DSH payments totaled nearly $20 billion in 1998. Yet relatively little is know about the distribution of these payments and how well they are targeted toward safety net hospitals. In a first time national examination of the joint distribution of Medicaid and Medicare DSH funds, we find that the current allocation targets financially vulnerable safety net hospitals at least as well as the alternatives that we examined.