Assessing Variation in Revenue Generating Strategies of Local Health Departments

Research objective: Local health departments (LHDs) rely on funding from various revenue sources (state, local, and federal funds, etc). The purpose of the study is to describe the relative contribution of these funding sources and evaluate how LHD revenue-generating strategies (broad diversification vs. reliance on one revenue source) are associated with the overall level of LHD spending.

Study design: We used  data from the 2010 National Profile of Local Health Departments Study (Profile study), where LHD directors were asked to apportion LHD revenues (in %) using the following  categories: City/township/town, County, State, Tribal, Federal, Medicaid, Medicare, Private foundations, Private health insurance, Patient personal fees,  and Non-clinical fees and fines. Each LHD revenue source pattern can be described on a continuum from well-diversified to highly dependent on one source.  We calculated a degree of diversification of revenues for each LHD using the Herfindahl index. The revenue stream is considered to be well diversified if Herfindahl index (defined as a sum of squared shares of all revenue sources) is below the threshold point of 1500. The dependence on sole revenue source was assessed by creating several subsets of LHDs with one revenue source constituting more than 50% of total revenues. For each of these groupings the per capita spending statistic has been calculated.

Population studied: A sample of 1,363 LHDs that participated in the NACCHO 2010 Profile study.

Principal findings: The LHDs with well-diversified revenues (Herfindahl index <1500) spent $93/capita, 55% more than the sample’s average of $60/capita. LHDs receiving more than 50% of their revenue from Medicaid spent $120/per capita, twice the sample average.  

Conclusion: LHDs using a strategy of well-diversified revenue sources was positively associated with higher levels of LHD per capita spending. LHDs relying on Medicaid as principal source of revenue were also associated with higher level of LHD per capita spending.