Prologue:Teaching hospitals hold a special place in America's pluralistic system of health care delivery and financing. They are citadels of medical learning and institutions that care for some of our most vulnerable citizens. But they also are the places where much of the innovation that leads to medical progress is conducted. Because teaching hospitals are complex institutions that perform multiple missions, federal and state governments have woven a complex set of policies that seek to balance public and private interests.In this paper two veterans of federal health policy making examine the rich history and current status of hospital support for financing uncompensated care and graduate medical education. Linda Fishman, who has a reputation in policy circles as a level-headed realist, is associate vice-president in the Office of Governmental Relations of the Association of American Medical Colleges (AAMC). Fishman holds two degrees from the University of Washington, where she was elected to Phi Beta Kappa. Fishman recently produced a monograph for the AAMC that is essential reading for anyone who wants to understand the complexities of Medicare's financing of graduate medical education. James Bentley, senior vice-president of the American Hospital Association (AHA), has been instrumental in shaping federal policy as it applies to graduate medical education and hospital financing. Bentley directs the AHA's public policy analyses as well as related activities. He holds a doctorate in medical care organization from the University of Michigan. He spent ten years at the AAMC before joining the AHA. The federal government mostly through the Medicare and Medicaid programs, has created and maintained a set of structural mechanisms to support uncompensated care and clinical education: disproportionate-share hospital payments and direct and indirect graduate medical education payments. This paper provides a history of how these traditional supports have evolved. We note that the need to reduce federal and state spending threatens the level of these payments, while changes in the health care delivery system highlight a range of design and technical inadequacies in the current support mechanisms.