OBJECTIVES: The Indigent Care Collaboration (ICC) gathers data on hospital and clinic visits for medically indigent patients in the Austin, Texas, area. However, obtaining cost data is challenging within, and especially across, partner providers. A validated cost model would be instrumental in developing programs and initiatives to improve care. The objectives of this study were to estimate the annual costs of Austin, Texas, area medically indigent patients and to describe the prevalence and costs of chronic diseases and conditions using a diagnosis-based risk adjustment model. METHODS: This study used the Diagnostic Cost Groups (DCG) prospective Medicaid All-Encounters model, which uses diagnoses, age, and gender to assign relative risk (RR) scores to patients. The RR scores were multiplied by the per capita Texas Medicaid expenditure to obtain estimated annual costs. Chronic diseases were described in terms of prevalence and total estimated annual cost. RESULTS: A total of 471,194 encounters were recorded for 163,729 patients meeting the study inclusion criteria between March 1, 2004, and February 28, 2005. The mean estimated patient yearly cost was $1,306.81, and the total estimated yearly population cost was $228,909,529. The most common chronic diseases and conditions included hypertension, diabetes, depression, substance abuse, pregnancy, asthma, chronic obstructive pulmonary disease (COPD), and congestive heart failure (CHF). CONCLUSION: This study demonstrates how the unknown costs associated with caring for medically indigent patients in a community can be estimated at Medicaid reimbursement rates using the DCG model on aggregated patient encounter data.