Prospective payment represents a major economic challenge to inpatient psychiatric units. For a unit to survive, increased efficiency of treatment will be crucial but will probably not be enough. Most units will need to alter the percentages of high-cost and low-cost patients they treat (case mix) and set less ambitious treatment goals. When altering case mix, ethical and political concerns must be considered first, followed by careful evaluation of which patients will benefit most from high-cost treatment. The authors recommend several measures for improving efficiency of treatment, including decreasing time to make dispositions, using electroconvulsive therapy when indicated, and strengthening aftercare services. They also recommend negotiating with hospital administrators to redeploy conserved resources within the psychiatry department rather than elsewhere.