A fixed-prepayment system (casebased reimbursement) for patients initially requiring hospital-level care was evaluated for one year through an arrangement between a private nonprofit psychiatric hospital and a self-insured company desiring to provide psychiatric services to its employees. This clinical and financial experiment offered a means of containing costs while monitoring quality of care. A two-group, case-control study was undertaken of treatment outcomes at discharge, patient satisfaction with hospital care, and service use and costs during the program's first year. Compared with costs for patients in the control group, costs for those in the program were lower per patient and per admission; cumulative costs for patients requiring rehospitalization were also lower. However, costs for outpatient services for patients in the program were not calculated. Treatment outcomes and patients' satisfaction with hospital care were comparable for the two groups.