A review of 386 Medicare patients with hip fractures admitted to a private, suburban, teaching hospital from 1981 through 1987 revealed that since the implementation of the prospective payment system in 1984, average hospital stays declined from 17.0 days to 12.9 days (24.1%). Although the mean number of physical therapy sessions declined from 11.1 to 9.8 (11.7%), the average number of treatments per day during the physical therapy phase actually increased from 1.2 before to 1.4 after the prospective payment system. The proportion of patients discharged to nursing homes remained the same (52.9% vs 53.6%); the proportion of patients remaining in a nursing home 6 months after hospital discharge did not differ significantly (22.6% vs 19.9%). Furthermore, there were no differences in the 6-month ambulation status. Total adjusted average hospital charges for the pre- and post-prospective payment system groups did not increase significantly ($7295 vs $7565). These findings do not support the contention that the quality of care provided Medicare patients with hip fractures has deteriorated in this hospital environment.