High-cost, high-volume specialty programs such as orthopedics and neurosciences find themselves in a position of evaluating the costs and in some cases the appropriateness of medical practices in response to payer scrutiny and provider selection processes. Orthopedics and neurosciences programs are at a stage of development analogous to that of cardiovascular care several years ago. Many of the same trends have come into play, such as payer "carve-outs" for orthopedic services, payer selection of centers of excellence based on cost and quality, reduction of Medicare reimbursement, greater use of high-cost technology, the decline of profitability due to "older, sicker, and tougher" patients, and the recent emergence of national orthopedic specialty networks oriented to national contracts for care. In an era in which payers demand value on both sides of the cost-plus-quality equation, programs are challenged to maximize the return on a patient population rife with "no-win" situations. In the orthopedic service line these include a high proportion of Medicare patients and chronic conditions such as workers' compensation medical back cases or repetitive motion injuries, which can be elusive to diagnose and expensive to treat. Many hospitals continue to lose money on joint replacement surgeries, the largest-volume orthopedic inpatient service, primarily because of the high Medicare population and the cost of implants. Neuroservices, while still relatively well reimbursed, face a rising proportion of Medicare payments as patients live longer and develop chronic, degenerative conditions. Inpatient days are decreasing due to payer pressures to limit hospital stays and to shift inpatient care to outpatient services. Some hospitals "have lost interest in (the orthopedic) service line during the last five years because of recent trends in orthopedic-related inpatient volume and payment." But by managing costs strategically, both the neurosciences and orthopedics service lines can provide substantial revenue as well as the opportunity to achieve a "center of excellence" competitive position in a managed care environment. This Special Report outlines the process and advantages of managing costs and quality of care strategically, that is, in a manner which helps these programs meet internal cost and clinical goals while responding to market situations. The hospital, physicians, and patients all benefit as costs are reduced, quality is enhanced, and the service line's competitive position is strengthened.