A study of the use of short-stay hospitals in PSRO areas by Medicare enrollees aged 65 and over for the period 1974 through 1977 revealed that discharge rates increased, average length of stay (ALOS) decreased, and days-of-care rates remained relatively constant in nearly all of the PSRO areas. The data show large variations in hospital use in PSRO areas within States and HEW regions, and suggest that factors within the area are critical determinants of hospital utilization. This study presents important implications for PSRO program policy for it suggests that factors other than physician and hospital behavior should also be considered when setting objectives for reducing misutilization and improving the quality of health care.