Partial hospitalization continues to be underutilized even though its clinical effectiveness for a variety of psychiatric patients has been demonstrated. The authors investigated the potential economic advantage of partial hospitalization by comparing matched groups of day hospital patients and inpatients who had comparable symptoms and prognoses on admissions. They present one-year follow-up data documenting the comparability of the study groups on clinical outcome measures and the cost advantages favoring the partial hospitalization group. They discuss possible causes of the paradoxical underutilization of the clinically effective and lower-cost partial hospitalization, which include institutional