Rates of utilization and costs of medical care by a study group in a prepaid group practice, the Medical Care Group of Washington University (MCG), were compared prospectively over a three-year period with those of a demonstrably similar control group cared for by fee-for-service private physicians. MCG enrollees used twice the ambulatory services control enrollees did (p=less than 0.01), but used 23 per cent fewer hospital days (p=less than 0.01). Cost per diagnostic and therapeutic visit was similar for both groups; MCG preventive visits cost more. Increased numbers of MCG services provided led to increased ambulatory care costs for MCG over controls. Hospital utilization savings did not compensate for these increased costs. Thus prepayment in an organized setting did change hospital and ambulatory care utilization but did not reduce medical care costs. Other changes in medical care besides those which result from a different organization of medical care are discussed which might make control of medical care costs more likely.