Utilization management programs have been widely used to control hospital inpatient costs, but little is known about their potential to control outpatient costs. Claims data covering a 21-month period beginning in January, 1990 were analyzed to evaluate the effects of a utilization management program established by an insurance carrier to contain costs for durable medical equipment. Four items were targeted for review: seat lifts, transcutaneous electrical nerve stimulator (TENS) 2 and TENS 4 units, and power-operated vehicles. The program was associated with significant reductions (P < 0.05) in order requests, supplier charges, and claims payments for three of the four targeted items. Under the program, the rate of denials increased significantly (P < 0.05) for two of the targeted items. Most of the program's cost savings accrued from a "sentinel" or volume effect, not from an increase in denials. These findings provide further evidence of the cost containment potential of utilization management. Focused utilization management programs that target provider groups, patient populations, or service sectors experiencing high volume have the greatest chance of achieving cost savings.