Huge increase in medical expenses is common among countries with national health insurance. Hence, the National Health Insurance Bureau of Taiwan Has Adopted several polices such as referral, co-payment, case payment and DRGs as the long term payment goal, in order to protect its financial status against abuse of the newly introduced national health insurance system. To face this insurance scheme, new management models have to be developed by hospitals to minimize cost. hut at the same time maintaining the quality of health care Standardization of procedures, concurrent and retrospective review, establishment of physician profiles, reviewing the usage of supporting services, as well as continuing education for physicians have all proven to be effective under the prospective payment system (pps). To suit its organizational structure, Chang Gung Memorial Hospital (CGMH) has implemented an integrated management system, combining all the above mentioned concepts. Theoretical foundations of the model include contingency theory as well as management by participation. In addition, data were all processed by computers for abnormal management and to increase efficiency. The aim of this research therefore was to evaluate empirically the effectiveness of the system. Medical information of 30,076 in-patients admitted to various branches of CGMH from July 1990 to June 1993 are available. Only DRG 371 and DGR 373 were included in the analysis as two payment methods (PPS & FFS) can be found in the same period of time. Statistical techniques such as unpaired t-test, ANOVA, stepwise logistic regression and cross validation were used to test if there were any differences in length of stay (LOS), fees, and quality of care between the two methods. Results indicated that under this integrated management system, PPS was significantly better in cost control, hut there was no difference in LOS or quality of care. This is an implication that our model is both effect and efficient, yet is practical and can easily be implemented. Our experience may therefore serve as a reference for other hospitals when designing their own management models.