In this series we have described changes in the quality of care that have occurred in the treatment of hospitalized elderly Medicare patients with one of five conditions between 1981-1982 and 1985-1986. In this article we report on a mortality analysis, patient and hospital subgroup comparisons, and time series studies we have conducted in an attempt to determine whether changes in quality of care can be linked causally to the introduction of the prospective payment system. Based on these analyses we conclude that (1) mortality following hospitalization has been unaffected by the introduction of the prospective payment system, and improvements in in-hospital processes of care that began prior to the prospective payment system have continued after its introduction, but (2) the prospective payment system has increased the likelihood that a patient will be discharged home in an unstable condition. We recommend that efforts to correct this problem be intensified and that clinical monitoring of the impact of the prospective payment system continue as hospital cost-containment pressures intensify.