We compared the diagnostic and therapeutic management of pneumonia during 1970 and 1971 with that during 1979 and 1980 in clinically similar populations at The Johns Hopkins Hospital, Baltimore. More patients received aminoglycoside and cephalosporin therapy during 1979 and 1980. Guidelines for the use of chest roentgenograms and cultures were exceeded in 14% to 24% of cases. Patients whose cases were judged to be suboptimally managed had significantly higher charges and length of stay. Aged patients and those requiring thoracentesis also used resources more intensively. Given the technologic explosion, clinicians cannot know the performance characteristics of all tests and medications they can order. To minimize inefficient and ineffective practices, it is essential that clinicians and support service directors develop guidelines for testing and antibiotic use. Deviations should trigger timely interventions. Management under prospective payment will also require identifying specific patient subgroups to verify appropriate utilization and to assure equitable reimbursement.