This report examines the use of rural and urban hospitals by rural Medicare beneficiaries. Many rural Medicare beneficiaries are treated in urban hospitals, primarily for specialized care that is not available locally. This study examines Medicare inpatient hospital discharge data for rural beneficiaries from fiscal year 1990 to fiscal year 1998. Utilization patterns by diagnosis-related group (DRG) are examined for fiscal year (FY) 1997. The percentage of rural beneficiaries treated in urban hospitals ranged from 30 percent to 36 percent during the study period. For the most frequently occurring DRGs among rural beneficiaries, which were those for routine conditions, treatment occurred predominantly in rural hospitals. The conditions most often responsible for rural beneficiaries' use of urban hospitals during this period reflected the need for coronary and other specialized surgical care. The stability of volume and case-mix throughout the study period underscores the viability of rural hospitals during a period of substantial change in the organization of health care provision.