The development of Medicare's prospective payment system has led to considerable interest in expanding case-based payment to other forms of care, including ambulatory care. In applying approaches developed in one form of care to another, one must consider whether the same characteristics and conditions apply. This paper reviews the similarities and differences between ambulatory and inpatient care in light of available research. It identifies critical issues that should be considered in designing ambulatory payment reform and draws conclusions on the appropriateness of extending case-based payment principles to ambulatory care.