Numerous changes in their operating environments have caused many public hospitals to experience serious fiscal deterioration. One increasingly common response to this situation is contracting with private organizations for the provision of total management services. This study examines the effects of these contract management arrangements on the operating performance of public hospitals. Three areas of performance are considered: operating efficiency, service structure, and Medicare/Medicaid case load. Eighty short-term public hospitals operating under contract management in 1980 are compared with 122 traditionally managed public hospitals and 74 hospitals 1-2 years prior to entering contract management. Controlling for a series of hospital and environmental variables, contract managed hospitals display several financial and organizational differences vis a vis the comparison groups. These findings are discussed in terms of their implications for policymakers, hospital managers, and researchers.