Since 1971 pediatric mortality rates have decreased markedly but differently in Canada and the United States. These trends were examined in light of changes in hospital use and health care financing. Annual mortality and hospital use rates for children aged 14 years and younger were calculated. Between 1971 and 1987, all-cause mortality in Canada fell from 165 to 74 per 100,000; the American rate fell from 172 to 96 per 100,000. American hospitalization rates remained essentially constant until 1983 and then fell by 27.5%, while Canadian hospitalization rates declined throughout. In 1987 Canadian children had higher hospitalization rates, while American children had higher mortality rates. These differences may be associated with differences in health financing; the adoption of US prospective payment systems was temporally coincident with sharp declines in hospitalization rates for American children.