Child advocates recognize pediatric hospitalization as an issue of great concern because of the serious morbidity it reflects and the adverse psychosocial effects of inpatient experience on children and families. Accounting for almost 50% of child health care costs, estimated at $49.8 billion in the United States in 1987, pediatric hospitalization also represents a substantial financial burden. Studies of the variation in childhood hospitalization rates among geographic areas, however, suggest a large portion of these hospitalizations are avoidable. In individual level analysis, admitting pediatricians judged 28% of acute, general pediatric hospitalizations to be potentially avoidable had specified alternative services been available. Furthermore, evidence supports the safety of care in alternative settings for selected acute illness episodes. Hospitals share incentives for reducing inpatient services as they join managed care organizations that capitate hospital costs. At a time when health care cost reduction has become a dominant theme in industry and politics, concern seems warranted that cost considerations might prevail over quality considerations in shaping change. The concern of child advocates is heightened by the fact that costs are measured as dollars while measures of quality remain comparatively vague.