Under the prospective payment system (PPS) introduced in 1983, hospitals are to be paid for each Medicare admission on the basis of a price per case set in advance, thus giving hospitals and other providers incentives for delivering care that are radically different from those of cost-reimbursement financing. This report identifies major issues relating to quality of care, sketches conceptual and practical aspects of carrying out appropriate studies of these issues, and outlines a quality-of-care research agenda. It emphasizes changes in hospital care that are most likely to occur secondary to PPS, those likely to have the most direct impact on patients' outcomes, and changes that can be defined, detected, and measured with relative ease. Certain themes for future research efforts are stressed: (1) the overall research agenda must be strong enough to detect clinically meaningful impacts on patient outcomes and to be able to assign those impacts to PPS; (2) outcomes other than death must be examined; (3) interpreting the impacts of PPS requires understanding the clinical circumstances of Medicare patients; (4) developing better outcome measures is essential; (5) targeting impact studies on high-priority topics will be unavoidable; and (6) a full picture of the effects of PPS requires a long-term perspective, extending beyond FY 1987.