The Health Care Financing Administration's decision to adopt a prospective based payment system has caused many institutions to implement new policies and practices. A recent area of interest for many hospitals has been the creation of diagnosis-related group (DRG) exempt units to maximize reimbursement practices. We analyzed changes which occurred when an eight bed acute care stroke unit (SU) was converted to a DRG exempt eight bed rehabilitation unit (RU). The time period involved was 1 1/2 months before and 1 1/2 months after the transition occurred. Analysis of data from the pre- and posttransition periods revealed that: (1) length of stay increased significantly from 11.7 to 15.3 days (P<0.001); (2) functional independence measure (FIM) score improvement was significantly greater (P<0.05) for RU patients (0.84/day) than for SU patients (0.39/day); (3) disposition to home v other facilities increased significantly from 50 to 81% (P<0.05); (4) the overall occupancy increased from 94 to 100% and all beds were filled with rehabilitation patients; (5) the proportion of patients with Medicare as their primary insurer was comparable before (64%) and after (67%) unit conversion; (6) gross income from rehabilitation patients increased by 43%. Indirect savings via reduction of acute hospital length of stay for Medicare patients increased total income from operation of this unit. We conclude that patients on the RU stayed longer, had greater daily improvements in functional status, and were more likely to be discharged to home. This appears to be due to a more efficient use of rehabilitation beds and a concomitant overall improvement in reimbursement to the hospital. We believe that these changes are a result of the RU gaining exemption from the prospective payment system and the comprehensive interdisciplinary nature of care provided to patients in such units.