Purpose of the Study: This study evaluates the effects of the Program of All-Inclusive Care for the Elderly (PACE) on hospital use. PACE's capitated financing creates incentives to reduce the use of costly services. Furthermore, its emphasis on preventative care and regular monitoring by provides a mechanism for reducing unnecessary hospital use while maintaining quality of care. Design and Methods: This study builds on previous research by comparing hospital use by PACE enrollees with a comparison group of frail community-dwelling older adults selected through propensity score matching over a 2-year period. Outcomes are estimated using regression adjustment with the 2-part model. Results: The results suggest that PACE effectively controls hospital use among community-dwelling frail elderly persons. PACE enrollees spent an estimated average of 0.2 days in the hospital per month alive compared with an estimated average of 0.8 days in the hospital per month alive by comparison subjects or an estimated PACE effect of 0.6 days in the hospital per month alive per enrollee. Implications: These results have implications for long-term care policy and service delivery. PACE provides a model for reducing unnecessary hospitalizations and rehospitalization through effective care management. The benefits of reduced hospital use are savings that offset the cost of an expanded set of services while maintaining quality.