We summarize Medicare utilization and payment for inpatient treatment of non-dementia psychiatric illnesses (NDPI) among the elderly during 1992 and 2002. From 1992 to 2002, overall mean Medicare expenditures per elderly NDPI inpatient stay declined by $2,254 (in 2002 dollars) and covered days by 2.8. However, these changes are complicated by expanded use of skilled nursing facilities and hospital psychiatric units, and decreased use of long-stay hospitals and general hospital beds. This suggests that inpatient treatment for NDPI is shifting into less expensive settings which may reflect cost-cutting strategies, preferences for less restrictive settings, and outpatient treatment advances.