OBJECTIVE: To determine whether longer stays of premature infants allowing for increased physical maturity result in subsequent postdischarge cost savings that help counterbalance increased inpatient costs. DATA SOURCES: One thousand four hundred and two premature infants born in the Northern California Kaiser Permanente Medical Care Program between 1998 and 2002. STUDY DESIGN/METHODS: Using multivariate matching with a time-dependent propensity score we matched 701 "Early" babies to 701 "Late" babies (developmentally similar at the time the earlier baby was sent home but who were discharged on average 3 days later) and assessed subsequent costs and clinical outcomes. PRINCIPAL FINDINGS: Late babies accrued inpatient costs after the Early baby was already home, yet costs after discharge through 6 months were virtually identical across groups, as were clinical outcomes. Overall, after the Early baby went home, the Late-Early cost difference was $5,016 (p<.0001). A sensitivity analysis suggests our conclusions would not easily be altered by failure to match on some unmeasured covariate. CONCLUSIONS: In a large integrated health care system, if a baby is ready for discharge (as defined by the typical criteria), staying longer increased inpatient costs but did not reduce postdischarge costs nor improve postdischarge clinical outcomes.