The per diagnosis basis of payment provides an incentive for hospitals to place Medicare patients in a nonacute care setting as soon as medically appropriate. As a result, there has been growing interest among hospitals in developing "arrangements" with nearby nursing homes to reserve beds for hospital patients who no longer require acute care. Before entering into a bed reserve agreement, a hospital and nursing home must carefully examine the economic considerations--cost, revenue, and price. Such an analysis will determine if a bed reserve agreement benefits both the parties concerned.