To determine the effect of eligibility criteria on phototherapy program size and cost, 786 births in a large Health Maintenance Organization were prospectively studied. Four sets of criteria were compared, including those of the American Academy of Pediatrics and the health maintenance organization's own criteria. With all criteria sets, hospital-based phototherapy treatment was indicated for 13 (1.7%) infants and no phototherapy was indicated for 687 (87.4%) infants. Treatment varied substantially according to criteria set for the remaining 86 (10.9%) infants. From 14% to 100% of these infants would have received treatment, depending on the criteria applied; of those potentially treated, from 30% to 80% would have received home treatment. Estimated annual discretionary phototherapy costs (1985 dollars) ranged from $15 168 with the health maintenance organization criteria to almost five to six times this amount ($70 232 to $90 800) with the other criteria. Differences in costs were due mainly to the number of infants treated. This study illustrates the way in which modest variation in standards of care can potentially have a relatively large effect on medical care costs. As a case study of how health maintenance organizations reduce costs, the study shows that although the health maintenance organization anticipated costs savings due to substituting outpatient care for hospital care, most savings occurred because of a reduction in the number of infants treated.