The California "copayment experiment" imposed a charge of $1 on certain Medicaid beneficiaries for the first two visits to a doctor and 50 cents for the first two drug prescriptions each month, effective January 1, 1972. Data on utilization rates were gathered for six months before this date and for 12 months after it. While other administrative requirements, like prior authorization of certain services, doubtless also played a part, it was found that, following the start of copayment, utilization of ambulatory doctor's office visits and other services associated with them showed a decline, relative to that of the non-copayment cohort. After a brief lag, however, hospitalization rates in the copay cohort rose to levels higher than those of the non-copayment cohort-more than offsetting the savings to the state from the reduction of ambulatory service use rates. Due presumably to the neglect of early medical care because of the inhibiting effect of the copayments, these higher use rates of costly hospitalizations suggest that financial deterrents on access to ambulatory service by poor people are penny-wise and pound-foolish, not to mention their effects on health and well-being.