Objective. Using insurance claims for hemorrhoidectomies, we examined the effect of Taiwan's Bureau of National Health Insurance's case payment system, a fixed case payment rate method used to reimburse health care providers for in-patient care. Design. This observational natural experimental study examined changes in medical care that occurred between two phases: The 9 months before case payment system was implemented on 1 October 1997 and the 9 months afterwards. The changes were analyzed by performing linear regressions with interaction between hospital type and the implementation of case payment system. Setting. This study was based on total claim data from National Health Insurance. Study participants. A total of 23 638 hemorrhoidectomy insurance claims. Main outcome measures. Length of stay, number of medical services, and number of drug prescriptions. Medical services were stratified into those that were considered minimal requirements and those considered optional by the Bureau of National Health Insurance. Results. Over the 18-month period, the number of patients increased by 23.7%. After the case payment system was implemented, length of stay decreased by 0.59 days (P < 0.0001), the number of minimally required services increased by 2.19 to 4.24 items (P < 0.0001), the number of optional service items decreased by 0.32 items (P < 0.0001), and drug prescription decreased slightly by 0.58 to 0.99 items (P < 0.0001) per hospitalization. Conclusions. The case payment system successfully shortened length of stay without significantly sacrificing the provision of services.