Prospective payment has increased the importance of controlling capital costs. One area where this may be possible is lease financing. Reasons commonly cited in favor of leasing may be of questionable validity, but, under an easily identified set of circumstances, lease financing can be cost effective. Recent developments in finance make it possible to not only evaluate the financial attractiveness of a given lease, but also to accurately predict bounds within which the terms of the lease must fall. Hospital administrators armed with this information should be able to negotiate more favorable lease terms under given tax and economic environments.