This randomized study screened hospital admissions to all wards except Psychiatry and Spinal Cord Injured during a 3-year period to identify 233 severely disabled patients (2 impairments on the Katz Index of ADL) and caregivers who were willing to participate in a pretest-multiple posttest trial of the Hines VA Hospital-based Home Care (HBHC) Program. Patient functional status, morale, and satisfaction with care were measured at baseline, 1 month and 6 months post discharge. Caregiver satisfaction and morale were assessed at the same time periods. All health care services used by both groups were tracked over the 6-month period and converted to cost. Findings include improved 1-month satisfaction with care (P = 0.04) and improved 6-month cognitive functioning (P = 0.04) among HBHC patients and improved 1-month (P = 0.04) and 6-month satisfaction with care (P less than 0.01) among their caregivers. A nonsignificant 10% decrease in net cost of care, was found in the treatment group, largely due to lower use of private sector hospital care.