Objective: Hungary was the first country in Europe fully implementing a DRG (Diagnosis Related Groups) like financing method for the whole hospital care as early as 1993. In 2004 in addition to the DRG like financing technique, the so-called performance volume limit (PVL) was introduced forming an artificial financial cap for the activity based financing of the Hungarian hospitals. The aim of our paper is to analyze the effect of the performance volume limit (PVL) financing method on the acute hospital care. Methods: Data were derived from the nationwide administrative dataset of the National Health Insurance Fund Administration (OEP) covering the period 2003-2006. We analyzed the trends in DRG cost-weights, cases and hospital days. Than we calculated the average annual reimbursement rate of DRG cost-weight with and without the application of PVL degression according to hospital type. Results: Our results showed that between 2003-2006. the annual number of DRG cost-weights did not change, the trend of annual number of cases slightly increased, while the total number of hospital days decreased. As a result of the PVL system, we found the lowest reimbursement rate of DRG cost-weights at the national medical institutes (l HUF 127.600) and university medical schools (l HUF 128.500), while the highest was at the city hospitals of Budapest (l HUF 132.600 Ft) and county hospitals (l HUF 132.000). Conclusion: We can conclude that the implementation of performance volume limit as a fiscal tool partly fulfilled the expectations towards the reduction of activity of hospital care. However, the effect of performance volume limit was different on the different types of hospitals, and had a serious disadvantageous effect on the university medical schools and national medical institutes. The hospitals of Budapest were the main winners of this new regulation.