OBJECTIVES: 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 patient admissions of 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, the number of admissions to hospitals stopped to increase, even in 2006 we found a small decrease. However, while the county and city hospitals managed to reduce their patient admissions, the university medical schools realized a significant increase of admissions (13 % more in 2006 versus 2003). The loss due to performance volume limit (PVL) was the largest in counties with medical schools. CONCLUSIONS: 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.