Abstract: The 1983 Tax Equity and Fiscal Responsibility Act (TEFRA) transformed acute care from a benevolent to malevolent environment. A dual-paradigm of resource dependency and institutional theories that balances isomorphic with economic variables has emerged to better explain hospital strategic response to the resultant constraint on resources than a traditional single paradigm approach. Using the population of non-rural, non-federal acute-care hospitals, strategic response from 1982 to 2001 is studied; distinct cost and service changes occur. Cost strategy is linked primarily to Medicare utilization, a resource dependence response. Service strategy favors high technology regardless of prospective payment diffusion, an institutional theory perspective. Strategic implications are discussed.