In part 1 of this series, the authors review the evolution of patient classification system (PCS) utilization and describe a third-generation PCS model (3PCS) that focuses on optimizing the patient-caregiver process for the outcomes of cost, health, and caregiver satisfaction. Part 2 (September 1999) will review the implementation of 3 PCS in a large urban hospital. Project rationale, methods for developing and implementing the system, key system components, advantages of the new system, and obstacles to implementation will be presented.