Since the introduction of national health insurance on March 1st 1995 in Taiwan, another 9 items (including appendectomy) were introduced into the Taiwan/prospective payment system (T/PPS). The modified T/PPS was based on those complicated appendectomy cases with secondary diagnosis or second operation where a total fee over 37,500 New Taiwan (NT) dollars was paid by National Health Insurance Bureau (NHIB) according to the real cost. The T/PPS was implemented in October 1997 due to the continuously increasing financial burden of medical expenses on the NHIB. The purpose of this study is (1) to compare the length of stay (LOS) and total medical expense of appendectomy of fee for service (FFS) and T/PPS and (2) to compare the clinical outcome of wound healing after discharge of the two systems by telephone interview. Our study investigated 100 consecutive appendectomy cases under FFS payment system and 99 consecutive appendectomy cases under T/PPS. We retrospectively analyzed LOS, operation time, and hospital cost of different items through chart review and computer data. Our results revealed that the LOS and operation time of T/PPS were significantly shorter than those of FFS (both p < 0.01). The total hospital cost, fee for room service, treatment, pharmacy, examination and anesthesia in T/PPS were also significantly less than those in FFS (all p < 0.01, except for anesthesia p < 0.05). There existed positive correlation between total hospital cost and LOS, operation time, fee for room service, treatment, pharmacy, examination and anesthesia both for T/PPS and FFS. To evaluate the clinical outcome of appendectomy between T/PPS and FFS, we interviewed 73 T/PPS cases and 73 FFS cases by telephone and chart review. Our results revealed that there were no significant differences in frequencies of having painful incision, clear incision wound on the day of discharge, and removal of stitches at hospital (p all > 0.05). We concluded that compared to FFS, T/PPS can decrease LOS and total hospital cost of appendectomy, and T/PPS's clinical outcome of appendectomy in T/PPS showed no significant difference from that in FFS.