Measurement of the costs of health care and work loss of chronic mental patients is a vital link between clinical care and political decisions. If costs associated with poor outcomes of deinstitutionalized patients are identified, the margin for investing in programs that could improve outcomes without raising overall costs is also identified. This study analyzed direct and indirect costs in the first year after 119 chronic schizophrenics, drawn from public and voluntary hospitals serving Manhattan's upper West Side, were discharged from the hospital. The main elements in direct costs were community aftercare, rehospitalizations, and general medical care. Wage loss was used as the measure of indirect costs and was based on comparison with national figures for similar age/ sex/ethnic groups. The risk of rehospitalization is the principal factor affecting direct costs. Wage loss because of unemployment was substantial. Because use of vocational rehabilitation services was low, these findings suggest the importance of developing employment opportunities and appropriate work environments.