Observation units have been proposed as a tool in lowering over-all health care costs and increasing the quality of care in outpatient facilities. Emergency department (ED) use of these units has been evaluated at single facilities but never at a national level. A survey of 250 facilities across the United States was performed to gather information about the observation unit phenomenon. Of the 250 hospitals in the survey group, 27% had operational observation or holding units and another 16% planned units within 1 year. A statistically significant increase in the use of these units was noted in nonteaching facilities when compared with their teaching counterparts. A trend toward higher use of observation units in suburban/urban settings was noted when compared with rural locations, although the difference was not statistically significant. Of the units in existence, 93% were located within the ED, staffed by emergency physicians, and administrated by the ED director. Most are staffed by ED nurses and ancillary help. No hospital had both an ED unit and a non-ED unit, and many units functioned as both holding and observation areas. The units are perceived to be beneficial in patient care and in lowering health care casts, although objective documentation to validate these beliefs is lacking. Further prospective research is needed to evaluate these units scientifically before broad recommendations can be made.