Growing evidence has demonstrated that informal fees for health services comprise a large proportion of total health spending in some countries. In 1999, individual out-of-pocket payments for health in Cambodia were estimated at US$27 per person, with a proportion paid as under-the-table fees at public facilities. By formalizing such payments and implementing resource management systems within a comprehensive health financing scheme, Takeo Referral Hospital controlled out-of-pocket patient expenditures, ensured patients of fixed prices, protected patients from the unpredictability of hospital fees and promoted financial sustainability. Utilization levels increased by more than 50% for inpatient and surgical services, and cost recovery from user fees averaged 33%. Furthermore, the hospital phased out external donor support gradually over 4 years and achieved financial sustainability.