BACKGROUND: Rising acuity levels in inpatient settings have led to growing reliance on observers and increased the cost of care. OBJECTIVES: Minimizing use of observers, maintaining quality and safety of care, and improving bed access, without increasing cost. DESIGN: Nursing staff on two inpatient psychiatric units at an academic medical center pilot-tested the use of a “milieu manager” to address rising patient acuity and growing reliance on observers. Nursing cost, occupancy, discharge volume, unit closures, observer expense, and incremental nursing costs were tracked. Staff satisfaction and reported patient behavioral/safety events were assessed. RESULTS: The pilot initiatives ran for 8 months. Unit/bed closures fell to zero on both units. Occupancy, patient days, and discharges increased. Incremental nursing cost was offset by reduction in observer expense and by revenue from increases in occupancy and patient days. Staff work satisfaction improved and measures of patient safety were unchanged. CONCLUSIONS: The intervention was effective in reducing observation expense and improved occupancy and patient days while maintaining patient safety, representing a cost-effective and safe approach for management of acuity on inpatient psychiatric units.