We describe and analyse the experience of piloting a preferred provider system (PPS) for rural members of Vimo SEWA, a fixed-indemnity, community-based health insurance (CBHI) scheme run by the Self-Employed Women's Association (SEWA). The objectives of the PPS were (i) to facilitate access to hospitalization by providing financial benefits at the time of service utilization; (ii) to shift the burden of compiling a claim away from members and towards Vimo SEWA staff; and (iii) to direct members to inpatient facilities of acceptable quality. The PPS was launched between August and October 2004, in 8 subdistricts covering 15,000 insured. The impact of the scheme was analysed using data from a household survey of claimants and qualitative data from in-depth interviews and focus group discussions. The PPS appears to have been successful in terms of two of the three primary objectives--it has transferred much of the burden of compiling a health Insurance claim onto Vimo SEWA staff, and it has directed members to inpatient facilities with acceptable levels of technical quality (defined in terms of structural Indicators). However, even under the PPS, user fees pose a financial barrier, as the insured have to mobilize funds to cover the costs of medicines, supplies, registration fee, etc. before receipt of cash payment from Vimo SEWA. Other barriers to the success of the PPS were the geographic Inaccessibility of some of the selected hospitals, lack of awareness about the PPS among members and a variety of administrative problems. This pilot project provides useful lessons relating to strategic purchasing by CBHI schemes and, more broadly, managed care in India. In particular, the pragmatic approach taken to assessing hospitals and identifying preferred providers is likely to be useful elsewhere.