The purpose of this research was to investigate the substitution of higher cost hospitalization for lower cost outpatient specialty care for depression and the extent to which insurance barriers impact service substitution patterns of outpatient specialty care for depression in rural and urban areas. The study found that depressed rural patients were hospitalized more than their urban counterparts over two years, with statistically greater hospitalization rates at 6 months and statistically greater length of stays at 12 months. These differential hospitalization rates/lengths were not explained by previous outpatient specialty care treatment, which was comparable for rural and urban patients. Insurance barriers predict reduced use of specialty care in depressed urban patients, but not in depressed rural patients.