OBJECTIVE: To estimate the financial effect of racial disparities as reflected in differences in hospital admission rates each of the 25 Major Diagnostic Categories (MDCs) in the state of South Carolina. METHODS: Estimates were calculated for total submitted charges within each MDC that were attributed to higher admission rates for African Americans than for Caucasians in South Carolina, based on age-adjusted annual admission rates. Each of the 25 MDCs was evaluated to reveal which component Diagnostic Related Groups (DRGs) were the largest admission “drivers” or contributors to the observed differences in admission rates. South Carolina hospital discharge data for 1998-2002 was used for the analysis. The database includes all-payer billing data for inpatient hospital admissions as received on the UB-92 billing file for the covered episode. Charges were inflation-adjusted to 2002 constant dollars. RESULTS: Between 1998 and 2002, there were an estimated $1.6 billion in total charges for hospital admissions in South Carolina that were attributed to higher age-adjusted admission rates for African-American patients. In addition, African Americans had consistently higher hospital admission rates for disease categories that are often associated with a failure to obtain ambulatory and preventive care. CONCLUSION: Our analysis reveals that age-adjusted hospital admission rates for African Americans in South Carolina are higher than for Caucasians, and that the gap appears to be widening over time. Given the magnitude of the financial implication, interventions with even a small impact on the conditions underlying the racial disparities in hospital admissions are likely to be cost-effective.