OBJECTIVE: The cost of medical procedures is often unknown, but is nevertheless crucial for setting reimbursement and health-care policies. This study investigated the cost of an upper gastrointestinal endoscopy in ambulatory adults in a large academic hospital in the province of Québec, Canada from the perspective of the hospital. METHODS: An activity-based costing methodology was used to breakdown the endoscopy procedure into a number of primary tasks to which were allocated resources used at the department level (labor, equipment, and materials). Unit costs per activity were calculated from detailed tracking of items and factors used for performing each task RESULTS: The direct cost of performing an endoscopy ranged from 62$Can (1Can$ = 0.75 EUR) for an unsedated, unbiopsied patient to 89$Can for a sedated, biopsied patient. Not included in this amount are separate reimbursement fees of 15 $can for biopsy analysis and 50$Can professional fees for the performing physician, which are charged directly to the Ministry of Health. A cost-volume function was constructed under two different hypotheses of divisibility (sharing between clinical units) or undivisibility of fixed equipment. This showed an optimal unit cost per procedure starting at around 3000 procedures a year for the installed equipment. Incorporating institutional overhead raises the cost of the procedure substantially by an amount of 41$ as does the use of non-reusable biopsy forceps, which adds about 63$Can to the total cost of the procedure. CONCLUSION: Given the high proportion of overall hospital-wide overhead in the total cost of the procedure, allocation methods for these overheads in current hospital accounting systems should be improved in order to obtain more precise estimates of the full cost of medical procedures like upper gastrointestinal endoscopy. The use of single-use equipment rather than reusable equipment also increases the variable unit costs significantly. Session II Health Policy II