OBJECTIVES: In 2004, diagnosis-related groups (DRGs) had been implemented for the reimbursement of hospitals instead of daily lump sum. We analysed the effect of DRG-implementation on direct costs of hospitals on the basis of in-patient treatment of community-acquired pneumonia (CAP). METHODS: This open, prospective observational study was divided into two parts. First part was performed between October 2002 and July 2003, the second in 2005. In-patients suffering from CAP were enrolled. The perspective of hospital management was applied for calculation of costs for drug acquisition, non-medical therapy, diagnostic procedures, hotel and staff. The quantity aspect of treatment was documented by the physicians. Information on the costs per measure was provided by the hospital controller. RESULTS: In 2002/2003, 319 patients (cohort A) were documented in 9 hospitals. In 2005, 322 patients (cohort B) were included (14 hospitals). There were no significant differences concerning demographic data, clinical data and severity of CAP classified according to PSI-score between the groups. Total direct costs of CAP amounted to €1,528.47 in A and €1,750.01 in B (p<0.001). Costs for drug acquisition decreased from €201.00 (A) to €136.55 (B). Costs for nursing and diagnostics were almost constant (nursing: A: €554.20, B: €539.25; diagnostics: A: €79.72, B: €81.17). Hotel costs and costs for non-medical therapy amounted to €640.03 (A) and €909.36 (B), (p<0.001) and to €53.53 (A) and €83.41 (B), (p<0.001), respectively. CONCLUSIONS: Most important cost-driving factors before and after DRG implementation were hotel and nursing costs. Drug costs represent only a small part of total costs and decreased during study period. The significant increase of hotel costs and costs for non-medical therapy may be caused by higher energy and staff costs. No cost-saving was achieved from hospital's perspective after the implementation of DRG.