To estimate the cost of treating medical injury associated with hospital admissions in New Zealand and the patient characteristics of costly adverse events. As part of the New Zealand Quality in Healthcare Study (NZQHS), a retrospective examination of medical records in 13 public hospitals identified the occurrence of clinical procedures and hospital bed days attributable to adverse events. The prices charged to foreign patients were used to estimate the cost of the health care resources used. 850 adverse events were identified in the NZQHS which cost an average of $NZ 10,264 per patient. For New Zealand, adverse events are estimated to cost the medical system $NZ 870 million, of which $NZ 590 million went toward treating preventable adverse events. The results suggest that up to 30% of public hospital expenditure goes toward treating an adverse event. The results also suggest that older patients, neonates and those with moderately serious co-morbidity tended to have more costly adverse events. Adverse events lead to a significant use of health care resources in New Zealand. These findings suggest that substantial resources could be saved by eliminating preventable adverse events.