We test the hypothesis that hospital costs, after adjusting for DRG mix, are higher in distant patients than in local patients. Data were obtained from the Washington State Commission Hospital Abstract Reporting System (CHARS) and included all patients discharged from 15 metropolitan hospitals in the state of Washington during fiscal year 1987 (N = 181,072). Distant patients were initially defined as those patients residing outside a 15-mile radius of the hospital from which they were discharged; all other patients were considered local. Distance was determined using the patient's residence zip code. Hospital charge, calculated for all patients regardless of payer, served as a proxy for cost and was adjusted using the DRG weight. Average charge (adjusted for DRG weight) was higher for distant patients in all but two hospitals. Overall adjusted charge for distant patients was 15 percent higher (p < .001). This finding persisted when different distances were used to dichotomize distant and local patients. When the 20 most common DRGs were examined individually, little charge difference was found in surgical DRGs that require tertiary center services (tertiary DRGs) and in those DRGs with both moderate and predictable resource use (routine DRGs); the charge difference seemed most prominent in those DRGs with a wide array of possible resource use (heterogeneous DRGs). Results suggest that patients traveling long distances use more resources and incur higher hospital charges than local patients. This is not accounted for in prospective payment. We postulate that distance might serve in part as a proxy for severity-of-illness.