Payment systems are fundamental to any health care system, introducing powerful incentives and fierce technical design complexities. DRG-systems aim at fairly assessing the costs of patient treatment, taking into account measurable patient characteristics such as diagnosis or comorbidity – but to a varying degree also interventions chosen. Using a representative sample of inpatient data on 10-12 “care episodes” (representing different medical specialties, diagnostic/ therapeutic procedures, usage of innovative devices & drugs) from hospitals in 10 EU countries (AUT, ENG, EST, FIN, FRA, GER, NET, POL, SPA, SWE), the EuroDRG Project aims at studying the importance of structural factors such as wage levels vis-à-vis established patient variables and “medical decision variables” (procedures or using new and emerging technologies) to explain variation in costs within and between European countries. This will allow fair efficiency comparisons among EU hospitals to ensure that DRG-systems provide the intended incentives. A second objective is to investigate the role the quality of care plays to explain costs, an area with practically no European studies but potentially important policy implications. To achieve its objectives, the project is organised in phases: 1. Analysis of national DRG-systems and development of a methodology for trans-national analysis; 2. Trans-national DRG issues - hospital cost functions, efficiency and quality; 3. Translation into practice, synthesis and recommendation. To achieve a high scientific quality and a high policy impact, the strategy involves (based on the successful FP6 HealthBASKET project): encouraging partners to publish in peer-reviewed journals; using excellent links to major international organisations; establishing an EU-wide hospital “benchmarking club”; organising seminars at major conferences; a final conference with invited experts; involving representatives from countries with emerging DRG-systems (Bulgaria, China, India).