Although there is intense interest in the cost-saving potential of therapeutic alternatives, most studies have analyzed hospital charges rather than actual economic costs. To analyze cost differences rigorously, we studied 115 patients undergoing initial elective angioplasty (percutaneous transluminal coronary angioplasty, PTCA) and 274 patients undergoing initial elective surgery (coronary artery bypass graft surgery, CABG). Detailed resource consumption profiles were constructed and used to estimate the cost savings from switching a patient from CABG to PTCA. Four cost-accounting methods were used in the analysis; each method made different assumptions about the costs that would vary and the costs that would be fixed according to the number of procedures performed. The variable costs in the four methods were the 1) cost of supplies, 2) cost of personnel and supplies, 3) average direct costs, and 4) average direct costs plus allocated hospital overhead. The mean hospital charges for CABG patients were $19,644 versus $9,556 for PTCA patients (p less than 0.0001). The estimated cost difference between CABG and PTCA was substantially less than the $10,088 difference in charges, however, with net savings of 19%, 46%, 53%, and 78% of charges using cost-accounting methods 1-4, respectively. Thus, although the initial hospital charges for PTCA are significantly less than for CABG, the actual economic cost savings may be significantly overestimated by the use of hospital charge data.