The high cost of health care has become a nationwide concern and there are several national initiatives under way to reduce the rate of increase of these costs. Among the most recent initiatives has been the introduction of Medicare reimbursement based upon Diagnostic Related Groups (DRGs). This paper presents a retrospective analysis of the costs of care of burned patients admitted to the University of Alabama at Birmingham Burn Center and a profile of the financial impact of DRGs. Costs for burned patients were twice as high as for the average patient in the hospital and increased at a faster rate. Since 1977 the proportion of indigent patients and patients with very poor third-party coverage has greatly increased and those with good or excellent third-party coverage has decreased. If the care for Medicare patients had been reimbursed on the bases of DRG rates in 1982, payments would have exceeded costs by $2,981 but would have been $88,399 less than charges. In 1983, if the care for Medicare patients had been reimbursed on the bases of DRG rates, the payment would have been $409,629 less than costs and $634,583 less than charges. This very unfavorable reimbursement is because DRG reimbursement is essentially a flat rate and for long lengths of stay costs are much greater than reimbursements. Specific policies on methods to correct this discrepancy are suggested.