Objective
To assess the cost of public and private hospitalizations in urban Kerala and discuss policy implications of social disparities in the economic burden of hospital care.

Methods
The NSSO survey on health care (1995–1996) for urban Kerala was analysed with regards to expenditure incurred by hospital episodes. Multilevel linear models were built to assess factors associated with levels of health expenditure.

Findings
Hospital care involves paying admission fees in 68% of cases of hospitalizations (98% in private and 20% in public sector) in urban Kerala. Poor households and those headed by casual workers show significantly lower levels of health expenditure and a higher proportion of health-related loss of income than other social groups. Although there is significant expenditure in both sectors for these groups, hospitalization on free public wards is associated with lower expenditure than other options. Factors linked with higher expenditure are: duration of stay; hospitalizations on paying public wards and in the private sector; hospitalizations for above poverty line households and hospitalizations for chronic illnesses. Expenditure for services bought from outside the hospital is important in the public sector.

Conclusion
Hospitalization incurs significant expenditure in urban Kerala. Greater availability of free medical services in the public sector and financial protection against the cost of hospitalization are warranted