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Objectives: To determine the incidence of adverse events in patients admitted in the year 2003–04 to selected Victorian hospitals; to identify the main hospital‐acquired diagnoses; and to estimate the cost of these complications to the Victorian and Australian health system.

Design: The patient‐level costing dataset for major Victorian public hospitals, 1 July 2003 – 30 June 2004, was analysed for adverse events by identifying C‐prefixed diagnosis codes denoting complications, preventable or otherwise, arising during the course of hospital treatment. The in‐hospital cost of adverse events was estimated using linear regression modelling, adjusting for age and comorbidity.

Main outcome measures: Cost of each patient admission (“admitted episode”), length of stay and mortality.

Results: During the designated timeframe, 979 834 admitted episodes were in the sample, of which 67 435 (6.88%) had at least …