In 2003, chronic obstructive pulmonary disease (COPD) accounted for 46% of the burden of chronic respiratory disease in the Australian community. In the 65-74-year-old age group, COPD was the sixth leading cause of disability for men and the seventh for women.To measure the influence of disease severity, COPD phenotype and comorbidities on acute health service utilization and direct acute care costs in patients admitted with COPD.Prospective cohort study of 80 patients admitted to the Royal Melbourne Hospital in 2001-2002 for an exacerbation of COPD. Patients were followed for 12 months and data were collected on acute care utilization. Direct hospital costs were derived using Transition II, an activity-based costing system. Individual patient costs were then modelled to ascertain which patient factors influenced total direct hospital costs.Direct costs were calculated for 225 episodes of care, the median cost per admission was AU$3124 (interquartile range $1393 to $5045). The median direct cost of acute care management per patient per year was AU$7273 (interquartile range $3957 to $14 448). In a multivariate analysis using linear regression modelling, factors predictive of higher annual costs were increasing age (P= 0.041), use of domiciliary oxygen (P= 0.008) and the presence of chronic heart failure (P= 0.006).This model has identified a number of patient factors that predict higher acute care costs and awareness of these can be used for service planning to meet the needs of patients admitted with COPD.