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We study the variability in hospital costs for stays involving comparable conditions and procedures (diagnosis related groups: DRGs). During the period where hospitals were reimbursed under a “comprehensive” budget, high cost variability was observed. What is the situation today? The French DRG-based payment reform (T2A) was implemented from 2004 to 2008. Theoretically, a fee payment leads the supplier to minimise the difference between the fee and the cost. While the reform does reduce cost variability, the DRG-based payment still fails to fully capture the sources of hospital heterogeneity and patient heterogeneity. So far, this payment system has not eliminated the negative effects of patient selection and quality losses.