This paper assesses the variations in costs and length of stay for hip replacement cases in Austria, England, Estonia, Finland, France, Germany, Ireland, Poland, Spain and Sweden and examines the ability of national diagnosis-related group (DRG) systems to explain the variation in resource use against a set of patient characteristic and treatment specific variables. In total, 195 810 cases clustered in 712 hospitals were analyzed using OLS fixed effects models for cost data (n = 125 698) and negative binominal models for length-of-stay data (n = 70 112). The number of DRGs differs widely across the 10 European countries (range: 2–14). Underlying this wide range is a different use of classification variables, especially secondary diagnoses and treatment options are considered to a different extent. In six countries, a standard set of patient characteristics and treatment variables explain the variation in costs or length of stay better than the DRG variables. This raises questions about the adequacy of the countries' DRG system or the lack of specific criteria, which could be used as classification variables. Copyright © 2012 John Wiley & Sons, Ltd.