OBJECTIVES: In the Netherlands, budgeting systems allocate funds to finance academic care. For some highly specialized treatments, it is felt that the costs are not well reimbursed. This study compared hospital reimbursements for head-neck oncology with real costs. To reflect future care costs, costs of required improvements in the quality of care were also estimated. DESIGN: This study was based on 854 consecutive patients treated between 1994-1996 in two university hospitals. Full costs of medical consumption were determined. RESULTS: Costs of diagnosis, treatment and two years of follow-up of patients with a primary head or neck carcinoma summed up to f 47848 (E 21712). For patients with a relapsed carcinoma, this amount was f 61088 (E 27721). After two years, the relapse rate is 40%. Costs per new patient were therefore calculated as 1*47848 + 0.4*61088. The costs of 10 years of follow-up were f 755 (E 343) after correction for survival. In total, average costs per new patient were f 73344 (E 33282), which covered costs of treating the primary tumour, costs of treating relapsed tumours in 40% of all patients and the costs of 10 years of follow-up. The current reimbursement is f 26786 (E 12155). Costs of enhancing quality of care (including enlarging doctor's time) were f 3700 (E 1679) per new patient. CONCLUSIONS: Actual costs of treating head-neck carcinoma are 2.88 times higher than the hospital reimbursement. The actual costs for this type of highly specialized care are not covered by the reimbursement system, which should therefore be revised.