Objective: To compare costs of hospitalization for lower respiratory tract infection (LRTI) in patients who received antibiotics before admission to those who did not, and in patients with and without underlying chronic obstructive airways disease (COAD) or diabetes mellitus. Methods: All hospitalizations in a population of 366,849 residents in Tayside Scotland from 1993 to 1994 were analyzed. Three groups of patients were identified by primary discharge diagnosis in 1993/94 and previous admissions from 1980 to 1992: 1) acute exacerbation of COAD; 2) LRTI plus a secondary diagnosis of COAD or previous admission with COAD; 3) LRTI but no secondary COAD or previous admission with COAD. Setting specific costs were applied (e.g., general medicine, intensive care, geriatrics). Dispensed antibiotic prescribing in the 28 days before admission was identified from all community pharmacies. Non-parametric statistical tests were used. Results: Patients with COAD were more likely to have received antibiotics before admission: COAD (n = 893) 49%; COAD + LRTI (n = 316) 43%; LRTI only (n = 822) 33%. Patients who received antibiotics before admission had lower hospital costs than patients who did not. Mean total costs per admission: COAD £1604 versus £1625 (p = .5); COAD + LRTI £2281 versus £2297 (p = .5); LRTI only £2365 versus £3233; (p = .009). Increasing age and diabetes mellitus were associated with higher hospital costs in all three groups. Conclusion: Economic models of the value of preventing hospital admissions for COAD or LRTI will be subject to case mix bias unless they adjust for age, community antibiotic use, and comorbidity.