Our objective was to examine racial differences in illness (comorbidities) and death among Maryland women hospitalized for breast cancer under an all-payer hospital rate-setting system. The study design was a retrospective analysis of all hospital discharge abstracts for women with breast cancer hospitalized in Maryland (all hospitals) between 1989 and 1993. All discharges were analyzed with a computer-generated algorithm using comorbidities to establish an Illness Severity Score for each hospitalization. Patients were stratified by race and compared for severity of illness (excluding death), hospital mortality, length of hospital stay, age, and insurance status. Between 1989 and 1993, 219 women with breast cancer died as hospital inpatients. A higher proportion of black women died (2.3%) than white women (1.4%) (OR 1.6, CI 1.17, 2.18, p < 0.0001). Average length of hospital stay was comparable for both black (4.6 days) and white (4.4 days) women. Black women were significantly more likely to be severely ill (have more comorbidities) independent of death than were white women (OR 1.39, CI 1.12, 1.41, p < 0.0006). Most patients (66.7%) were between the ages of 45 and 75 years old. Black women (66.9%) were significantly more likely to be younger (<65) than white women (54.6%) (OR 1.23, CI 1.24, 1.32, p < 0.0001). Most women were insured under private insurance (44.5%) or Medicare (44.8%). However, a greater proportion of black women (10.8%) than white women (2.1%) were insured through Medicaid (OR 5.06, CI 4.19, 6.12, p < 0.0001) or an HMO (OR 1.71, CI 1.51, 1.94, p < 0.0001). Medicaid recipients were significantly more likely to be severely ill than either Medicare enrollees (OR 1.35, CI 1.09,1.68, p < 0.004), privately insured women (OR 2.74, CI 2.19, 3.43, p < 0.0001), women enrolled in HMOs (OR 4.31, CI 2.79, 6.70, p < 0.0001), or uninsured women (OR 1.80, CI 1.21, 2.69, p < 0.002). Despite the presence of an all-payer hospital rate-setting system, which has been shown to dampen economic incentives in the decision to hospitalize and provide services once hospitalized, black women hospitalized for breast cancer were more likely to be severely ill and to die than white women.