This study identified factors associated with higher medical costs for patients with terminal cancer in hospice units in order to develop a daily payment system for hospice services within Korea's National Health Insurance (NHI) program. Through chart reviews conducted by staff nurses, medical information and costs were obtained for 274 patients with terminal cancer in 20 hospice units in October 2007. The daily medical cost per patient was calculated based on the fee-for-service scheme. The characteristics of the hospice units were examined by means of a semistructured questionnaire administered to hospice unit coordinators. Higher daily costs were associated with general hospital-based hospice units (as compared with free-standing units: p<0.01), low Palliative Performance Scale scores (PPS<50, p<0.05), and the presence of fever (p<0.01). In multivariate analysis, hospice unit type was found to be the factor most strongly associated with medical cost. A hospice payment system based on patient characteristics should be thoroughly considered.