Background: Hospital costs and cost drivers in palliative care are poorly analysed. It remains unknown whether current German Diagnosis-Related Groups, mainly relying on main diagnosis or procedure, reproduce costs adequately. The aim of this study was therefore to analyse costs and reimbursement for inpatient palliative care and to identify relevant cost drivers. Methods: Two-center, standardised micro-costing approach with patient-level cost calculations and analysis of the reimbursement situation for patients receiving palliative care at two German hospitals (7/2012-12/2013). Data were analysed for the total group receiving hospital care covering, but not exclusively, palliative care (group A) and the subgroup receiving palliative care only (group B). Patient and care characteristics predictive of inpatient costs of palliative care were derived by generalised linear models and investigated by classification and regression tree analysis. Results: Between 7/2012 and 12/2013, 2151 patients received care in the two hospitals including, but not exclusively, on the PCUs (group A). In 2013, 784 patients received care on the two PCUs only (group B). Mean total costs per case were (sic) 7392 (SD 7897) (group A) and (sic) 5763 (SD 3664) (group B), mean total reimbursement per case (sic) 5155 (SD 6347) (group A) and (sic) 4278 (SD 2194) (group B). For group A/B on the ward, 58%/67% of the overall costs and 48%/53%, 65%/82% and 64%/72% of costs for nursing, physicians and infrastructure were reimbursed, respectively. Main diagnosis did not significantly influence costs. However, duration of palliative care and total length of stay were (related to the cost calculation method) identified as significant cost drivers. Conclusions: Related to the cost calculation method, total length of stay and duration of palliative care were identified as significant cost drivers. In contrast, main diagnosis did not reflect costs. In addition, results show that reimbursement within the German Diagnosis-Related Groups system does not reproduce the costs adequately, but causes a financing gap for inpatient palliative care.