This paper specifies an econometric model to forecast State government expenditure on recognised public hospitals in Victoria. The OECD's recent cross-country econometric work exploring factors affecting health spending was instructive. The model found that Victorian Gross State Product, population aged under 4 years, the mix of public and private patients in public hospitals, introduction of casemix funding and funding cuts, the proportion of public beds to total beds in Victoria and technology significantly impacted on expenditure. The model may have application internationally for forecasting health costs, particularly in short and medium-term budgetary cycles.