OBJECTIVE: This study provides estimates of the factors that are contributing to the escalation of medical costs. DESIGN: Measures of price and utilization trends were developed to estimate their contributions to increases in workers compensation medical severity overall and across a range of services and diagnoses. PATIENTS: Analysis utilized medical transactions data covering approximately 327,000 closed claims for injuries occurring in 37 states in 1996, 1997, 2001, and 2002 provided to the National Council on Compensation Insurance by several large workers' compensation insurance companies. MAIN RESULTS: Increases in billed medical treatments per claim contributed more than half, a shift to more costly injuries accounted for a fifth, and the increase in the average cost-per-treatment generated about a quarter of the increase in medical severity between 1996-1997 and 2001-2002. CONCLUSIONS: Increases in billed medical treatments is the major cost driver in workers compensation medical costs.