Objectives To determine the variation in charges for 10 common blood tests across California hospitals in 2011, and to analyse the hospital and market-level factors that may explain any observed variation.

Design, setting and participants We conducted a cross-sectional analysis of the degree of charge variation between hospitals for 10 common blood tests using charge data reported by all non-federal California hospitals to the California Office of Statewide Health Planning and Development in 2011.

Outcome measures Charges for 10 common blood tests at California hospitals during 2011.

Results We found that charges for blood tests varied significantly between California hospitals. For example, charges for a lipid panel ranged from US$10 to US$10 169, a thousand-fold difference. Although government hospitals and teaching hospitals were found to charge significantly less than their counterparts for many blood tests, few other hospital characteristics and no market-level predictors significantly predicted charges for blood tests. Our models explained, at most, 21% of the variation between hospitals in charges for the blood test in question.

Conclusions These findings demonstrate the seemingly arbitrary nature of the charge setting process, making it difficult for patients to act as true consumers in this era of ‘consumer-directed healthcare.’