Medicare currently pays for "indirect costs" of medical education to support the higher costs of care in teaching hospitals. To investigate whether indirect costs are higher earlier in the training year when house officers might be less efficient--the "July phenomenon"--we compared utilization by 1251 patients hospitalized during July and August with 1338 patients hospitalized during April and May from 1982 through 1984 at Brigham and Women's Hospital, Boston, Mass. These included all patients in the 10 most prevalent medical and surgical diagnosis related groups. Using analysis of covariance to correct for age, sex, diagnosis related group, urgency of admission, temporal change, and mortality, we found no differences in length of stay, total charges, or categories of ancillary charges. These results suggest that there is no substantial increase in the cost of care early in the training year; there was no evidence of a "July phenomenon."