This paper deals with the present hospital financing system of the Federal Republic of Germany. The structure of the financing system is treated as well as the actual financing process, and, as far as possible, both are also quantitatively described. The first section contains a description of the structure, and is concerned with the major institutions participating in the hospital financing system:--the hospitals are described according to ownership, number of beds, specialization, personnel, regional distribution and utilization;--the health insurance system is illustrated by the two major institutions, i.e. statutory and private health insurance agencies, and its effect on hospital financing is explained;--the regulation of the hospital financing system by the federal political system is discussed;--finally, the major economic functions of the institutions involved are summarized; the interrelations of hospital care and the ambulatory sector are also mentioned. The second section contains a detailed description of the actual financing process, which can be classified according to the sections of financing:--the basic system of the German hospital financing law is introduced;--in the section on investment costs, public grants and their allocation, which are closely related to hospital planning, are discussed;--in the section on operating costs, full cost reimbursement as the basic principle, the structure of costs, the elements and the mechanism of operating cost financing, the actual prices, the financing of private patients' care and special services are described;--a short view of accounting balances, i.e. the differences between costs and financing of hospital services which result in profits or deficits, is given. A few considerations on the evaluation of the financing system conclude the paper.