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To study the medical and financial outcomes associated with surgery in elderly obese patients and to ask if obesity itself influences outcomes above and beyond the effects from comorbidities that are known to be associated with obesity.Obesity is a surgical risk factor not present in Medicare's risk adjustment or payment algorithms, as BMI is not collected in administrative claims.A total of 2045 severely or morbidly obese patients (BMI ≥ 35 kg/m2, aged between 65 and 80 years) selected from 15,914 elderly patients in 47 hospitals undergoing hip and knee surgery, colectomy, and thoracotomy were matched to 2 sets of 2045 nonobese patients (BMI = 20–30 kg/m2). A “limited match” controlled for age, sex, race, procedure, and hospital. A “complete match” also controlled for 30 additional factors such as diabetes and admission clinical data from chart abstraction.Mean BMI in the obese patients was 40 kg/m2 compared with 26 kg/m2 in the nonobese. In the complete match, obese patients displayed increased odds of wound infection: OR (odds ratio) = 1.64 (95% CI: 1.21, 2.21); renal dysfunction: OR = 2.05 (1.39, 3.05); urinary tract infection: OR = 1.55 (1.24, 1.94); hypotension: OR = 1.38 (1.07, 1.80); respiratory events: OR = 1.44 (1.19, 1.75); 30-day readmission: OR = 1.38 (1.08, 1.77); and a 12% longer length of stay (8%, 17%). Provider costs were 10% (7%, 12%) greater in obese than in nonobese patients, whereas Medicare payments increased only 3% (2%, 5%). Findings were similar in the limited match.Obesity increases the risks and costs of surgery. Better approaches are needed to reduce these risks. Furthermore, to avoid incentives to underserve this population, Medicare should consider incorporating incremental costs of caring for obese patients into payment policy and include obesity in severity adjustment models.