Co-existent or comorbid diseases are appreciated as prognostic factors in studies of quality and effectiveness of care when mortality is the end point. The need to measure and adjust for comorbidity in studies of postoperative hospital complications or long-term recovery from surgery has not been documented. In this study, we determined the impact of co-existent disease on post-operative complications and 1-year health-related quality of life in patients hospitalized for a total hip replacement. The study population consisted of a cohort of 356 patients who were hospitalized in four teaching hospitals in California and Massachusetts for a total hip replacement. Patients' medical records were reviewed to collect information regarding severity of illness, co-existent disease, and postoperative complications. The kind and amount of baseline preoperative co-existent disease was measured from medical record information at admission using a four level Index of co-existent Disease (ICED). Approximately 12 months after hospital discharge, 283 (80%) of the patients were surveyed by questionnaire. The presence and amount of co-existent disease were significant predictors of postoperative complications. The complication rates ranged from 3% to 41% between the lowest and highest levels of the ICED. Patients treated at the four study hospitals differed in functional outcomes 1 year after surgery. Functional outcomes were strongly related to ICED scores: patients in Level 4 ICED scored 26.8 points lower in instrumental activities of daily living than patients in Level 1. After controlling for gender, age, education, and marital status, ICED remained a significant predictor of functional status at 1 year. Furthermore, differences among hospitals in functional outcomes disappeared when the ICED was included in the model to adjust for patient characteristics at the time of surgery. A measure of co-existent disease was crucial in explaining differences among hospitals in recovery from total hip replacement patients.