Objectives The aim of this study was to examine the impacts of a government‐directed palliative care demonstration (PCD) project, Per‐diem Payment System (PDPS), on length of stay (LOS), hospital costs, resource usage and healthcare quality during the searched period from January in 2009 to December in 2010. Study Design A retrospective claim data review. Methods Individuals who had been eligible for the palliative care payment policy, PDPS, during 2 years (from 2009 to 2010) were assigned to the case group including seven hospitals (n = 3117). Those (seven hospitals) who were not come eligible for the palliative care payment policy were assigned to the control group (n = 2347) with fee for service. The data used in this study were electronically submitted requests of payment to the Health Insurance Review Agency during the period January 2009 to December 2010. Results After the PCD project, the length of stay for palliative patients with cancer diseases decreased by 2.56% (β = −0.026; p‐value = 0.0001) among patients hospitalized in a PCD project compared with patients hospitalized in seven hospitals that was not designed as a PCD project. Compared with costs before the PCD project, costs decreased by 0.76% (β = 0.013; p‐value = 0.0001). Conclusions We provided evidence regarding the change in the societal burden due to palliative care. Although there was a reduction of direct medical costs reported in limited number of hospitals, in the long term, we can anticipate an expanding impact on medical costs in all palliative hospitals. Copyright © 2016 John Wiley & Sons, Ltd.