We analyzed the 2009 Medicare inpatient claims data and other databases to estimate Medicare payments for primary or revision total knee arthroplasty (TKA). The average Medicare hospital payment per procedure was $13,464 for primary TKA (n = 227,587) and $17,331 for revision TKA (n = 18,677). For both primary and revision TKAs Medicare payments varied substantially across patients, hospitals and healthcare markets. Less than one percent of primary TKA cases but seven percent of revision TKA cases triggered Medicare “outlier” payments, which were $10,000 or higher per case beyond regular diagnosis-related-group payments. Urban and major teaching hospitals were more likely to treat these unusually expensive cases. Hospitals in the Northeast and West regions tended to receive higher Medicare payments than hospitals in the Midwest.