Purpose: It has been argued that rare diseases should be recognized as a public health priority. However, there is a shortage of epidemiological data describing the true burden of rare diseases. This study investigated hospital service use to provide a better understanding of the collective health and economic impacts of rare diseases. Methods: Novel methodology was developed using a carefully constructed set of diagnostic codes, a selection of rare disease cohorts from hospital administrative data, and advanced data-linkage technologies. Outcomes included health-service use and hospital admission costs. Results: In 2010, cohort members who were alive represented approximately 2.0% of the Western Australian population. The cohort accounted for 4.6% of people discharged from hospital and 9.9% of hospital discharges, and it had a greater average length of stay than the general population. The total cost of hospital discharges for the cohort represented 10.5% of 2010 state inpatient hospital costs. Conclusions: This population-based cohort study provides strong new evidence of a marked disparity between the proportion of the population with rare diseases and their combined health-system costs. The methodology will inform future rare-disease studies, and the evidence will guide government strategies for managing the service needs of people living with rare diseases.Genet Med advance online publication 22 September 2016.