Objective: Health care expenditures in Medicare are highly concentrated in a small proportion of beneficiaries. The purpose of this study was to quantify the concentration and persistence of overall and prescription drug expenditures in individuals with Alzheimer's disease (AD) and to determine the characteristics associated with future expenditure levels. Methods: Data were obtained from the 1999-2004 Medicare Current Beneficiary Survey linked with Medicare claims. Elderly, community-dwelling individuals with AD were rank-ordered by overall and drug expenditures. The proportion of expenditures accounted for by the top 10%, top 25% and top 50% of spenders was calculated. A transition probability matrix was used to illustrate the change in expenditure percentiles from one year to the next. Ordered logit models incorporating prior expenditure, Charlson Comorbidity Index, functional status and other background covariates were performed to predict the level of subsequent-year expenditures. Results: The top 10% of spenders accounted for 38%-47% of overall health expenditures and incurred 31%-36% of overall drug expenditures depending on the year. One-quarter of the highest-spending 10% for total health expenditures remained in the top decile in the next year, whereas 21% of them moved to the bottom half in the subsequent year. Half of the highest 10% of drug spenders retained this ranking and 9% moved to the bottom 50% in the next year. Prior expenditures and Charlson comorbidity scores, but not functional status, were strong predictors of the level of future expenditures. Conclusion: Overall health care and drug expenditures were highly concentrated and persistent over a two-year period in this AD population. Prescription drug expenditures exhibited less concentration but more persistence than did overall health expenditures. Results from this study may further our knowledge of how expected high expenditures in AD patients may be reduced with improved care coordination and effective case management.