OBJECTIVES: Clinical practice guidelines suggest that to achieve greater reductions in cardiovascular risk, statin therapy should be prescribed for diabetic patients at earlier stages. The objective of this study was to assess the influence of statin therapy on diabetes-specific hospitalization and all-cause mortality in diabetic patients enrolled in a state Medicaid program. METHODS: This is a retrospective cohort study of patients with diabetes using Medicaid pharmacy and medical claims data. Patients aged 40 years or older with a diagnosis of diabetes, who had continuous coverage in a state Medicaid program from January 2002 to December 2004, and who had a diagnosis of diabetes in 2002 were included in the study and were followed up until December 2004. Statin therapy was measured in using pharmacy claims data of 2003 and statin use was defined as at least two filled prescriptions for statin medications in 2003. The primary outcomes of interest were diabetes-specific hospitalization and all-cause mortality in 2004. Multivariate regression analyses were performed to assess the impact of statin therapy on outcome measures.   RESULTS: A total of 21,110 patients met our inclusion criteria. Among them, 76.6% were females and the mean age was 62.9 (±12.3) years. Less than 30% (28.7%) were prescribed statin medications in 2003. After controlling for baseline patient characteristics including age, gender, race, prior hospitalization, comorbidities (measured using Charlson comorbidity index), and use of insulin, oral hypoglycemic agents, and antihypertensive medications, in comparison to non-users, statin users were 29.1% less likely to have diabetes-specific hospitalizations (OR: 0.719; 95%CI: 0.628-0.824). The odds for all-cause mortality were also lower in statin users as compared to non-users (OR: 0.480; 95%CI: 0.327-0.705). CONCLUSIONS: The results of this study show that statin use rate is low among adults enrolled in a Medicaid program. Statin therapy in adult diabetic patients reduces diabetes-specific hospitalizations and all-cause mortality.