OBJECTIVES: To investigate the relationship between persistence with drug therapy and treatment costs in patients with schizophrenia. METHODS: Paid claims data from a commercial insurer was used to identify patients with schizophrenia. The unit of observation was the drug treatment episode. A total of 21,570 episodes were included in ordinary least squares (OLS) regression models of post-treatment cost as a function of alternative definitions of compliance adjusting for patient demographics, drug use history, prior medical care use, schizophrenia diagnosis and co-morbid medical conditions. RESULTS: Adding a second medication within one year is the key factor in this study. When compared to patients achieving one year of continuous therapy on the initial drug without switch or augment on a second drug; patients completing one year of therapy on their initial drug while adding an augmenting medication experienced increased drug costs by $1,565 (p<0.0001) and increased medical costs of $6,583(p<0.0001). Patients who did not achieve compliance on their initial medication, but did achieve compliance on their second medication exhibit higher total costs $11,381(p<0.0001). Patients using less than one year of psychotropic medication despite switching to or augmenting with a second drug experienced reduced drug costs, but also experienced increased medical costs. Similarly, patients who discontinued their initial therapy within one year but restart therapy using these medications also experienced reduced drug costs and increased medical costs. Finally, patients who quit their initial and any other therapy within one year save drug costs but also experience significantly higher medical costs. CONCLUSIONS: Compliance is associated with significant reductions in medical costs only if the initial drug regimen is maintained for 12 months. On the other hand, patients using less than one year of psychotropic medication experienced reduced drug costs relative to the most compliant patients(the comparison group), but also experienced increased medical costs.