OBJECTIVES: Type 2 diabetes mellitus is an expensive chronic metabolic disorder and its prevalence has been increasing rapidly in South Korea, due to a Westernized lifestyle. We analyzed the annual direct medical costs attributable to type 2 diabetes in Korea using the database of the Korean National Diabetes Program (KNDP). METHODS: We analyzed the database of 1023 type 2 diabetic patients obtained from the KNDP, a prospective, large cohort study that started in 2005. Clinical characteristics, duration of diabetes, laboratory tests, and microvascular and macrovascular complications were assessed when they were enrolled in the program. Cost data included outpatient clinic visits, hospitalization, diagnostics, and pharmacological therapies for one year from the enrollment of the KNDP. RESULTS: Mean age was 55.0 years and mean diabetic duration was 7.8 years. The pharmacological costs accounted for 42% of direct medical costs. In patients with both microvascular and macrovascular complications, the annual direct medical costs increased by 55% compared to those without complications. The patients whose diabetic duration was more than 15 years showed a more increased annual direct medical cost than those who had a shorter duration of diabetes. Patients in their sixties and senventies or over showed an increased cost compared to those in their thirties, forties, and fifties. In patients treated with both oral hypoglycemic agents and insulin, direct medical costs were higher than those in patients treated with either oral agents or insulin alone. CONCLUSIONS: Our study shows that chronic complications, diabetic duration, and types of antidiabetic treatment  have a notable impact on the direct medical costs of type 2 diabetes. The prevention of chronic diabetic complications will not only influence the mortality and morbidity of patients with type 2 diabetes, but also potentially reduce medical costs.