OBJECTIVES: With the ageing of the population, dementia has emerged as a major public health and economic burden in industrialized countries. Our study aimed at evaluating direct health care costs in a population of community-dwelling elderly patients with treated dementia and at comparing such costs with those among  non-demented elderly. METHODS: A retrospective cohort study was conducted in the community-dwelling elderly population of Quebec using the RAMQ administrative claims databases (medical services and prescribed medications) and the Med-Echo hospital discharge database.  Patients aged 66 and over, who received at least one dispensing for a cholinesterase inhibitor (ChI) (donepezil, rivastigmine, or galantamine) between January 1, 2000 and December 31, 2009 were included in the cohort of patients with dementia (n=37,138). The date of entry in the cohort (index date) was the date of first dispensing for a ChI during the study period. The comparison cohort included elderly patients with no diagnosis of dementia matched with a 1:1 ratio on age group, gender, and index date.  Economic variables included direct costs of prescribed medications, medical services, hospitalizations and institutionalization. RESULTS: Overall, our study showed that, at 1 year follow-up, total health care costs are higher among patients with dementia than among non-demented elderly (CAD$8360 compared to CAD$5368). Costs associated with ChI treatment ($1285) and hospitalization ($1103) accounted for the greatest proportion of the cost difference between the two populations. Over a five-year period, total health care costs were $38,200 (± $62,180) in the cohort with dementia compared to $19,042 (± $31,346) in non-demented elderly. At this time, costs associateed with institutionalization also contributed significantly to the difference. CONCLUSIONS: Dementia is an important socioeconomic burden.  Despite the availability of treatments for dementia and the high death rate over a 5-year period, costs associated with hospitalization and institutionalization increase exponentially, resulting in a major public health burden.