OBJECTIVES: Medication costs accounted for 25% of total medical expenses in Taiwan. Reduction in price of drug is the major policy to control the medication costs. Diabetes drugs is a major factor contributing to high and rapidly growing prescription medication costs. This study was to examine the determinants for diabetes drug expenditures inflation in Taiwan’s National Health Insurance (NHI). METHODS: This retrospective and longitudinal used NHI claim data to quantify the different factors driving to increases in diabetes medication costs from 2000 to 2010. Changes in diabetes drug spending are decomposed to eight components: (1) the growth of user population; (2) the growth of number of prescription per user; (3) the growth of number of drug item of per prescription of established drugs; (4) the growth of number of drug item of per prescription of new entrant drugs; (5) the growth of Defined Daily Dose (DDD) of established drugs of average drug item per prescription; (6) the growth of DDD of new entrant drugs of average drug item per prescription; (7) change of average price of established drugs per prescription ; (8) change of average price of new entrant drugs per prescription; (9) change in therapeutic and strength mix. RESULTS: Changes in user population, number of drug item of per prescription, and therapeutic and strength mix caused diabetes spending to increase. The drug price and DDD caused diabetes spending to decrease. Over half of drug spending growth was accounted for user population. The rest of spending growth was from the change in drug treatment intensity. The results also reveal the care pattern change to more drug item with low-dose therapy.  CONCLUSIONS: The results suggest that use drug pricing policy to lower drug spending is limited. The policy makers should consider put more effort to manage treatment intensity in diabetes medication.