OBJECTIVES: To evaluate the average per-patient cost of Alzheimer's disease (AD) versus vascular dementia from the perspective of the Medicaid program. METHODS: Using administrative claims data for Medicaid recipients in the Southeastern U.S., we assessed Medicaid expenditures among adults 50+ years of age diagnosed with vascular dementia (ICD-9-CM 290.4) or AD (ICD-9-CM 331.0) during FY2001. Patients with either condition who were eligible for Medicaid at the beginning of the year were included in the study. Multivariate techniques were employed to estimate adjusted mean expenditures while controlling for sociodemographic differences between the study cohorts. RESULTS: In total, 2,310 patients met study inclusion criteria; 490 were diagnosed with vascular dementia and 1,820 with AD. Relative to AD patients, those diagnosed with vascular dementia were younger (mean age 77 vs. 81 years for AD patients), more likely to be male (32% vs. 24%), and more likely to be African American (22% vs. 15%). The burden of comorbidity was higher among vascular dementia patients, especially for cerebrovascular disease (25% vs. 9%), but also for congestive heart failure (9% vs. 5%) and diabetes mellitus (14% vs. 6%). Mean Medicaid expenditures were approximately $6,300 higher for patients with vascular dementia versus AD ($31,390 vs. $25,102; p<0.0001). Nursing home facility stays (56%) and hospitalizations (29%) contributed to most of this excess cost. Adjusting for differences in age, gender, and race between the two cohorts, average per-patient expenditures were about $5320 higher in the vascular dementia group. CONCLUSIONS: We found that relative to patients with AD, Medicaid recipients diagnosed with vascular dementia have significantly higher healthcare costs. The increased expenditures for vascular dementia reflect in part the higher prevalence of associated cardiovascular conditions, and correspondingly, a greater use of institutional services. Efforts to better control cardiovascular risk factors may help alleviate the future burden of vascular dementia.