OBJECTIVES: Treatment of CAP is becoming more difficult because of changes in the antibiotic resistance patterns of pathogens causing CAP, particularly S. pneumoniae. This purpose of this study is to assess the economic impact of changes in hospitalization and mortality rates in CAP due to antimicrobial resistance. METHODS: The costs of CAP were determined from an administrative claims database from 1996-1998 for an employed population and their dependents under the age of 65 (N>100,000). The economic impact of antibiotic resistance on CAP costs was simulated under different scenarios. The simulations were based on the assumptions that antibiotic resistance might increase the mortality rate, the hospitalization rate, or both the mortality and hospitalization rates in CAP. RESULTS: We identified 7,249 episodes of CAP. The hospitalization rate was 19.6% and the mortality rate among inpatient CAP episodes was 9.1%. The average cost of treatment for an inpatient episode of CAP (including all inpatient and outpatient medical care) was $10,227. Costs for inpatients who died during hospitalization ($15,822) were higher than for episodes in which patients were discharged alive ($9,595). Increasing the mortality rate by an additional 5% (to 14.1%) led to a 3% increase in the total costs of treatment. Increasing the hospitalization rate from the observed rate of 20% to 25% increased total costs by 28%. CONCLUSIONS: Simulations indicate that, if antibiotic resistant organisms increase outpatient treatment failures and resultant hospitalization rates for CAP, there would be a substantial economic impact. The total annual economic impact of treating CAP in the U.S. is estimated to be $12.1 billion. If resistance leads to higher mortality rates and hospitalization rates, the total annual economic impact of treating CAP in the U.S. could rise by 23% to $14.9 billion.