OBJECTIVES: To estimate the effect of major micro- and macrovascular complications on resource use and cost in diabetic type 2 patients in Germany. METHODS: Estimates for complication subgroups were based on results from the CODE-2 cost of illness study. The German arm of the study analyzed data on resource utilisation of 809 patients with diabetes type 2 for 1998. A stratified random sampling technique also allowed analysis for rare subgroups. Direct and indirect cost were analysed from a sickness fund perspective. RESULTS: The analysis indicates that overall cost rises dramatically with development of complications. The major cost driver was hospitalization (see table below). CONCLUSIONS: The study demonstrates the substantial cost burden; this suggests cost savings by preventing micro- and macrovascular complications. no complica-tions with only macrovascular complications with only microvascular complications with macro- + microvascular complications Time since diagnosis of diabetes 6.5 8.4 10.6 12.6 Percentage of patients hospitalized 14 % 26% 24% 41% Number of days in hospital per patient and year 2.0 6.5 6.7 11.3 Hospitalization costs per patient and year [DM] 1,007 3,832 3,150 6,867 Total costs per patient and year [DM] 3,370 6,723 6,563 11,034