OBJECTIVE: We estimated savings in the cost of caring for Alzheimers Disease patients during 6 months, one year, and two years treatment with rivastigmine. An intermediate objective was to estimate the relationship between disease progression and institutionalization. METHODS: We assessed the relationship between Mini-Mental State Examination (MMSE) score and institutionalization using a piecewise Cox proportional hazard model. To estimate cost savings from treatments lasting six months, one year, and two years, estimates of the probability of institutionalization were integrated with data from a six-month, Phase III clinical trial of rivastigmine and a hazard model of disease progression. RESULTS: Our data suggest that savings in the overall cost of caring for patients with mild and moderate AD can be as high as $4,839.00 per patient after two years treatment. Further, the probability of institutionalization increases steadily as MMSE score falls. Among our study subjects age, race, level of education, and marital status were significant predictors of institutionalization, while gender had little effect. CONCLUSION: Using rivastigmine in treating Alzheimer’s disease results in a delay in disease progression for patients who begin treatment during the mild or moderate stages of the disease. By delaying the probability that a patient will be institutionalized, the cost of caring for AD patients can be significantly reduced.