OBJECTIVE: To compare the average direct costs for patients diagnosed with vascular dementia (VaD) versus Alzheimer's disease (AD) from the perspective of the Taiwan National Health Insurance (NHI) program. METHODS: Using health care claims data for NHI recipients in the Bureau of National Health Insurance Kao-Ping Branch, Taiwan, we evaluated NHI expenditures among adults 50+ years of age diagnosed with VaD (ICD-9-CM 290.4X) or AD (ICD-9-CM 331.0) between July 1, 2000 and December 31, 2002. Patient's identification period spanned from Jan 1, 2001 through Dec 31, 2002 with a 6-month baseline periods and 1-year follow up period. Direct costs estimated using NHI physician fee schedules. Health care utilization and NHI expenditures (in 2002 NHI reimbursement prices) were calculated overall and by component of care. Multivariate techniques, based on regression analyses of the log of total costs, were employed to adjust for differences between the study cohorts in sociodemographics. RESULTS: In total, 1450 patients met study inclusion criteria; Of the 710 were diagnosed with VaD , 41.6% were women; Of the 740 with AD, 50.7% were women. The average age for VaD was 76.25 years and 76.79 years for AD. Relative to AD patients, the burden of comorbidity was higher among VaD patients, especially for cerebrovascular disease (43.2% vs. 15.9%), but also for diabetes (5.6% vs. 3.1%) and chronic pulmonary disease (5.5% vs. 1.4%). Mean monthly costs per patient were approximately NT$1013 higher for patients with VaD versus AD (NT$5467 vs. 4454; p<0.001). Most of this excess cost were attributed to higher inpatient utilization (84.8%) and mental health services (11.2%). Adjusting for difference in age, gender, and comorbid conditions between the two cohorts, mean monthly cost per patient were about NT$1107 higher in the VaD cohort (NT$3892 vs. 2785; p <0.001). CONCLUSIONS: Relative to AD patients, VaD have significantly higher health care costs. Efforts to better control comorbid diseases such as cerebrovascular risk factors may decrease the future burden of VaD.