OBJECTIVES: The fifth leading cause of death by disease in the U.S., type-2 diabetes places patients at higher risk for heart disease, blindness, kidney failure, extremity amputations, and other chronic conditions. The 2002 costs associated with diabetes were estimated at 132 billion USD. Predictive models incorporating clinical measures of diabetes severity from clinical databases and their association to health care resource use and costs are needed for health plan resource planning and management. The purpose of this study was to determine the relationship between health care resource use and costs with diabetes-related clinical measures, and to develop a diabetes resource consumption index (DRCI). The DRCI consists of empirically derived weights to predict health care use among persons with diabetes. METHODS: The data was collected from four outpatient clinics within the Southern Arizona Veterans Affairs Health care System. The DRCI models used diabetes severity measures to predict three health care resource outcomes: risk of hospitalization; total health care costs; and ambulatory costs. Severity of diabetes was defined as the function of annual HbA1C, creatinine clearance-rate, and cholesterol values. Comorbidity was defined as the number of concurrent secondary diseases. The log-likelihood ratio test and the Wald test-statistic were used to assess the performance of the models. RESULTS: A total of 367 diabetic subjects had complete information on diabetes-specific variables and represented the sample for this study. DRCI weights based on the magnitude of one year health care resource use and socio-demographic characteristics, ranged from -471.5 to 3,081.2 for total health care costs, from -304.3 to 1,582.1 for outpatient costs, and -0.19 to 0.93 for risk of hospitalization. The DRCI models predicted 7% and 9% of the variance in total and ambulatory costs, respectively. CONCLUSIONS: This study suggests an association between clinical measures of diabetes severity and health care resource and costs. Future studies are needed to validate this index in other settings.