OBJECTIVES: To study the incidence-based cost of illness for postmenopausal women newly diagnosed with breast cancer, and to extrapolate this to a national level. METHODS: published data from long term studies describe the disease history of women diagnosed with breast cancer. We simulated this history in a state transitional model, including 5 states (early cancer node negative; early cancer node positive; local relapse; metastasis, all with follow-up; and death), covering 10 periods of 1 year. To calculate the costs of each state, an analysis of medical records of 120 patients in different states was organized in six centers, representative for size and regional distribution. In each centre, the records of 20 patients with either a new diagnosis, or a diagnosis of recurrence in early 1997 were randomly selected and an independent physician investigated the medical resource use up to end 1998. Resulting direct medical costs were calculated from the health care insurance perspective and applied into the model, discounting at 3%. Based on national incidence data, a population-based cost was derived. The model was validated by comparison of predicted with observed metastasis rates and mortality. RESULTS: the cumulative 10 year cost per patient = 31,900 Euro (range = 10,300 – 152,400). The average cost constitutes of 47% hospital, 23% surgery and 20% drug costs. The majority of costs occur in the year after diagnosis and in the year before death. The total 10 year cost for an absolute incident population = 237 Million Euro. The relative difference between predicted and observed mortality was 2.6%, and between predicted and observed metastases 3.5%. CONCLUSIONS: this incidence-based approach identified the cost of postmenopausal breast cancer over time and may serve as a baseline against which to assess new interventions in either its prevention or in its early treatment.