OBJECTIVES: To estimate direct medical costs and treatment failure rates associated with use of systemic agents and phototherapy in moderate to severe psoriasis. METHODS: Patient-level claims data on use of psoriasis-related Health care services were obtained from a large New England payer. Patients with > 1 claim listings a ICD-9-CM diagnosis code for psoriasis (696.0; 696.1) were eligible for inclusion. Eligible patients not receiving systemic treatments (methotrexate, cyclosporin A, acitretin) or phototherapy (ultraviolet B with or without tar or petrolatum; psoralen and ultraviolet A [PUVA]) were excluded. Treatment failure was defined as switch to nonrotational therapy, augmentation with nontopical therapies, discontinuation following up-titration, or discontinuation following hospitalization for psoriasis. Medical costs included those related to pharmacy (excluding OTC medication), institutional (inpatient and outpatient) care, and professional services. Mean costs within each service category, as well as 99th percentile costs, were estimated by treatment. RESULTS: A total of 2073 patients were included in the analysis. Over a 1-year period, approximately 21.7% of patients experienced treatment failure, with therapy switches accounting for most occurrences. Mean time to treatment failure ranged from 3-6 months. Per-patient annual pharmacy costs were lowest among methotrexate users (US$257) and highest among cyclosporin users (US$1992). The 99th percentile of annual pharmacy and institutional costs exceeded US$10,000, while that of professional service costs was approximately US$2,500. CONCLUSIONS: The high variability of direct medical costs among these patients reflects the heterogeneous and chronic nature of psoriasis. Overall, use of conventional systemic and light therapies for treatment of moderate to severe psoriasis was associated with frequent failure and high medical costs.