BACKGROUND: Clinical trials have shown that highly active antiretroviral therapy (HAART) alters the natural progression of HIV. This study was undertaken to determine if, apart from the beneficial clinical impact, there has been a change in the cost of AIDS-related care. METHODS: Data from the Massachusetts (MA) Department of Public Health and hospital discharge databases for 1995-1998 were used to examine changes in hospital admission and discharge patterns, and hospital costs for adults with AIDS across the four years. Analyses involved log transformation to address highly skewed distributions, ANOVA to compare continuous variables and Chi-Square to compare the proportions. Hospital costs include all accommodations and ancillaries. Cost estimates, adjusted for medical inflation and cost-to-charge ratios, are reported in 1998 US$. RESULTS: From 1995 to 1998, the rate of hospital admissions for MA residents with AIDS declined substantially. In 1995, 86% of the 3,162 AIDS patients were admitted at least once during the year compared to 31% of the 5,636 patients in 1998. The mean number of annual admissions per patient dropped from 2 to 1.76 and the inpatient case fatality rate fell from 6.7% to 4.6%. The mean LOS per AIDS admission fell by 1.3 days; a greater decline than the 0.4 day average observed in MA over the same period. The mean hospital stay cost decreased from $8,070 to $7,538. These changes accounted for a $2,900 drop in the mean annual hospitalization cost per AIDS patient during that time. Discharge to sub-acute inpatient and home health services fell by 8.6% in this period. All changes reported are statistically significant (p <0 .05). CONCLUSIONS: The change in LOS is not the result of post-discharge resource use shifting. The decrease in resource use and costs observed after the introduction of HAART are consistent with an economically beneficial impact of these agents.