OBJECTIVE: Glycosylated hemoglobin (HbA1c) is a well-established measure of glycemic control. Understanding the impact of staying at target HbA1c levels (= 7.0%) on treatment costs would be of great significance to managed care organizations. The goal of this study was to determine whether being at target HbA1c results in reductions in diabetes-related costs. METHODS: This study was a retrospective database analysis using eligibility, medical and pharmacy claims data, and laboratory data from a large US health care organization. Subjects were included in the study if they had two or more claims for type-2 diabetes and at least one HbA1c value during the period January 1, 2002 through December 31, 2002 (first such date identified as index date). Subjects with two or more claims for type-1 diabetes were excluded from the study. Study subjects were divided into those at target HbA1c (= 7.0%) and above target HbA1c (>7.0%) and were followed for a period of one year following their index date. Demographic, clinical and cost variables were extracted for each subject. Multiple linear regression analysis was used to compare treatment costs between subjects at target level and subjects above target level. RESULTS: A total of 3121 subjects were identified as being continuously at target level and 3659 subjects were identified as being continuously above target level. The target group was associated with 30% lower total diabetes costs (p<0.01) after controlling for the confounding factors (age, gender, health plan region and presence of co-morbid conditions). The predicted total diabetes costs in the target group was $1171 and the predicted costs in the above target group was $1540. CONCLUSION: Results of this analysis suggests that staying at target HbA1c level was associated with cost savings over a one-year follow-up period in a managed care setting.