OBJECTIVES: The presence of psychological distress, such as depression and negative mood is very common in patients with rheumatoid arthritis (RA). The purpose of this study was to examine the impact of depression on RA patients' quality of life. METHODS: The study consisted of 1130 rheumatoid arthritic patients from a Western US managed care organization. Longitudinal data on diagnosis and quality of life was collected at three annual periods. Patients' health related quality of life was measured by the Physical Component Summary (PCS) score from the SF-36 as rheumatoid arthritis is generally considered a disease with physical impairment. We derived the effect size in order to compare the quality of life between the depressed and the non-depressed RA patients. A dynamic panel data model was further developed to examine the impact of depression on patients' quality of life. The model contained the lagged dependent variable (quality of life of the previous year). Other covariates included in the model were demographic variables and disease severity, as measured by Chronic Disease Score (CDS). RESULTS: The incidence of depression in RA patients increased from 10.18% to 14.42% over the study period. The effect size of PCS fell into the medium category (0.5-0.8). The effect size increased with time, indicating that the difference of quality of life between the depressed and non-depressed RA patients increases with the disease duration. Regression analysis from the Panel data model revealed that depression had significant effect on RA patients' quality of life after controlling for demographic variables and disease severity (P<0.01). CONCLUSIONS: Depression in patients with rheumatoid arthritis can significantly affect their perceived quality of life. This result suggested that patient intervention related to change patients' coping style, or illness conceptions should be encouraged.