Use of administrative health databases for exposure-outcome studies is becoming increasingly common. The Saskatchewan databases are well recognized as a resource for pharmacoepidemiological research. However, the databases have been underutilized for disease surveillance and health economic studies. OBJECTIVE: The objective of this project was to use Saskatchewan's health services databases to develop a disease-specific dataset for use in chronic disease surveillance and health economic studies. Diabetes was selected as the disease of interest and will be a prototype for future studies. METHODS: The Government of Saskatchewan maintains comprehensive, linkable databases on health services provided to the population of approximately one million residents. All eligible beneficiaries with 1 hospitalization for diabetes, 2 physician visits for diabetes within two years and/or 1 prescription for insulin or an oral hypoglycemic agent between 1991 and 1996 were defined as diabetic. For each subject, outpatient prescription drug, physician services and hospitalization data were compiled to study the costs of care. RESULTS: During the study period, 45,716 Saskatchewan residents met the inclusion criteria. Of those, 52.1% were male and 46.8% were 65 years of age or older. The incidence and prevalence of diabetes in 1996 were 0.3% and 3.5%, respectively. During 1996, diabetic subjects had 768,122 physician services and 19,985 hospitalizations. Diseases of the circulatory system were the most common comorbidities responsible for hospitalizations and physician visits. DISCUSSION: Using administrative health services data, we were able to identify diabetic patients and compile information about their outpatient prescriptions, physician services and hospitalizations as well as the costs associated with them. This dataset will facilitate analyses of the economic impact of diabetes from both the individual and societal perspectives.