The economic burden of lung cancer was examined with a retrospective case-control cohort study on a database containing inpatient, outpatient and drug claims for employees, dependents and retirees of multiple large US employers with wide geographic distribution. Patients were followed for maximum of 2 years from first cancer diagnosis until death, health benefits dis-enrollment or study end (31 December 2000). Compared with controls (subjects without any cancer), patients with lung cancer (n = 2040) had greater health care service utilization and costs for hospitalization, emergency room visits, outpatient office visits, radiology procedures, laboratory procedures and pharmacy-dispensed drugs (all P < 0.05). Regression-adjusted mean monthly total costs were US dollar 6520 for patients versus US dollar 339 for controls (P < 0.0001), and overall costs across the study period (from diagnosis to death or maximum of 2 years) were US dollar 45,897 for patients and US dollar 2907 for controls (P < 0.0001). The main cost drivers were hospitalization (49.0% of costs) and outpatient office visits (35.2% of costs). Monthly initial treatment phase costs (US dollar 11,496 per patient) were higher than costs during the secondary treatment phase (US dollar 3733) or terminal care phase (US dollar 9399). Failure of initial treatment was associated with markedly increased costs. Compared with patients requiring only initial treatment, patients experiencing treatment failure accrued an additional US dollar 10,370 per month in initial treatment phase costs and US dollar 8779 more per month after starting the secondary and/or terminal care phase. Over the course of the study period, these patients had total costs of US dollar 120,650, compared with US dollar 45,953 for those receiving initial treatment only. Thus, the incremental costs associated with treatment failure were US dollar 19,149 per month and US dollar 74,697 across the study period. Other types of clinical and epidemiological analysis are needed to identify risks for treatment failure. The economic burden of lung cancer on the US health care system is significant and increased prevention, new therapies or adjuvant chemotherapy may reduce both resource use and healthcare costs. New strategies for lung cancer that reduce hospitalizations and/or prevent or delay treatment failure could offset some of the economic burden associated with the disease.