Community-acquired pneumonia (CAP) is responsible for an average of 4.5 million visits annually to physicians' offices, emergency departments, and outpatient clinics. However, there have been few studies using national data on the costs of treating CAP. Without such data, it is difficult to assess whether new therapies and treatment strategies are needed to improve patient outcomes. We conducted a retrospective analysis based on national incidence data and paid claims data for patients treated for CAP to assess the frequency of services rendered and costs to the health-care system. Records were selected for the study based on a primary diagnosis of CAP according to the International Classification of Diseases, 9th Revision. Incidence data were derived from the National Health and Nutrition Examination Survey III. Medicare was the primary source of data for patients aged > or =65 years. Data from the National Healthcare Cost and Utilization Project, the National Ambulatory Medical Care Survey, and the National Hospital Ambulatory Medical Care Survey were used to determine the cost of treating patients aged <65 years. We arrived at a total cost of $4.8 billion for treating patients aged > or =65 years and $3.6 billion for treating patients aged <65 years. These calculations were based on the following: 1.1 million hospital discharges resulting in inpatient costs of $4.4 billion (52.4% of the $8.4 billion) for the 0.6 million patients aged > or =65 years and $3.1 billion (36.9% of the $8.4 billion) for the 0.5 million patients aged <65 years. The average hospital length of stay was 7.8 days with an average cost of $7166 for patients aged > or =65 years and 5.8 days with an average cost of $6042 for younger patients. Room and board represented the largest percentage of the average hospital bill for patients with CAP. Inpatient physician service costs were $305 million and $192 million for the > or =65 and <65 groups, respectively. Based on 1.1 million outpatient office visits for those aged > or =65 years and 3.3 million visits for those aged <65, total outpatient costs were $119 million and $266 million, respectively. Given the overwhelming cost burden for CAP in the hospital setting, any new therapy that allows patients to be treated in the outpatient setting could result in significant savings, especially for patients aged > or =65 years.