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The objective of this study was to evaluate the impact of medication adherence on healthcare utilization and cost for 4 chronic conditions that are major drivers of drug spending: diabetes, hypertension, hypercholesterolemia, and congestive heart failure.The authors conducted a retrospective cohort observation of patients who were continuously enrolled in medical and prescription benefit plans from June 1997 through May 1999. Patients were identified for disease-specific analysis based on claims for outpatient, emergency room, or inpatient services during the first 12 months of the study. Using an integrated analysis of administrative claims data, medical and drug utilization were measured during the 12-month period after patient identification. Medication adherence was defined by days’ supply of maintenance medications for each condition.The study consisted of a population-based sample of 137,277 patients under age 65.Disease-related and all-cause medical costs, drug costs, and hospitalization risk were measured. Using regression analysis, these measures were modeled at varying levels of medication adherence.For diabetes and hypercholesterolemia, a high level of medication adherence was associated with lower disease-related medical costs. For these conditions, higher medication costs were more than offset by medical cost reductions, producing a net reduction in overall healthcare costs. For diabetes, hypercholesterolemia, and hypertension, cost offsets were observed for all-cause medical costs at high levels of medication adherence. For all 4 conditions, hospitalization rates were significantly lower for patients with high medication adherence.For some chronic conditions, increased drug utilization can provide a net economic return when it is driven by improved adherence with guidelines-based therapy.