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Reducing the rate of adverse drug events in the ambulatory setting may require large investments in quality improvement efforts and technologic innovations. Little evidence is available on the potential resulting savings.The objective of this study was to estimate the costs associated with adverse drug events among older adults in the ambulatory setting.This study consisted of a 1-year retrospective cohort study among Medicare enrollees of a large multispecialty group practice. The study included 1210 older adults with an adverse drug event. A matched comparison group was randomly selected from enrollees with recent healthcare encounters and medication dispenses.Difference between estimated costs for medical care utilization during the 6 weeks before and 6 weeks beginning on the day of an adverse drug event.For all adverse drug events, the increase in postevent costs over the preevent period was $1310 (95% confidence interval [CI], $625–$1995) greater for those experiencing an adverse drug event than the comparison group after controlling for age, sex, comorbidity, number of scheduled medications, and having been hospitalized during the preevent period. For preventable adverse drug events, the adjusted increase was $1983 (95% CI, $193–$3773) greater for cases. Based on rates of adverse drug events and these cost estimates, 1000 older adults would have annual costs related to adverse drug events in the ambulatory setting of $65,631 with $27,365 of this associated with preventable events.Adverse drug events in the ambulatory setting substantially increase the healthcare costs of elderly persons.