Objective: To estimate comparative mangement levels and the annual cost of caring for a nursing home resident with and without dementia. Method: Data from the 1995 Massachusetts Medicaid nursing home database were used to examine residents with Alzheimer's disease, other types of dementia, and no dementia to determine care and dependency levels. Massachusetts Medicaid 1997 per-diem rates for each of 10 designated management levels were applied accordingly to residents in each level to estimate annual care costs. Costs from this analysis are reported in 1997 U.S. dollars. Results: Of the 49,724 nursing home residents identified, 26.4% had a documented diagnosis of dementia. On average, a resident with dementia requires 229 more hours of care annually than one without dementia, resulting in a mean additional cost of $3,865 per patient with dementia per year. Conclusions: Dementia increases the care needs and cost of caring for a nursing home resident.