The symptomatology of Alzheimer disease (AD), its longevity, and associated cost make it an extremely challenging disease for individuals, their families, health care, and social support systems. Moreover, the expanding aging population worldwide means that strategies to contain costs are an urgent priority. As the largest component of the direct costs of AD is due to the cost of institutionalization, cost-containment strategies have focused on ways to maintain the AD patient in the community for as long as possible. Disease severity is a strong predictor of institutionalization, and patients' cognitive function (in the form of their Mini-Mental State Examination score) is frequently used as a prognostication of their living environment, and thus the overall cost of their care. Strategies to maintain patients at home are directed at either the patient's symptoms or the caregiver's ability to cope with those symptoms and the responsibilities of caregiving. Examples of strategies directed at the caregiver include education and support programs. Drug treatments, notably acetylcholinesterase inhibitors, present the best option for improving patient function, thereby preserving patient autonomy. A number of preliminary studies, whose results are summarized here, have demonstrated that the use of the acetylcholinesterase inhibitors tacrine, metrifonate and donepezil, and the glial cell modulator, propentofylline, results in reductions in the overall costs of care. Most health economic studies have focused only on comparison of the costs associated with paying for administering a treatment and the savings produced by postponed institutionalization. However, there is a growing realization that some measures of the quality of life or well-being of both patient and caregiver should also be incorporated. Thus, the health economics of dementia is an extremely complex area of study that is rapidly growing, due to the likelihood that cost-effectiveness will form the basis for future reimbursement decisions.