Background: Estimates of US medical costs related to psoriasis treatment are limited and tend to understate the economic burden of moderate to severe psoriasis, which often requires the use of systemic agents, phototherapy or both. Objective: To estimate treatment failure rates and direct medical costs associated with the use of systemic agents and phototherapy in US patients with psoriasis. Methods: Claims records from a large New England-based health insurer were used to obtain patient-level data. Eligible patients with at least one claim listing an ICD-9-CM code for psoriasis (696.0,- 696.1) were identified. Patients not receiving systemic treatments (methotrexate, cyclosporine, acitretin) or phototherapy (ultraviolet B with or without tar or petrolatum, psoralen and ultraviolet A [PUVA]) were excluded. Treatment failure was defined as a switch in therapy, augmentation with non-topical therapies, discontinuation following uptitration of dose or discontinuation following hospitalization. Medical costs included those related to pharmacy (over-the-counter medication excluded), institutional services (inpatient and outpatient) and professional services. Results: A total of 2068 patients with moderate to severe psoriasis were included in the analysis. Over a 1-year period, approximately 20% of patients experienced treatment failure. The mean time to failure among patients who switched therapy ranged from 3 to 6 months. Mean annual pharmacy costs in the various treatment groups (categorized according to initial therapy received) ranged from $257 to $1992 per patient. Mean annual costs for institutional and professional services ranged from $156 to $799 and $183 to $481 per patient, respectively. The 99th percentile annual pharmacy and institutional costs exceeded $10 000 and $18 000, respectively. Conclusion: Treatment of moderate to severe psoriasis with traditional systemic agents or phototherapy is associated with a high likelihood of treatment failure and a considerable economic burden.