OBJECTIVE. To estimate total direct medical costs in persons with rheumatoid arthritis (RA) and to characterize predictors of these costs. METHODS. Patients (n = 7,527) participating in a longitudinal study of outcome in RA completed 25,050 semiannual questionnaires from January 1999 through December 2001. From these we determined direct medical care costs converted to 2001 US dollars using the consumer price index. We used generalized estimating equations to examine potential predictors of the costs. Monte Carlo simulations and sensitivity analyses were performed to evaluate the varying prevalence and cost of biologic therapy. RESULTS. The mean total annual direct medical care cost in 2001 for a patient with RA was $9,519. Drug costs were $6,324 (66 percent of the total), while hospitalization costs were only $1,573 (17 percent). Approximately 25 percent of patients received biologic therapy. The mean total annual direct cost for patients receiving biologic agents was $19,016 per year, while the cost for those not receiving biologic therapy was $6,164. RA patients who were in the worst quartile of functional status, as measured by the Health Assessment Questionnaire, experienced direct medical costs for the subsequent year that were $5,022 more than the costs incurred by those in the best quartile. Physical status as determined by the Short Form 36 physical component scale had a similar large effect on RA costs, as did comorbidity. Medical insurance type played a more limited role. However, those without insurance had substantially lower service utilization and costs, and health maintenance organization patients had lower drug costs and total medical costs. Increased years of education, increased income, and majority ethnic status were all associated with increased drug costs but not hospitalization costs. Costs in all categories decreased after age 65 years. CONCLUSION. Estimates of direct medical costs for patients with RA are substantially higher than cost estimates before the biologic therapy era, and costs are now driven predominantly by the cost of drugs, primarily biologic agents. RA patients with poor function continue to incur substantially higher costs, as do those with comorbid conditions, and sociodemographic characteristics also play an important role in determination of costs.