BACKGROUND: A large body of clinical studies have demonstrated the efficacy of atypical antipsychotic use in the treatment of bipolar disorder. Facing increasing budget pressure, third-party payers, such as state Medicaid programmes in the US, are demanding better understanding of the medical costs beyond atypical antipsychotic drug costs alone in treating bipolar disorder. OBJECTIVE: To examine healthcare costs associated with the atypical antipsychotic treatments for bipolar disorder from a US third-party payer perspective. METHODS: This was a retrospective cohort study using an intent-to-treat approach. Using the North Carolina Medicaid claims database (August 2000 to January 2005), 3328 patients with bipolar disorder were identified who were continuously eligible for 3 months pre-initiation and 12 months post-initiation of treatment with an atypical antipsychotic (AP2) or mood stabilizer (MS). Patients were classified into three groups based on the treatment types during the first 30 days after treatment initiation: AP2 monotherapy, AP2 + MS combination therapy, and MS monotherapy. Bipolar-related and total health-related costs were examined for the 12-month period. Propensity score matching was employed to balance baseline characteristics among the three comparison groups. Generalized linear models were further employed to estimate the average treatment effect on the cost outcomes. RESULTS: Compared with MS monotherapy, AP2 monotherapy and AP2 + MS combination therapy incurred higher medication costs during the 12-month treatment period. Patients receiving AP2 monotherapy had significantly lower bipolar-related medical costs (-$US698; p = 0.002) [year 2004 values] than patients receiving MS monotherapy. However, the inclusion of the medication cost produced no statistically significant difference in bipolar-related total cost (p = 0.14). Similar results were observed for all health-related costs. Patients receiving AP2 + MS therapy incurred significantly higher bipolar-related total costs (+$US1659; p < 0.0001) and all health-related total costs (+$US2115; p < 0.0001) than patients receiving MS monotherapy, which was attributable largely to the higher medication cost. CONCLUSIONS: From a third-party payer perspective, atypical antipsychotic monotherapy generated higher drug costs but lower medical care costs, resulting in equivalent total healthcare costs over a 1-year period.