Lyme disease produces a diverse clinical picture that can include serious and potentially debilitating cardiac, neurologic, joint, and skin involvement. It is characterized in three stages--early localized (stage I), early disseminated (stage II), and late disseminated (stage III)--and medical management is highly dependent on the stage at which the patient presents and the physician's awareness of available treatment options. This study was conducted to establish the medical and economic burden of Lyme disease in the overall US population, which included determining its endemicity in high-risk states and counties, describing current treatment patterns, measuring direct and indirect costs, and defining the cost burden by age group (<18 years and > or =18 years of age). Medical, epidemiologic, and economic data were collected, and an algorithm was developed representing the natural course of Lyme disease and the progress of health states over time following medical intervention. Using an annual mean incidence of 4.73 cases of Lyme disease per 100,000 population in the decision analysis model yielded an expected national expenditure of $2.5 billion (1996 dollars) over 5 years for therapeutic interventions to prevent 55,626 cases of Lyme disease sequelae. This estimate included both direct medical and indirect costs. However, there is evidence of considerable variation in incidence within states. Our findings support development of vaccination strategies for specific target groups.