OBJECTIVE: We estimated trends in prescription medication costs in out-patients with type 1 diabetes by various stages of diabetic nephropathy (DN), before the development of end-stage renal disease, between 1995 and 2005. METHODS: Patients with normo- (n = 1,334), micro- (n = 206), and macroalbuminuria (n = 365) were identified from the Finnish Diabetic Nephropathy (FinnDiane) database. All purchases of medications were obtained from the Drug Prescription Register. RESULTS: The costs levels differed significantly (P < 0.0001) between all groups. The estimated annual costs per patient in 1995 were €1,310 (95% CI 1,230-1,400), €1,450 (1,300-1,600), and €1,770 (1,620-1,930) in the normo-, micro-, and macroalbuminuria groups, respectively. The corresponding costs in 2005 were €1,950 (1,830-2,080), €2,110 (1,910-2,320), and €2,900 (2,650-3,180). The costs increased in all groups over time (P < 0.0001). The annual average increase was 3.5%, 3.3%, and 5.2% in each group. After the generic substitution was introduced, the costs of agents acting on the renin- angiotensin system and lipid-modifying agents dropped, although the number of users increased at the same time. CONCLUSIONS: More severe stages of DN have a substantial impact on the costs, which suggests that early prevention and intensive treatment of renal disease may generate remarkable annual cost savings.