The aim of this study was to estimate the direct annual healthcare costs to the UK National Health Service (NHS) of managing community-acquired pneumonia. Using a prevalence-based burden of illness approach, health service resource use and corresponding costs attributable to the management of community-acquired pneumonia during 1992/1993 in the UK were obtained from published sources and commercial databases, and supplemented by a telephone survey of general practitioners, finance directors, community nurses, receptionists and nurses in out-patient respiratory clinics, ambulance services, and consultant respiratory physicians. The study was appraised by a Peer Review Panel, representing a cross-section of experts from different locations. This study was a predefined subgroup analysis of a previous, larger study that estimated the annual cost to the NHS of treating all community-acquired lower respiratory tract infections. The analysis shows that there are 261,000 episodes of community-acquired pneumonia annually in the UK, costing 440.7 million pounds at 1992/1993 prices (32% of the annual cost for all community-acquired lower respiratory tract infections). Approximately 83,153 annual cases of community-acquired pneumonia are treated in hospital (32% of all episodes) and account for 96% of the annual cost. The average cost for managing pneumonia in the community is 100 pounds per episode, compared to 1,700-5,100 pounds when the patient is hospitalized, depending on the length of hospitalization. Hospitalization accounts for 87% of the total annual cost. In conclusion, community-acquired pneumonia in the UK incurs a direct healthcare cost of 440.7 million pounds annually at 1992/1993 prices. Developing and implementing strategies to prevent and minimize hospitalization will significantly reduce this annual cost and should be assessed in future studies.